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|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. 000-52843

SILVAN INDUSTRIES, INC.(Exact name of registrant as specified in its charter)

|Nevada                                                               | 20-5408832                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)

Jun Yue Hua Ting, Building A3rd Floor, Unit
-1#58 Xin Hua RoadGuiyang, Guizhou 550002Peoples Republic of China(Address of principal
executive offices)

(+86) 851-552-0951(Registrants telephone
number, including area code)

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

Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock, $0.001 par value

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 ]

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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 [ X
]                                
 No [   ]

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. [   ]

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

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

As of June 30, 2010 (the last business day of the registrants
most recently completed second fiscal quarter), there were 2,090,000 shares of
the registrants common stock issued and outstanding, of which 756,644 were held
by non-affiliates of the registrant. The aggregate market value could not be
determined because we only had nominal trading volume as of June 30, 2010.

There were a total of 30,000,000 shares of the registrants
common stock outstanding as of April 12, 2011, of which 9,400,000, were held by
non-affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K (this "Amendment") hereby
amends our Annual Report on Form 10-K for the fiscal year ended December 31,
2010, previously filed with the Securities and Exchange Commission (the
"Commission) on April 12, 2011 (the "Original Filing"). This Amendment is being
filed in response to comments by the staff of Commission in connection with its
review of the Original Filing.

This Amendment does not reflect events occurring after the
filing of the Original Filing or modify or update those disclosures, including
the exhibits to the Original Filing affected by subsequent events.

In addition, as required by Rule 12b-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), this Amendment contains
new certifications pursuant to Rules 13a-14 and 15d-14 under the Exchange Act
and Section 302 of the Sarbanes-Oxley Act of 2002.

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Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A, Risk Factors included herein, as well as
assumptions, which, if they were to ever materialize or prove incorrect, could
cause the results of the Company to differ materially from those expressed or
implied by such forward-looking statements.

Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.

Use of Terms

Except where the context otherwise requires and for the
purposes of this report only:

- the Company, we, us, and our refer to the combined business of
  CNFI and its subsidiaries, Bingwu Forestry, Aosen Forestry and Silvan
  Flooring;
- CNFI refers to China Forestry Industry Group, Inc., a Nevada
  corporation;
- Bingwu Forestry refers to China Bingwu Forestry Group Limited, a Hong
  Kong company;
- Aosen Forestry refers to Qian Xi Nan Aosen Forestry Company, Limited, a
  PRC company;
- Silvan Flooring refers to Qian Xi Nan Silvan Flooring Company, Limited,
  a PRC company;
- Hong Kong refers to the Hong Kong Special Administrative Region of the
  Peoples Republic of China;
- PRC, China, and Chinese, refer to the People's Republic of China;
- SEC refers to the Securities and Exchange Commission;
- Exchange Act refers the Securities Exchange Act of 1934, as amended;
- Securities Act refers to the Securities Act of 1933, as amended;
- Renminbi and RMB refer to the legal currency of China; and
- U.S. dollars, dollars and $ refer to the legal currency of the
  United States.

PART I

ITEM 1. BUSINESS

Business Overview

Through our wholly-owned PRC operating subsidiaries, Aosen
Forestry and Silvan Flooring, we produce and sell floor materials and related
products to residential and commercial customers in China. Our product lines
include laminate flooring and fiber floor boards that are manufactured in a
variety of colors, dimensions and designs.

1

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The primary raw material used in our products is wood, which we
currently procure from third party suppliers. We expect that commencing in late
2015 or early 2016 we will be able to procure approximately 20% of our wood from
our 2,250 hectares (approximately, 22.5 km2) of fir forest in Guizhou Province.

Our manufacturing facility in Qianxinan, Guizhou Province has
an annual production capacity of six million square meters of laminate flooring
and 75,000 cubic meters of industrial fiber boards. We are constructing two new
manufacturing facilities next to our current facility to expand our laminate
flooring production line and industrial fiber board production line. We expect
this expansion will increase our overall capacity to 200,000 cubic meters of
fiber boards and 12 million square meters of laminate floor. We are in the
process of obtaining the land use rights for this new facility and, based on our
current production schedule, we expect it to be completed by late-2012.

We market and sell our products through five branch offices and
approximately several hundred specialty retail flooring stores, concentrated
mostly in southwestern China. We also sell some of our products through eight
retail stores which we refer to as flagship stores because they are generally
larger and better equipped with samples, promotional material and product
inventory, as compared to regular retail stores, and as a result, they are
better promote our image and the quality of our products. We are also seeking
commercial arrangements for the sale of our products through home supply stores,
such as our recent agreement to sell our products at Red Star Macalline
Furniture Malls Guiyang store. Red Star Macalline Furniture Mall is a large
home products supply store chain in China, similar to Home Depot and Lowes in
the U.S., with over 30 malls and stores across China. We believe that home
supply stores are an important channel for the sale of building/home renovation
materials and we plan to increase our efforts to work with more home supply
stores in the future.

Our principal executive offices are located at Jun Yue Hua
Ting, Building A, 3rd Floor, Unit -1, #58 Xin Hua Road, Guiyang, Guizhou 550002,
Peoples Republic of China. The telephone number at our principal executive
office is +86 851-552-0951.

Our Corporate History and Background

We were organized under the laws of the State of Nevada on June
3, 2005, as Exotacar, Inc. On June 25, 2008, we changed our business focus to
the development of energy resources, and changed our name to Phoenix Energy
Resource Corporation. From June 25, 2008 through to the date of our reverse
acquisition, discussed below, we were a shell company with minimal operations.
On January 7, 2011, we changed our name to China Forestry Industry Group, Inc.
to more accurately reflect our new business operations following the reverse
acquisition.

Reverse Acquisition of Bingwu Forestry

On November 1, 2010, we completed a reverse acquisition
transaction with Bingwu Forestry, and Ms. Ren Ping Tu, its sole shareholder and
the wife of Mr. Yulu Bai, the founder of Bingwu Forestrys PRC subsidiary,
pursuant to which we acquired 100% of the issued and outstanding capital stock
of Bingwu Forestry in exchange for 20,500,000 shares of our common stock, which
constituted 68.33% of our issued and outstanding capital stock on a
fully-diluted basis, as of and immediately after the consummation of the reverse
acquisition. As a result of the reverse acquisition, Bingwu Forestry became our
wholly-owned subsidiary and Ms. Tu became our controlling stockholder. For
accounting purposes, the reverse acquisition transaction with Bingwu Forestry
was treated as a reverse acquisition, with Bingwu Forestry as the acquirer and
CNFI as the acquired party.

Upon closing of the reverse acquisition, on November 1, 2010,
Mr. Rene Soullier, our sole director and officer, submitted a resignation
letter, pursuant to which he resigned from all offices that he held, effective
immediately, and from his position as our director that became effective on
November 28, 2010, the tenth day following our mailing of an information
statement complying with the requirements of Section 14f-1 of the Exchange Act,
or the Information Statement, to our stockholders. On the same date, our board
of directors increased its size from one to three members and appointed Messrs.
Yulu Bai, Yudong Ji and Yi Zeng to fill the vacancies created by such increase
and by Mr. Soulliers resignation. Mr. Bais appointment became effective upon
the closing of the reverse acquisition on November 1, 2010, while the remaining
appointments became effective on November 28, 2010. In addition, our board of
directors appointed Mr. Bai to serve as our Chief Executive Officer, Mr. Jiyong
He to serve as our Chief Financial Officer, Mr. Fangping Peng to serve as our
Chief Operating Officer and Mr. Dongsheng Tan to serve as our Chief Marketing
Officer, effective immediately.

As a result of the reverse acquisition, our business operations
consist of the business and operations of Bingwu Forestry and its PRC
subsidiaries. Bingwu Forestry serves as a holding company that owns 100% of
Aosen Forestry, which in turn owns 100% of Silvan Flooring.

2

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Background and History of Bingwu Forestry and Aosen
Forestry

Bingwu Forestry was incorporated in Hong Kong as a private
limited company on April 9, 2010 by Ms. Ren Ping Tu, Mr. Bais wife and a
Canadian citizen. As a PRC citizen, Mr. Bai would have been prohibited under PRC
law from incorporating Bingwu Forestry in Hong Kong, acquiring Aosen Forestry
and establishing Bingwu Forestry as a foreign holding company over Aosen
Forestry. Mr. Bai has the right to acquire control of Bingwu Forestry after one
year, pursuant to an option agreement discussed below. Bingwu Forestry has no
active business operations or assets other than its 100% ownership of Aosen
Forestry.

Aosen Forestry was established in the PRC on November 22, 2004,
for the primary purpose of engaging in the manufacturing and sale of fiber
boards. On May 18, 2010, pursuant to a restructuring plan intended to ensure
compliance with regulatory requirements of the PRC, the original shareholders of
Aosen Forestry, including our chairman and chief executive officer, Mr. Bai,
entered into an equity transfer agreement, or the Equity Transfer Agreement,
with Bingwu Forestry, pursuant to which the shareholders transferred all of
their equity interests in Aosen Forestry to Bingwu Forestry for a purchase price
of $2,488,471. As a result, Aosen Forestry became the 100% owner of Bingwu
Forestry.

On May 17, 2010, Mr. Bai entered into an option agreement, or
the Option Agreement, with Ms. Ren Ping Tu, pursuant to which Mr. Bai was
granted an option to acquire Ms. Tus shares in Bingwu Forestry, including any
shares delivered to Ms. Tu in exchange for her ordinary shares, in a future
merger, reorganization, consolidation, sale or other disposition of the Bingwu
Forestrys securities, for an exercise price of $2,500,000. Mr. Bai may exercise
this option, in whole but not in part, during the period commencing on the
365thday following of the date of the option agreement and ending on
the second anniversary of the date thereof. After Mr. Bai exercises this option,
he will acquire all of the shares of our common stock currently owned by Ms. Tu
and therefore become our controlling stockholder. His acquisition of our equity
interest is required to be registered with the competent administration of
industry and commerce authorities, or AIC, in Beijing. Mr. Bai will also be
required to make filings with the Beijing SAFE, to register the Company and its
non-PRC subsidiaries to qualify them as SPVs, pursuant to Circular 75.

Establishment and Acquisition of Silvan
Flooring

Silvan Flooring was established in the PRC on October 22, 2007,
for the purpose of engaging in the manufacturing and sale of wood flooring,
furniture and decorations. On October 22, 2007, Aosen Forestry established
Silvan Flooring as a 55% majority-owned joint venture with Guizhou Silvan Touch
Wooden Co., Limited, or GST, the 45% minority holder, which was 94.3% owned and
controlled at the time by Mr. Yulu Bai, our Chief Executive Officer and Aosen
Forestrys General Manager at the time. On May 8, 2009, Aosen Forestry acquired
GSTs minority interest in Silvan Flooring from GST and Silvan Flooring thereby
became Aosen Forestrys wholly-owned subsidiary. GST no longer holds any equity
interest in Silvan Flooring. On May 28, 2010, Mr. Bai sold his entire ownership
interest in GST and no longer holds any equity interest in GST.

In connection with the acquisition of Silvan Flooring, Silvan
Flooring and GST entered into a trademark transfer agreement and a trademark
licensing agreement, on November 18, 2009 and November 19, 2009, respectively.
Pursuant to these two agreements, GST transferred its Silvan Touch trademark
(registered trademark number 1182064) to Silvan Flooring which then licensed it
back to GST to be used in connection with its distribution of our Silvan Touch
products. There was no consideration paid in connection with the transfer and
licensing. The assignment of the trademark has received government approval. As
a result of the acquisition of 100% equity interests in Aosen Froestry by Bingwu
Forestry on May 18, 2010, we own the Silvan Trouch trademark.

Assumption and Conversion of Outstanding Notes and
Warrant

At the time of the reverse acquisition, Bingwu Forestry had two
outstanding non-interest-bearing convertible notes in the aggregate principal
amount of $4,800,000, convertible into an aggregate of 4,000,000 shares of the
surviving company upon the consummation of a fundamental transaction, such as
the reverse acquisition. These convertible notes were issued to PRC investors
who provided Bingwu Forestry with valuable working capital during the period
leading up to the reverse acquisition.

The first note, in the principal amount of $2,400,000, was
issued to Horoy International Holding Limited, or Horoy, on July 23, 2010, and
the second note, also in the principal amount of $2,400,000, was issued to
Goldenbridge Investment Holdings Limited, or Goldenbridge, on September 7, 2010.
Both notes were due and payable on or before November 15, 2010, and provided
that, if at any time prior to their maturity date the Company is party to a
reorganization or business combination transaction where the Company is not the
surviving entity, the principal balance of such note would be immediately
convertible into shares of common stock of the surviving entity at the option of
the note holder at a rate of $1.20 per share. Neither the note holders, nor
their beneficial owners, are affiliates of Bingwu Forestry or the Company.

3

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We assumed these notes in connection with the reverse
acquisition, and immediately thereafter, each of Horoy and Goldenbridge elected
to convert their respective notes into an aggregate of 4,000,000 shares of our
common stock.

Our Corporate Structure

All of our business operations are conducted through our PRC
operating subsidiaries, Aosen Forestry and Silvan Flooring. The chart below
presents our current corporate structure.



Our Industry

According to a PRC flooring industry publication entitled
China Wood Flooring Industry Status and Trends (available at
http://hi.baidu.com/xlove813/blog/item/03c675f0d81a6ac67931aadf.html),
the size of Chinas laminate flooring industry is estimated to be approximately
$4.1 billion per year, with approximately 370 million square meters of wood
flooring sold each year at an average sale price of $11 per square meter. We
believe that the growth in our industry centers around an urbanization trend in
China, where it is estimated that approximately 15 to 20 million people are
migrating to urban areas each year. This migration has created approximately 500
million newly relocated urban dwellers and has increased demand for urban
residential properties. We believe that many urban residential property owners
will prefer laminate over more expensive hard wood due to cost concerns. Based
on the 2010 China Wood Flooring Market Planning Report published in April 2010
by 360BaoGao.com, laminate flooring accounted for 57% of wood-based flooring
choices, with hardwood flooring and multilayer flooring accounting for most of
the remaining market demand.

We believe that China lacks a significant supply of ancient
forests to supply hardwood materials, and government policy has heavily
restricted deforestation activities since 1998. Deforestation restrictions have
been a part of the PRC governments successive 7th, 8th, 9th, 10th and 11th
5-Year Plans since 1986, however, such policies were not strictly enforced until
1998, when the government determined that a main cause of the massive Yangtze
flooding was deforestation around the upper Yangtze. During 2011, we plan to outsource the manufacturing of our hardwood flooring products
and to sell such products through our sales network. We have no immediate plans
to internally produce hardwood flooring products in order to mitigate raw
material supply risk.

4

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Our Growth Strategy

We believe that China's growing urban residential housing
market creates a significant growth opportunity on which we intend to capitalize
by utilizing the following strategies:

- Significantly expand our flagship stores and our sales network during the
  next two years;
- Enhance brand awareness through strategic marketing campaigns, initially
  focusing in southwestern China;
- Increase fiber board production capacity of our current facility from
  75,000 cubic meters to 200,000 cubic meters and double our laminate floor
  production capacity to 12 million square meters in the next 18 months;
- Cultivate timberland resources in Guizhou province to provide sufficient
  raw material for our growth plans throughout the next five years; and
- Acquire forestry assets and leading regional flooring companies in key
  regions in China to establish a nation-wide presence.

Our Products

Laminate Flooring-We produce laminate
flooring products in a variety of types, designs, and colors and often with
antiskid, patterned, designer, and paint polished features. We sell those
products to wholesalers, retailers and contractors. We also provide installation
services.

Fiber Boards-We manufacture high density
industrial fiber boards and plywood overlays which sell mainly to industrial
customers. Our fiber board products come in a variety of wood and designs as
shown below.



For the fiscal year ended December 31, 2010, 69.4% of our
revenue was generated from the sale of laminated flooring products and 30.6% was
generated from the sale of fiber boards.

We believe that consumers choose our products based on quality,
service, convenience and brand recognition. Based on our internal research on
consumers product selection behaviors and available information from publicly
traded competitors such as PowerDekor Group Ltd., or PowerDekor, and Shengda
Forestry (Group) Co., Ltd., or SDF, we believe that our Silvan Touch brand is
one of the top flooring brands in Guizhou province and ranks among the widely
recognized brands in Southwestern China.

We also intend to develop a business segment focused on other
forest-based products such as wood furniture, decorative wood products, and
environmentally-friendly wood cabins that are intended to be used within natural
reserves as a premium alternative to traditional camping equipment.

5

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Production

We produce flooring products at our manufacturing facility
which is located in Qianxinan, Guizhou province and has annual production
capacity of six million square meters of laminate flooring and 75,000 cubic
meters of industrial fiber boards. We are constructing new manufacturing
facility that we expect will increase our overall capacity to 200,000 cubic
meters of fiber boards and 12 million square meters of laminate floor. We are in
the process of obtaining the land use rights for this new facility and, based on
our current production schedule, we expect it to be completed by late 2012.

Production of our fiber boards involves the following multistep
process: raw material sourcing, wood chipping and waxing, hot abrasion and
adhesives application, air drying, weight and density testing, molding, cooling,
hot pressing, transporting to processing stations, cutting, pressing, polishing,
trimming, quality examinations and delivery.

Production of our laminate flooring involves the following
process: sourcing fiber board, raw material cutting and drying, glue
application, hot pressing, cooling, transporting to processing stations,
cutting, pressing, polishing, weathering, surface material selection and
application, trimming, quality examinations and delivery.

We strive to maintain high product standards and enforce strict
quality controls in our production facility. Our products are tested
individually, segmented into different quality tiers and priced according to the
tiers. We use a combination of ISO and China National Standards to manage our
business. We have used the ISO-2001 system since January 2008 to manage our
production flow and we recently upgraded to the ISO-2009 system for a number of
production procedures. We conduct standard quality testing on all of our
products prior to sales.

We hold several international product quality certifications,
including: the European Union CE Certification, the International Production
Standard Certification. In addition, we hold the ISO14001:2004 (International
Environmental Management System), ISO10012:2003 (International Measurement
Management System), ISO 9001:2000 (International Quality Management System)
certifications. We are also a Standing Member of the National Forestry Industry
Association, Flooring Committee, and of the Director of China Timber
Distribution Association, Flooring Committee.

We strive to minimize waste of natural resources and use
by-products, such as branches and other wood scraps, in our manufacturing
operations. We also work continuously on improving energy efficiency in our
production process. For example, we recently improved our thermal oil furnace to
virtually eliminate dust and sulphur dioxide emission, and keep dust and sulphur
dioxide emission below the GB13271-2001 emission standard requirements during
abnormal operation conditions, which are operating conditions when the machinery
does not operate fully as designed or when raw material quality does not fully
satisfy requirements.

GB132712001 is Chinas national "Boiler Gas Emission Standard"
issued on November 12, 2001 by the Ministry of Environmental Protection and the
General Administration of Quality Supervision, Inspection and Quarantine, and
effective since January 1, 2002. This standard sets the maximum allowable
emission limits of flue dust, flue gas blackness and SO2 of coal-fueled boilers
with capacity <0.7MW(1t/h) and the maximum allowable emission limits of flue
dust, flue gas blackness, SO2 and NOx of oil-burning and gas-burning boilers. We
satisfy the requirements from requirements from section type II of GB132712001,
which limits powder level <200 mg / cubic meter, SO2 level <900 mg / cubic
meter. During abnormal operating conditions, our production system keeps the
powder level <188 mg / cubic meter and SO2 level < 800 mg / cubic meter,
both within the requirement of GB132712001.

Raw Materials and Suppliers

The major raw materials for our laminate flooring and fiber
boards are hardwood lumber, branches, and other wood byproducts. We also
purchase significant amounts of packaging materials, resins, stains, veneers and
chemicals, and consume significant amounts of electricity, natural gas and
water.

We currently purchase raw materials essential to our business
from numerous suppliers, but in the future, we expect to utilize raw materials
from our 2,250 hectares (approximately, 22.5 km2) of fir trees for which we hold
land use rights. See Properties below for a description of our land use
rights. We acquired a land use right over this piece of land with the fir trees
that had already planted on it. We expect to start harvesting these trees in the
fourth quarter of 2012. After harvesting these fir trees, we plan to cultivate
eucalyptus trees on this piece of land. The general process for cultivating and
harvesting the fir trees and eucalyptus trees includes planting, initial
watering, general inspections, pest control, fertilization, protection against
theft and vandals, and harvesting.

6

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Pursuant to the joint management agreements discussed below, we
intend to plant trees on a land of 43.2 km2 in 2011 for our future raw materials
use. Our long-term goal is to ultimately develop and have access to raw
materials from approximately 333.5 km2 of forestry land using this
joint-management approach.

We procure most of our production chemicals, such as paraffin,
formaldehyde and accelerant, from Guizhou Shuanghe Industrial & Trading Co.,
Ltd.

In general, adequate supplies of raw materials are available
from numerous suppliers and we are not dependent on any single supplier.
Availability can change based on environmental conditions, laws and regulations,
shifts in demand, transportation disruption and other events that affect us and
our suppliers which often are outside of our control.

Customers

We sell our flooring products primarily to private residential
customers and various commercial, educational and government entities. Our
residential sales are primarily through specialty stores and our flagship
stores. Our commercial sales of industrial fiber boards and flooring products
are usually through our direct sales force. We are also seeking commercial
arrangements for the sale of our products through home supply stores, such as
our recent agreement to sell our products at Red Star Macalline Furniture Malls
Guiyang store. We believe that home supply stores are an important channel for
the sale of building/home renovation materials and we plan to increase our
efforts to work with more home supply stores in the future.

Below is a list of our top customers for the fiscal year ended
December 31, 2010:

|      | Company                                              | Region  | %
      of total sales
|----- | ---------------------------------------------------- | ------- | ----------------------
|1.    | Guizhou Shuanghe Industrial
      & Trading Co., Ltd | Guizhou | 47.95%                
|2.    | Kunming Hing Hong Building Materials Co., Ltd        | Kunming | 25.75%                
|3.    | GST                                                  | Guizhou | 4.02                  
|Total |                                                      |         | 77.72%                

For the year ended December 31, 2010, sales revenues generated
from Guizhou Shuanghe Industrial & Trading Co., Ltd, Kunming Hing Hong
Building Materials Co., Ltd, and GST amounted to 77.72% of total sales revenues,
and sales to Guizhou Shuanghe Industrial & Trading Co., Ltd., our largest
single customer, amounted to 47.95% of total sales revenues during the period.
We do not enter into long-term contracts with these customers and therefore
cannot be certain that sales to these customers will continue. The loss of our
largest customers would likely have a material negative impact on our sales
revenues and business.

During the fiscal year ended December 31, 2009, 63.27% of our
sales were to GST, a company formerly owned and controlled by Mr. Yulu Bai, our
Chairman and Chief Executive Officer. GST procures industrial fiber boards from
us for the production of laminate flooring. Through March 31, 2010, we sold
approximately $1.5 million in fiber board products to GST, after which time GST
ceased to produce laminate flooring and no longer procured flooring products
directly from us. However, we continue to provide our flooring products via
commercial arrangements with five stores controlled by GST and its affiliates.
On September 29, 2009, Mr. Bai disposed of his interest in GST to a third party
purchaser.

During the fiscal year ended December 31, 2010, only 4.02% of
our sales were to GST, Guizhou Shuanghe Industrial & Trading Co., Ltd became
our largest customer for the year ended December 31, 2010.

Competition

Competition in the flooring industry is based primarily on
product quality, pricing, and perceived brand quality. Currently the flooring
market is very fragmented with dozens of companies of various sizes. We believe
that no single company in China holds more than 15% of the market share in the
flooring industry. Competition tends to be regionally concentrated due to high
transportation and distribution costs. Our primary competition comes from
domestic companies such as PowerDekor, SDF, and Der International Flooring Ltd,
or Der.

The quality of our products is similar to most of our
competitors, however, some of our competitors charge higher prices due to a
higher perceived brand value. Other competitors focus more heavily to consumers
and are present in larger numbers of distribution outlets.

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We believe that having our own regenerative source of raw
materials will afford us a competitive advantage in terms of securing long-term
raw materials, maintaining reasonable margins, and ensuring continued
production. A key business risk in the wood-based flooring industry is the
continued availability of reasonably priced raw materials without which flooring
companies could experience business interruptions. As a result, we believe that
our control of a significant portion of our own future raw material supply via
our land use rights to forestry land is a key advantage in our future operations
and growth. In addition, we will practice reforestation by planting of fast
growing eucalyptus trees on our forest land to replenish raw material sources,
which we expect will lead to constant forest regeneration. These rapid growth
trees could be harvested 5 years after the initial planting by cutting the
trunks and leaving the roots in place. The trees usually grow again from the
roots and may be harvested within another 5 years. With this method we will be
able to plant such trees at 10-year intervals and harvest twice during each
10-year period. Due to recent droughts in southwestern China, our original
tree-planting schedule on our own regenerative forest land has been delayed to
date, but we expect to commence planting during 2011. Barring any unforeseen
difficulties with the growth rate of our crop, we expect to commence harvesting
raw materials from this land by late 2015 or early 2016. We expect to procure
approximately 20% of our raw materials needs during the first quarter of
harvesting from our regenerative forest land.

We have entered into joint management agreements with 11
villages representing a total of 408 local farmers to look after and maintain
the forest land covered under these agreements. All pieces of the land are
located at Zhenfeng County, Guizhou Province. According to the agreements, which
have a 30-year term, the villages continue to hold the land use rights and have
the obligations to maintain the forest land, including planting, cultivation,
pest control, fertilization and other maintenance activities. Under the joint
management agreements, the first stage of cultivation of the land includes
planting trees on a piece of land of 43.2 km2. Due to recent droughts in
southwestern China, this cultivation has been delayed to date, but we expect to
commence planting by the end of 2011, and to harvest trees from this land by
early 2016. In exchange, we agree to provide the villages with technological
guidance, as well as with the funding to purchase young trees and fertilizers as
necessary for maintaining and reforesting the land, and to cover expenses
related to harvesting, transportation, taxes and other costs of sale. In
addition, we will receive 80% of the profits generated from the forest land and
the villages will retain the remaining 20%. Either party may sue the other party
for breach of contract if the other party fails to fulfill its obligations
according to the agreements. The agreements are not required to be registered
with any PRC governmental authority. Since we have not yet planted or harvested
from this forest land, only minimal costs have been incurred by, and no revenues
have resulted from, these agreements. To date we have only incurred
approximately RMB 80,000 ($12,139.61) in such expenses, which we have currently
recorded under General and administration expenses. We plan to record 100% of
the revenue generated from the sale of raw materials procured from such land
upon the sale of such raw materials. Expenses related to plantation, management
and harvesting, and the 20% pro-rata share of the profits deliverable to our
local partners pursuant to the agreements would be recorded as the cost of goods
sold.

We believe that the quality of our product and service
offerings and our access to regenerative forests distinguish us from many of our
competitors and provide us with a competitive edge in the market for wood
flooring. In addition, we ensure the highest level of service and customer
satisfaction by providing customers with our own professionally trained
installers instead of third-party contractors. We believe that our focus on
quality and service also positions us to successfully bid on commercial,
governmental, and residential projects.

Sales and Marketing

We market our products at five branch offices and eight
flagship stores, and through approximately 504 contracted flooring specialty
retail stores that are concentrated mostly in southwestern China. Of the stores,
266 are located in Guizhou province, 136 in Yunnan province, 75 in the Guangxi
Zhuang Autonomous Region and 27 in Sichuan province. All of our branch offices
have been registered with appropriated local government authorities. We plan to
gradually expand our presence beyond southwest China and are working to develop
the central China (Henan province) and northwestern China (Shaanxi province)
markets. We are also evaluating the Southeast Asian, Australian, and North
American markets for future expansion opportunities.

We are also in process of negotiating commercial arrangements
with home supply stores to market our products. For instance, we have entered
into an agreement to sell our products at Red Star Macalline Furniture Malls
Guiyang store, a large home products supply store chain in China with over 30
malls and stores across China. Large home supply stores, similar to Home Depot
and Lowes in the US, are an important channel for building/home renovation
material sales. We plan to increase our efforts to work with more home supply
stores in the future but cannot assure you that our negotiations will result in
any revenue generating agreement.

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Over 80% of our total flooring sales are made through
distributors who are critical to our overall success. To encourage this trend,
we have created a standardized approach to quickly recruit and train
distributors on how to effectively sell our products. In addition, we provide
ongoing training sessions to continuously develop our distributors capabilities
to ensure long term success.

Furthermore, we have established a comprehensive reward system
in which distributors can earn monetary incentives if they achieve and exceed
sales targets. We also provide marketing funds to distributors to help generate
consumer interest and promote brand awareness. All marketing activities are
monitored regionally to optimize marketing fund allocation and avoid redundancy
in coverage. Due to our targeted focus on distributor support, we believe that
we have one of the lower distributor turnover ratios in the industry at 5% a
year.

Research and Development

We do not have a research and development center or a dedicated
research and development team. Approximately 20% of our employees are members of
our technical staff, who focus on maintaining and improving the production
procedures and on developing new products.

Intellectual Property

Aosen Forestry currently holds the following utility model
patents from Chinas state intellectual property office:

|Description                           | Patent Number       | Authorization Date
|------------------------------------- | ------------------- | ------------------
|An environment friendly base molding  | ZL 2009 2 0314290.1 | August 4, 2010    
|A type of laminate flooring           | ZL 2009 2 0314294.X | August 4, 2010    
|A type of anti-skid laminate flooring | ZL 2009 2 0314289.9 | August 4, 2010    

In connection with the acquisition of Silvan Flooring, Aosen
Forestry and GST entered into a licensing and distribution agreement, dated
November 18, 2009, pursuant to which GST transferred its Silvan Touch
trademark (registered trademark number 1182064) to Aosen Forestry which then
licensed it back to GST to be used in connection with its distribution of our
Silvan Touch products. The assignment of the trademark has received government
approval.

We rely on trade secret protection and non-disclosure
agreements to protect our proprietary information and know-how. Our management
and key members of our technical staff have entered into non-disclosure
agreements in which they acknowledge that all inventions, designs, trade
secrets, works of authorship, developments and other processes generated by them
on our behalf are our property, and assigning to us any ownership rights that
they may claim in those works. It may be possible for third parties to obtain
and use, without our consent, intellectual property that we own or are licensed
to use. Unauthorized use of our intellectual property by third parties, and the
expenses incurred in protecting our intellectual property rights, may adversely
affect our business. See Item 1A, Risk factorsRisks Related to Our
BusinessOur inability to protect our intellectual property may prevent us from
successfully marketing our products and competing effectively.

Employees

As of December 31, 2010, we employed a total of 228 full-time
employees. The following table sets forth the number of our employees by
function.

|Function                                               | Number of Employees
|------------------------------------------------------ | -------------------
|Management, Financial, and Administrative
      Office | 36                 
|Production                                             | 60                 
|Sales and Marketing                                    | 18                 
|Technical Staff                                        | 45                 
|Security*                                              | 36                 
|Cafeteria                                              | 16                 
|Logistics                                              | 14                 
|Housing Management                                     | 3                  
|Total                                                  | 228                

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* We store certain amounts of raw materials, such as wood and
wood byproducts, along with work-in-progress, in both indoor and outdoor
warehouses. Such stored raw materials and work-in-progress require
round-the-clock security to guard against hazards such as fire. We also provide
round-the-clock security at our employee dormitories for the safety of our
resident employees. The foregoing uses of security personnel are usual and
customary in our industry in China.

We maintain a satisfactory working relationship with our
employees, and we have not experienced any significant labor disputes or any
difficulty in recruiting staff for our operations. None of our employees is
represented by a labor union.

We are required by Chinese law to make monthly contributions to
a state pension plan organized by Chinese municipal and provincial governments
to cover employees in China with various types of social insurance. We have
purchased such social insurance for some of our employees and for those whom we
have not purchased social insurance, the premium has been added into their
salary so that they can purchase social insurance in their individual capacity
at the location of their recorded residences. Failure to make such social
security contribution is subject to a late payment fee equal to 2% of the unpaid
amount each day and we may be subject to a fine of up to RMB 10,000. We believe
that we are in material compliance with the relevant PRC laws.

Environmental Compliance

As we conduct our manufacturing activities in China, we are
subject to the requirements of PRC environmental laws and regulations on air
emission, waste water discharge, solid waste and noise. We aim to comply with
environmental laws and regulations. The local environmental protection authority
issued to us a Pollutant Discharge Permit and requested that the company
conduct an annual audit of its compliance with the national standards. We are
not subject to any admonitions, penalties, investigations or inquiries imposed
by the environmental regulators, nor are we subject to any claims or legal
proceedings to which we are named as defendant for violation of any
environmental law or regulation. We do not have any reasonable basis to believe
that there is any threatened claim, action or legal proceedings against us that
would have a material adverse effect on our business, financial condition or
results of operations.

PRC Government Regulations

General Regulation of Business

Because our primary operating subsidiaries are located in
China, we are subject to Chinas national and local laws. This section
summarizes the major PRC regulations relating to our business. Among others, we
are subject to regulations related to a foreign invested enterprise, or FIE,
which refers to an enterprise whose equity interest is held by a non-PRC
shareholder. There are three main PRC regulations governing FIEs in China: the
Laws of China-Foreign Equity Joint Ventures, the Laws of China-Foreign
Cooperative Joint Ventures and the Laws of Wholly Foreign Owned Enterprises. As
Aosen Forestry is the wholly owned subsidiary of Bingwu Forestry, only the Laws
of Wholly Foreign Owned Enterprises, or the WFOE Law, applies to our business.
To comply with the WFOE Law, Aosen Forestry needs to (a) obtain an approval
certificate from the local Ministry of Commerce, or MOFCOM, in addition to a
business license, (b) make a capital contribution in accordance with the MOFCOM
approved schedule, and (c) register with the PRC local foreign exchange bureau
and open a foreign exchange account. It will also need to obtain approvals and
make filings for transferring funds in and out of China. On June 18, 2010, Aosen
Forestry obtained the Certificate of Approval with Foreign, Taiwan, Hong Kong,
and Macau Investment issued by the Guizhou Province MOFCOM and a new business
license was issued to Aosen Forestry on July 12, 2010. Aosen Forestry has a
registered capital of RMB 100 million. The acquisition price of RMB 16,963,000
(approximately $2.48 million) was all paid. The company also opened a foreign
exchange account with the approval of the PRC local foreign exchange bureau on
August 4, 2010. We believe that we have been in compliance with these
requirements.

Permits and Certificates

We operate in an industry with mature regulatory standards. In
order to continue our operations, we are required to maintain the following
manufacturing and operational licenses and certifications:

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Permit/Certification
    Issuing Authority
    Subsidiary that
    Effective Date
    Expiration/Termmaintain thelicense/certificationNational Industrial Product Production
    PRC State Administration for
    Aosen Forestry
    September 29, 2007
    Expires on September 28, 2012Permit
    Quality Supervision and Inspection and Quarantine
    Silvan
      Flooring
    September 8, 2010
    Expires on September 7, 2015Quality Management System Authentication Certificate
      (consistency with ISO9001:2000 and GB/T19001-2000)
    China Quality Authentication Center
    Aosen Forestry
    March 18, 2008
    Expired on March 17, 2011 (renewal pending)Measurement Management System Authentication Certificate
      (consistency with GB/T19022-2003 and ISO10012-2003)
    Zhongqi Measurement System Authentication
      Center
    Aosen Forestry
    July 8, 2008
    Expires on July 7, 2012


Environmental Regulations

The major environmental regulations applicable to us include
the PRC Environmental Protection Law, the PRC Law on the Prevention and Control
of Water Pollution and its Implementation Rules, the PRC Law on the Prevention
and Control of Air Pollution and its Implementation Rules, the PRC Law on the
Prevention and Control of Solid Waste Pollution, and the PRC Law on the
Prevention and Control of Noise Pollution. We hold the following environmental
licenses and certifications:

Permit/Certification
    Issuing Authority
    Subsidiary that maintain the
      license/certification
    Effective Date
    Expiration/TermEnvironment Management System
      Authentication Certificate
    China Quality Authentication
      Center (consistency with the standards of ISO14001:2004 and
      GB/T24001-2004)
    Aosen Forestry
    April 3, 2008
    Expired on April 2, 2011,
      (renewal pending)Emission Certification
    Guizhou Dingxiao Economic Development District
      Environment Protection Agency (EPA)
    Aosen Forestry
    May 24, 2010
    May 24, 2013Radiation Safety Certification
    Environment Protection Agency
      (EPA) of Guizhou province
    Aosen Forestry
    January 8, 2007
    January 8, 2012


Patent Protection in China

The PRC's intellectual property protection regime is consistent
with those of other modern industrialized countries. The PRC has domestic laws
for the protection of rights in copyrights, patents, trademarks and trade
secrets. The PRC is also a signatory to most of the world's major intellectual
property conventions, including:

- Convention establishing the World Intellectual Property Organization (WIPO
  Convention) (June 4, 1980);
- Paris Convention for the Protection of Industrial Property (March 19,
  1985);
- Patent Cooperation Treaty (January 1, 1994); and
- The Agreement on Trade-Related Aspects of Intellectual Property Rights
  (TRIPs) (November 11, 2001).

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Patents in the PRC are governed by the China Patent Law and its
Implementing Regulations, each of which went into effect in 1985. Amended
versions of the China Patent Law and its Implementing Regulations came into
effect in 2001 and 2003, respectively.

The PRC is signatory to the Paris Convention for the Protection
of Industrial Property, in accordance with which any person who has duly filed
an application for a patent in one signatory country shall enjoy, for the
purposes of filing in the other countries, a right of priority during the period
fixed in the convention (12 months for inventions and utility models, and 6
months for industrial designs).

Implementation of PRC intellectual property-related laws has
historically been lacking, primarily because of ambiguities in PRC laws and
difficulties in enforcement. Accordingly, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other developed countries. See Item 1A, Risk Factors  Risks Related
to Our Business Our inability to protect our intellectual property may prevent
us from successfully marketing our products and competing effectively.

Taxation

On March 16, 2007, the National People's Congress of China
passed a new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007,
the State Council of China passed its implementing rules, which took effect on
January 1, 2008.

Before the implementation of the EIT Law, FIEs established in
the PRC, unless granted preferential tax treatments by the PRC government, were
generally subject to an earned income tax, or EIT, rate of 33.0%, which included
a 30.0% state income tax and a 3.0% local income tax. The EIT Law and its
implementing rules impose a unified EIT of 25.0% on all domestic-invested
enterprises and FIEs, unless they qualify under certain limited exceptions.
Despite these changes, the EIT Law gives FIEs established before March 16, 2007,
or Old FIEs, a five-year grandfather period during which they can continue to
enjoy their existing preferential tax treatments. During this five-year
grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under
the original EIT law will be subject to gradually increased EIT rates over a
5-year period until their tax rate reaches 25%. In addition, the Old FIEs that
are eligible for other preferential tax treatments by the PRC government under
the original EIT law are allowed to continue enjoying their preference until
these preferential treatment periods expire. The discontinuation of any such
special or preferential tax treatment or other incentives would have an adverse
effect on any organization's business, fiscal condition and current operations
in China.

In addition to the changes to the current tax structure, under
the EIT Law, an enterprise established outside of China with de facto
management bodies within China is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The implementing
rules define the term de facto management bodies as an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise. If the PRC tax
authorities subsequently determine that we should be classified as a resident
enterprise, then our organization's global income will be subject to PRC income
tax of 25%. For detailed discussion of PRC tax issues related to resident
enterprise status, see Item 1A, Risk Factors  Risks Related to Doing Business
in China  Under the New Enterprise Income Tax Law, we may be classified as a
resident enterprise of China. Such classification will likely result in
unfavorable tax consequences to us and our non-PRC stockholders.

In addition, the EIT Law and its implementing rules generally
provide that a 10% withholding tax applies to China-sourced income derived by
non-resident enterprises for PRC enterprise income tax purposes unless the
jurisdiction of incorporation of such enterprises' shareholder has a tax treaty
with China that provides for a different withholding arrangement. Aosen Forestry
and Silvan Flooring are considered FIEs and are directly held by our subsidiary
in Hong Kong. According to a 2006 tax treaty between the Mainland and Hong Kong,
dividends payable by an FIE in China to the company in Hong Kong who directly
holds at least 25% of the equity interests in the FIE will be subject to a no
more than 5% withholding tax. We expect that such 5% withholding tax will apply
to dividends paid to Bingwu Forestry by Aosen Forestry and Silvan Flooring, but
this treatment will depend on our status as a nonresident enterprise.

Pursuant to the Provisional Regulation of China on Value Added
Tax and its implementing rules, all entities and individuals that are engaged in
the sale of goods, the provision of repairs and replacement services and the
importation of goods in China are generally required to pay value added tax, or
VAT, at a rate of 17.0% of the gross sales proceeds received, less any
deductible VAT already paid or borne by the taxpayer. Further, when exporting
goods, the exporter is entitled to some or all of the refund of VAT that it has
already paid or borne.

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Foreign Currency Exchange

All of our sales revenue and expenses are denominated in RMB.
Under the PRC foreign currency exchange regulations applicable to us, RMB is
convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions.
Currently, our PRC operating subsidiaries may purchase foreign currencies for
settlement of current account transactions, including payments of dividends to
us, employee salaries (even if employees are based outside of China), and
payment for equipment purchases outside of China, without the approval of the
State Administration of Foreign Exchange of the Peoples Republic of China, or
SAFE, by complying with certain procedural requirements. Conversion of RMB for
capital account items, such as direct investment, loan, security investment and
repatriation of investment, however, is still subject to the approval of SAFE.
In particular, if our PRC operating subsidiaries borrow foreign currency through
loans from us or other foreign lenders, these loans must be registered with
SAFE, and if we finance the subsidiaries by means of additional capital
contributions, these capital contributions must be approved by certain
government authorities, including MOFCOM, or their respective local branches.
These limitations could affect our PRC operating subsidiaries ability to obtain
foreign exchange through debt or equity financing. In the event of a liquidation
of our PRC subsidiaries, SAFE approval is required before the remaining proceeds
can be expatriated from China.

Dividend Distributions

Substantially all of our sales are earned by our PRC
subsidiaries. However, PRC regulations restrict the ability of our PRC
subsidiaries to make dividends and other payments to its offshore parent
company. PRC legal restrictions permit payments of dividends by our PRC
subsidiaries only out of their accumulated after-tax profits, if any, determined
in accordance with PRC accounting standards and regulations. Our PRC
subsidiaries are also required under PRC laws and regulations to allocate at
least 10% of their annual after-tax profits determined in accordance with PRC
GAAP to a statutory general reserve fund until the amounts in said fund reaches
50% of our registered capital. Allocations to these statutory reserve funds can
only be used for specific purposes, such as setting off the accumulated losses,
enterprise expansion or increasing the registered capital and are not
distributable as cash dividends.

During 2008 and 2009, we reinvested our available capital on
the development of the Company and did not distribute any dividends to
shareholders during this period. We plan to keep reinvesting any available
capital in the Company for the foreseeable future. As a result, we did not
allocate the required 10% of our after-tax profit to the statutory general
reserve fund and did not hold shareholder meetings to distribute this fund. We
may be ordered by the local government to fund the statutory general reserve
fund by making up the balance from previous years and may be subject to a fine
up to RMB 200,000. We plan to allocate the appropriate amount to the general
statutory fund as soon as our working capital situation allows.

Circular 75

In October 2005, SAFE issued the Notice on Relevant Issues in
the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside China, generally referred to as
Circular 75, which required PRC residents to register with the competent local
SAFE branch before establishing or acquiring control over an offshore special
purpose company, or SPV, for the purpose of engaging in an equity financing
outside of China on the strength of domestic PRC assets originally held by those
residents. Amendments to registrations made under Circular 75 are required in
connection with any increase or decrease of capital, transfer of shares, mergers
and acquisitions, equity investment or creation of any security interest in any
assets located in China to guarantee offshore obligation.

In the case of an SPV which was established, and which acquired
a related domestic company or assets, before the implementation date of Circular
75, a retroactive SAFE registration was required to have been completed. Failure
to comply with the requirements of Circular 75 may result in fines and other
penalties under PRC laws for evasion of applicable foreign exchange
restrictions. Any such failure could also result in the SPVs affiliates being
impeded or prevented from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the SPV, or from engaging
in other transfers of funds into or out of China.

As we stated under Item 1A, Risk factorsRisks Related to
Doing Business in ChinaFailure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may subject
our PRC resident stockholders to personal liability, limit our ability to
acquire PRC companies or to inject capital into PRC subsidiaries, limit our PRC
subsidiary's ability to distribute profits to us or otherwise materially
adversely affect us, we have asked our stockholders, who are PRC residents as
defined in Circular 75, to register with the relevant branch of SAFE, as
currently required, in connection with their equity interests in us and our
acquisitions of equity interests in our PRC subsidiaries. However, many of the
terms and provisions in Circular 75 remain unclear and implementation by central
SAFE and local SAFE branches of Circular 75 have been inconsistent since their
adoption. Therefore, we cannot predict how Circular 75 will affect our business
operations or future strategies. For example, our present and prospective PRC subsidiaries' ability to conduct
foreign exchange activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with Circular 75
by our PRC resident beneficial holders.

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Mergers and Acquisitions

On August 8, 2006, six PRC regulatory agencies promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, or the 2006 M&A Rule, which became effective on September 8,
2006, and was amended in 2009. According to the 2006 M&A Rule, a Round-trip
Investment is defined as having taken place when a PRC business that is owned
by PRC individual(s) is sold to a non-PRC entity that is established or
controlled, directly or indirectly, by those same PRC individual(s). Under the
2006 M&A Rules, any Round-trip Investment must be approved by MOFCOM and any
indirect arrangement or series of arrangements which achieves the same end
result without the approval of MOFCOM is a violation of PRC law.

On May 17, 2010, our Chairman and CEO, Mr. Yulu Bai, entered
into an option agreement with Ms. Ren Ping Tu, pursuant to which Mr. Bai was
granted an option to acquire 20,500,000 shares our common stock currently owned
by Ms. Tu, for an exercise price of $2,500,000. Mr. Bai may exercise this
option, in whole but not in part, during the period commencing on the 365thday following of the date of the option agreement and ending on the second
anniversary of the date thereof. After Mr. Bai exercises this option, he will be
our controlling stockholder. His acquisition of our equity interest is required
to be registered with the competent administration of industry and commerce
authorities, or AIC, in Beijing. Mr. Bai will also be required to make filings
with the Beijing SAFE, to register the Company and its non-PRC subsidiaries to
qualify them as SPVs, pursuant to Circular 75.

We were advised by our PRC counsel that our acquisition of
Aosen Forestry does not constitute a Round-trip Investment. The opinion of our
PRC counsel, however, was based on the express, but not detailed language of the
2006 PRC Provisions on the Acquisition of Domestic Enterprises by Foreign
Investors, also known as Circular 10, which deal with round trip investments in
Article 11. That Article requires that approvals from the national-level
Ministry of Commerce be obtained in situations where a PRC person or company
acquires, in the name of a foreign company established or controlled by it, a
domestic PRC company with which it is connected. Article 11 also contains a
general warning against circumventing this requirement by use of a foreign
invested entity established in the PRC or other means.

In this case our PRC counsel was of the opinion that the
explicit language of Article 11 was satisfied because Bingwu Forestry, the
non-PRC foreign company in this situation, was established by Ms. Tu, an
individual holding a Canadian passport and holding no equity or management
position with Aosen Forestry. Bingwu Forestry was still wholly owned and
controlled by Ms. Tu at the time of its acquisition of Aosen Forestry, our PRC
operating entity. Our PRC counsel therefore was of the opinion that Bingwu
Forestry was not established by a PRC person and not controlled by a PRC person
at the time of the acquisition. It therefore was not necessary to reach the
question of whether Ms. Tu was connected with Aosen Forestry; but if it had
been, the conclusion of our PRC counsel was that she was not so connected for
purposes of Article 11. As we have disclosed, Ms. Tu is the wife of Mr. Bai, a
principal shareholder of Aosen Forestry at the time of its transfer to Bingwu
Forestry. We appreciate that US authorities might view this relationship as
giving Mr. Bai indirect ownership or control over his wifes company. However,
we have been advised that there is no administrative or judicial guidance in the
PRC which would suggest this result. Nor is there any such guidance as to what
the phrase other means in Article 11 is intended to encompass. Finally, as a
general interpretive principle in China, what the law does not prohibit is taken
to be permitted. For all these reasons, our PRC counsel concluded that the
acquisition of Aosen Forestry by Bingwu Forestry was not captured by Article 11.

As we stated below under Item 1A, Risk factorsRisks Related
to Doing Business in ChinaOur business and financial performance may be
materially adversely affected if the PRC regulatory authorities determine that
our acquisition of Aosen Forestry constitutes a Round-trip Investment without
MOFCOM approval, although we have been advised by competent counsel that the
acquisition of Aosen Forestry by Bingwu Forestry complied with the requirements
of Circular 10, the law and the regulations in China are not well settled, and
it is at least possible that the PRC authorities could reach a conclusion
contrary to the one reached by our PRC counsel.

Insurance

We do not have any business liability, interruption or
litigation insurance coverage for our operations in China. Insurance companies
in China offer limited business insurance products. While business interruption
insurance is available to a limited extent in China, we have determined that the
risks of interruption, cost of such insurance and the difficulties associated
with acquiring such insurance on commercially reasonable terms make it impractical for us to
have such insurance. Therefore, we are subject to business and product liability
exposure. Item 1A, See Risk Factors  Risks Related to Our Business  We have
limited insurance coverage in China.

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ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below, together with all
of the other information included in this report, before making an investment
decision. If any of the following risks actually occurs, our business, financial
condition or results of operations could suffer. In that case, the trading price
of our common stock could decline, and you may lose all or part of your
investment. You should read the section entitled Special Note Regarding Forward
Looking Statements above for a discussion of what types of statements are
forward-looking statements, as well as the significance of such statements in
the context of this report.

RISKS RELATED TO OUR BUSINESS

We depend upon commercial relationships with three major
customers for a significant portion of our sales revenue, and we cannot be
certain that sales to these customers will continue. If sales to these customers
do not continue, then our sales may decline and our business may be negatively
impacted.

We currently supply our wood flooring products to three major
customers in the Chinese domestic market. For the year ended December 31, 2010,
sales revenues generated from Guizhou Shuanghe Industrial & Trading Co.,
Ltd, Kunming Hing Hong Building Materials Co., Ltd, and GST amounted to 77.72%
of total sales revenues, and sales to Guizhou Shuanghe Industrial & Trading
Co., Ltd., our largest single customer, amounted to 47.95% of total sales
revenues during the period. We do not enter into long-term contracts with these
customers and therefore cannot be certain that sales to these customers will
continue. The loss of our largest customers would likely have a material
negative impact on our sales revenues and business.

In order to grow at the pace expected by management, we
will require additional capital to support our long-term growth strategies. If
we are unable to obtain additional capital in future years, we may be unable to
proceed with our plans and we may be forced to curtail our operations.

Our working capital requirements and the cash flow provided by
future operating activities, if any, will vary greatly from quarter to quarter,
depending on the volume of business during the period and payment terms with our
customers. We will require additional working capital to support our long-term
growth strategies, which includes identifying suitable targets for horizontal or
vertical mergers or acquisitions so as to enhance the overall productivity and
benefit from economies of scale. However, due to the uncertainty arising out of
domestic and global economic conditions and the ongoing tightening of domestic
credit markets, we may not be able to generate adequate cash flows or obtain
adequate levels of additional financing, whether through equity financing, debt
financing or other sources. Even if we are able to obtain additional financing,
it may not be on terms that are favorable to the Company. Furthermore,
additional financings could result in significant dilution to our earnings per
share or the issuance of securities with rights superior to our current
outstanding securities, including registration rights. If we are unable to raise
additional financing, we may be unable to implement our long-term growth
strategies, develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures on a timely basis, if
at all. In addition, a lack of additional financing could force us to
substantially curtail operations.

Our business could be adversely affected by reduced
levels of cash, whether from operations or from borrowings.

Historically, our principal sources of funds have been cash
flows from operations and borrowings from banks and other institutions. Our
commercial short term bank loans totaled $4,535,830 (RMB 29,900,000) as of
December 31, 2010. Under our credit agreements with the banks, we are subject to
typical commercial loan covenants, such as using the funds in a way set forth in
the credit agreements, paying loan interests timely and not using company assets
to provide guarantee to a third party without the creditors prior consent. Our
operating and financial performance may generate less cash and result in our
failing to comply with our credit agreement covenants. We were in compliance
with these covenants during the 2010 fiscal year, however, our ability to remain
compliant in the future will depend on our future financial performance and may
be affected by events beyond our control. There can be no assurance that we will
generate sufficient earnings and cash flow to remain in compliance with the
credit agreement or that we will be able to obtain future amendments to the
credit agreement to avoid a default. In the event of a default, there can be no
assurance that we could negotiate a new credit agreement or that we could obtain
a new credit agreement with satisfactory terms and conditions within a
reasonable time period.

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Our business and operations will suffer if end-customers
prove to be not creditworthy.

In our industry, companies such as ours enter into large
industrial commercial sub-contracts with prime contractors in addition to
consumer retail sales. While our retail customers generally pay the entire
amount at time of purchase but we sometimes do not receive full payment on a
project from our industrial customers until they are paid by the end-customer.
Consequently, we extend credit to some of our industrial customers while
generally requiring no collateral. We perform ongoing credit evaluations of our
customers' financial condition and generally have no difficulties in collecting
our payments. However, if we encounter future problems collecting amounts due
from our clients or if we experience delays in the collection of amounts due
from our clients, our liquidity could be negatively affected. In order to reduce
collection risks, we have turned down some opportunities that we believed
carried unfavorable payment terms.

Environmental regulations impose substantial costs and
limitations on our operations.

We are subject to various national and local environmental laws
and regulations in China concerning issues such as air emissions, wastewater
discharges, and solid waste management and disposal. These laws and regulations
can restrict or limit our operations and expose us to liability and penalties
for non-compliance. While we believe that our facilities are in material
compliance with all applicable environmental laws and regulations, the risks of
substantial unanticipated costs and liabilities related to compliance with these
laws and regulations are an inherent part of our business. It is possible that
future conditions may develop, arise or be discovered that create new
environmental compliance or remediation liabilities and costs. While we believe
that we can comply with existing environmental legislation and regulatory
requirements and that the costs of compliance have been included within budgeted
cost estimates, compliance may prove to be more limiting and costly than
anticipated.

Our success relies on our managements ability to
understand the wood flooring industry. We may not be able to maintain or improve
our competitive position in the wood flooring industries, and we expect this
competition to continue to be intense.

We target the highly fragmented and competitive wood flooring
market in China for our products and services. Chinas wood flooring industries
are large and established and rapidly evolving. As such, it is critical that our
management is able to understand industry trends and make good strategic
business decisions. If our management is unable to identify industry trends and
act in response to such trends in a way that is beneficial to us, our business
will suffer.

Our primary competition comes from domestic companies such as
SDF and PowerDekor. These entities may be able to respond more quickly to
changing market conditions by developing new products and services that meet
customer requirements or are otherwise superior to our products and services,
and may be able to more effectively market their products than we can because
they have significantly greater financial, technical and marketing resources
than we do. They may also be able to devote greater resources than we can to the
development of their products. Increased competition could require us to reduce
our prices, resulting in our receiving fewer customer orders and in our loss of
market share. We cannot assure you that we will be able to distinguish ourselves
in a competitive market. To the extent that we are unable to successfully
compete against existing and future competitors, our business, operating results
and financial condition could be materially adversely affected.

Future government regulations or other standards could
have an adverse effect on our operations.

Our operations are subject to a variety of laws, regulations
and licensing requirements of national and local authorities in the PRC. We are
required to obtain licenses or permits from the PRC central government and from
Guizhou province, where we operate, and to meet certain standards in the conduct
of our business. The loss of such licenses, or the imposition of conditions to
the granting or retention of such licenses, could have an adverse effect on us.
In the event that these laws, regulations and/or licensing requirements change,
we may be required to modify our operations or to utilize resources to maintain
compliance with such rules and regulations. In addition, new regulations may be
enacted that could have an adverse effect on us.

Our business and reputation as a provider of wood
flooring products may be adversely affected by product defects or performance.

We believe that we offer high quality products that are
reliable and competitively priced. If our products do not perform to
specifications, we might be required to redesign or recall those products or pay
substantial damages. Such an event could result in significant expenses, disrupt
sales and affect our reputation and that of our products. In addition, product
defects could result in substantial product liability. We do not have product
liability insurance. If we face significant liability claims, our business,
financial condition, and results of operations would be adversely affected.

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If our suppliers fail to perform their contractual
obligations, our ability to provide services and products to our customers, as
well as our ability to obtain future business, may be harmed.

Many of our products include machines and raw materials
procured from other companies upon which we rely to provide a portion of the
products that we provide to our customers. There is a risk that we may have
disputes with our suppliers, including disputes regarding the quality and
timeliness of parts and raw materials provided by these suppliers. A failure by
one or more of our suppliers to satisfy the agreed-upon contracts may materially
and adversely impact our ability to perform our obligations to our customers,
could expose us to liability, and could have a material adverse effect on our
ability to compete for future contracts and orders.

Our expansion plans may not be successful.

Our manufacturing facility in Qianxinan, Guizhou province, has
an established annual production capacity of 6 million square meters of laminate
flooring and 75,000 cubic meters of industrial fiber boards. We have begun
construction of new manufacturing facility that we expect will increase our
overall capacity to 200,000 cubic meters of fiber boards and 12 million square
meters of laminate floor. We expect to complete this new facility by late 2012.
We expect to incur significant costs in connection with the expansion of our
business, and any failure to successfully implement our expansion plans may
materially and adversely affect our business, financial condition and results of
operations.

Our production capacity might not be able to meet with
growing market demand or changing market conditions.

We cannot give assurance that our production capacity will be
able to meet our obligations and the growing market demand for our products in
the future. Furthermore, we may not be able to expand our production capacity in
response to changing market conditions. If we fail to meet demand from our
customers, we may lose our market share.

We may not be able to develop new products or expand into
new markets.

We intend to develop and produce new flooring products. The
launch and development of new products involve considerable time and commitment
which may exert a substantial strain on our ability to manage our existing
business and operations. We cannot ensure that our research and development
capacity and capability is sufficient to develop any marketable new products or
that any income will be generated from such new products. If we are not able to
develop and introduce new products successfully, or if our new products fail to
generate sufficient revenues to offset our research and development costs, such
failure could lead to wasted resources and our business, financial condition and
operating results could be adversely affected. An element of our strategy for
growth also envisages us selling existing or new products into new markets.
There is no guarantee that we will be successful in executing our strategy for
growth and our failure to execute our growth strategy successfully may have a
material and adverse affect on our future revenue and profitability.

We rely on distributors for the vast majority of our
sales, particularly one distributor that accounted for more than half of our
revenues during 2009. Our business will suffer if distributors discontinue doing
business with us at historical levels and cannot be replaced.

Approximately 80% of our sales are made to distributors that
resell our products to various end-consumers. Our largest distributor, Guizhou
Shuanghe Industrial & Trading Co., Ltd., accounted for approximately 47.95%
of our revenue in our fiscal year ended December 31, 2010.

We intend to expand distribution of our products by entering
into distribution arrangements with regional distributors or other direct store
delivery distributors having established sales, marketing and distribution
organizations. However, many distributors are affiliated with and manufacture
and/or distribute other flooring products, and in many cases, such products
compete directly with our products.

The marketing efforts of our distributors are critical for our
success. If we fail to attract additional distributors, and our existing
distributors do not promote our products at the same or at a greater level than
the products of our competitors, our business, financial condition and results
of operations could be adversely affected.

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We manufacture our products in a single location, and any
material disruption of our operations could adversely affect our business.

Our operations are subject to uncertainties and contingencies
beyond our control that could result in material disruptions in our operations
and adversely affect our business. These include industrial accidents, fires,
floods, droughts, storms, earthquakes, natural disasters and other catastrophes,
equipment failures or other operational problems, strikes or other labor
difficulties.

All of our products were manufactured in our production
facilities in Qianxinan, the PRC. If there is any damage to our production
facilities, we may not be able to remedy such situations in a timely and proper
manner, and our production could be materially and adversely affected. Any
breakdown or malfunction of any of our equipment could cause a material
disruption of our operations. Any such disruption in our operations could cause
us to reduce or halt our production, prevent us from meeting customer orders,
adversely affect our business reputation, increase our costs of production or
require us to make unplanned capital expenditures, any one of which could
materially and adversely affect our business, financial condition and results of
operations.

The costs for labor may increase.

The manufacturing industry is labor intensive. Labor costs in
the PRC have been increasing over the past few years, and we cannot assure you
that the cost of labor in the PRC will not continue to increase in the future or
that we will be able to increase the prices of our products to offset such
increases. If we are unable to identify and employ other appropriate means to
reduce our costs of production or to pass on the increased labor and other costs
of production to our customers, our business, financial condition, results of
operations and prospects could be materially and adversely affected.

If we are unable to attract and retain senior management
and qualified technical and sales personnel, our operations, financial condition
and prospects will be materially adversely affected.

Our future success depends in part on the contributions of our
management team and key technical and sales personnel and on our ability to
attract and retain qualified new personnel. In particular, our success depends
on the continuing employment of our Chief Executive Officer, Mr. Yulu Bai; our
Chief Financial Officer, Mr. Jiyong He; our Chief Operating Officer, Mr.
Fangping Peng; our Chief Marketing Officer, Mr. Dongsheng Tan; and our Vice
President of Investor Relations, Ms. Terry Li. There is significant competition
in our industry for qualified managerial, technical and sales personnel and we
cannot assure you that we will be able to retain our key senior managerial,
technical and sales personnel or that we will be able to attract, integrate and
retain other such personnel that we may require in the future. If we are unable
to attract and retain key personnel in the future, our business, operations,
financial condition, results of operations and prospects could be materially
adversely affected.

We have limited insurance coverage in China.

Operation of our facilities involves many risks, including
equipment failures, natural disasters, industrial accidents, power outages,
labor disturbances and other business interruptions. Furthermore, if any of our
products are faulty, then we may become subject to product liability claims or
we may have to engage in a product recall. We do not carry any business
interruption insurance, product recall or third-party liability insurance for
our production facilities or with respect to our products to cover claims
pertaining to personal injury or property or environmental damage arising from
defects in our products, product recalls, accidents on our property or damage
relating to our operations. While business interruption insurance and other
types of insurance are available to a limited extent in China, we have
determined that the risks of interruption, cost of such insurance and the
difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. Therefore, our existing
insurance coverage may not be sufficient to cover all risks associated with our
business. As a result, we may be required to pay for financial and other losses,
damages and liabilities, including those caused by natural disasters and other
events beyond our control, out of our own funds, which could have a material
adverse effect on our business, financial condition and results of operations.

Our inability to protect our intellectual property may
prevent us from successfully marketing our products and competing
effectively.

Failure to protect our intellectual property could harm our
brands and our reputation, and adversely affect our ability to compete
effectively. Further, enforcing or defending our intellectual property rights,
including our trademarks, patents, copyrights and trade secrets, could result in
the expenditure of significant financial and managerial resources. We regard our
intellectual property, particularly our patents and trade secrets, to be of
considerable value and importance to our business and our success. This is
particularly important for us because almost all of our operations are based in
China, which has not traditionally enforced intellectual property protection to
the same extent as in the United States. We rely on a combination of trademark,
patent, and trade secrecy laws, and contractual provisions to protect our
intellectual property rights. There can be no assurance that the steps taken by
us to protect these proprietary rights will be adequate or that third parties
will not infringe or misappropriate our trademarks, trade secrets (including our
flavor concentrate trade secrets) or similar proprietary rights. Litigation may
be necessary to enforce our intellectual property rights and the outcome of any
such litigation may not be in our favor. Given the relative unpredictability of
Chinas legal system and potential difficulties enforcing a court judgment in
China, there is no guarantee that we would be able to halt the unauthorized use
of our intellectual property through litigation in a timely manner. In addition,
there can be no assurance that other parties will not assert infringement claims
against us, and we may have to pursue litigation against other parties to assert
our rights. Any such claim or litigation could be costly and we may lack the
resources required to defend against such claims. In addition, any event that
would jeopardize our proprietary rights or any claims of infringement by third
parties could have a material adverse affect on our ability to market or sell
our brands, and profitably exploit our products.

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One of our existing stockholders has substantial
influence over our company, and his interests may not be aligned with the
interests of our other stockholders.

Our controlling stockholder, Ren Ping Tu, owns approximately
68.33% of our outstanding voting securities and has significant influence over
our business, including decisions regarding mergers, consolidations, the sale of
all or substantially all of our assets, election of directors and other
significant corporate actions. This concentration of ownership may also have the
effect of discouraging, delaying or preventing a future change of control, which
could deprive our stockholders of an opportunity to receive a premium for their
shares as part of a sale of our Company and may reduce the price of our shares.

We may be exposed to potential risks relating to our
internal controls over financial reporting and our ability to have those
controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002,
or SOX 404, the SEC adopted rules requiring public companies to include a report
of management on the companys internal controls over financial reporting in
their annual reports, including Form 10-K and a report of our management is
included under Item 9A of this Annual Report on Form 10-K. Under current law, we
were subject to these requirements beginning with our annual report for the
fiscal year ending December 31, 2010. We can provide no assurance that we will
comply with all of the requirements imposed thereby. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner, investors and others may lose confidence in
the reliability of our financial statements.

RISKS RELATED TO DOING BUSINESS IN CHINA

Changes in China's political or economic situation could
harm us and our operating results.

Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country, but the government
could change these economic reforms or any of the legal systems at any time.
This could either benefit or damage our operations and profitability. Some of
the things that could have this effect are:

- Level of government involvement in the economy;
- Control of foreign exchange;
- Methods of allocating resources;
- Balance of payments position;
- International trade restrictions; and
- International conflict.

The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. For example, state-owned enterprises still
constitute a large portion of the Chinese economy, and weak corporate governance
and the lack of a flexible currency exchange policy still prevail in China. As a
result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy was similar to those of the
OECD member countries.

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Uncertainties with respect to the PRC legal system could
limit the legal protections available to you and us.

We conduct substantially all of our business through our
subsidiaries in the PRC. Our subsidiaries are generally subject to laws and
regulations applicable to foreign investments in China and, in particular, laws
applicable to foreign-invested enterprises. The PRC legal system is based on
written statutes, and prior court decisions may be cited for reference but have
limited precedential value. Since 1979, a series of new PRC laws and regulations
have significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since the PRC legal system continues to evolve
rapidly, the interpretations of many laws, regulations, and rules are not always
uniform, and enforcement of these laws, regulations, and rules involve
uncertainties, which may limit legal protections available to you and us. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention. In addition, all of
our executive officers and all of our directors are residents of China and not
of the United States, and substantially all the assets of these persons are
located outside the United States. As a result, it could be difficult for
investors to affect service of process in the United States or to enforce a
judgment obtained in the United States against our Chinese operations and
subsidiaries.

You may have difficulty enforcing judgments against
us.

Most of our assets are located outside of the United States and
all of our current operations are conducted in the PRC. In addition, all of our
directors and officers are nationals and residents of countries other than the
United States. A substantial portion of the assets of these persons is located
outside the United States. As a result, it may be difficult for you to effect
service of process within the United States upon these persons. It may also be
difficult for you to enforce in U.S. courts judgments on the civil liability
provisions of the U.S. federal securities laws against us and our officers and
directors, most of whom are not residents in the United States and the
substantial majority of whose assets are located outside of the United States.
In addition, there is uncertainty as to whether the courts of the PRC would
recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has
advised us that the recognition and enforcement of foreign judgments are
provided for under the PRC Civil Procedures Law. Courts in China may recognize
and enforce foreign judgments in accordance with the requirements of the PRC
Civil Procedures Law based on treaties between China and the country where the
judgment is made or on reciprocity between jurisdictions. China does not have
any treaties or other arrangements that provide for the reciprocal recognition
and enforcement of foreign judgments with the United States. In addition,
according to the PRC Civil Procedures Law, courts in the PRC will not enforce a
foreign judgment against us or our directors and officers if they decide that
the judgment violates basic principles of PRC law or national sovereignty,
security, or the public interest. So it is uncertain whether a PRC court would
enforce a judgment rendered by a court in the United States.

The PRC government exerts substantial influence over the
manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property,
and other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of the jurisdictions in which we operate may impose
new, stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.

Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof and could require us to divest
ourselves of any interest we then hold in Chinese properties or joint ventures.

If we become directly subject to the recent scrutiny,
criticism and negative publicity involving U.S.-listed companies with
substantial PRC operations, we may have to expend significant resources to
investigate and resolve any negative allegations resulting from such scrutiny
which could harm our business operations, stock price and reputation and could
result in a loss of your investment in our stock, especially if such allegations
cannot be addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of
their operations in China, particularly companies such as ours that have
completed reverse merger transactions, have been the subject of intense
scrutiny, criticism and negative publicity by investors, financial commentators
and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and
negative publicity has centered around a lack of effective internal controls
over financial accounting resulting in financial and accounting irregularities
and mistakes, inadequate corporate governance policies or a lack of adherence
thereto and, in many cases, allegations of fraud. As a result of the scrutiny,
criticism and negative publicity, the publicly traded stock of many U.S. listed
PRC companies has sharply decreased in value and, in some cases, has become
virtually worthless. Many of these companies are now conducting internal and
external investigations into the allegations, and in the interim are subject to
shareholder lawsuits and SEC enforcement actions. It is not clear what effect
this sector-wide scrutiny, criticism and negative publicity will have on our
company, our business and our stock price. If we become the subject of any
unfavorable allegations, whether such allegations are proven to be true or
untrue, we will have to expend significant resources to investigate such
allegations and/or defend our company. This situation will be costly and time
consuming and distract our management from growing our company. If such
allegations are not proven to be groundless, our company and business operations
will be severely impacted and your investment in our stock could be rendered
worthless.

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Future inflation in China may inhibit our ability to
conduct business in China.

In recent years, the PRC economy has experienced periods of
rapid expansion and highly fluctuating rates of inflation. During the past ten
years, the rate of inflation in China has been as high as 5.9% and as low as
-0.8% . These factors have led to the adoption by the Chinese government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. High inflation
may in the future cause the Chinese government to impose controls on credit
and/or prices, or to take other action, which could inhibit economic activity in
China, and thereby harm the market for our products and our company.

Restrictions on currency exchange may limit our ability
to receive and use our sales effectively.

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

Fluctuations in exchange rates could adversely affect our
business and the value of our securities.

The value of our common stock will be indirectly affected by
the foreign exchange rate between the U.S. dollar and RMB and between those
currencies and other currencies in which our sales may be denominated.
Appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that will be exchanged into U.S. dollars, as well as earnings
from, and the value of, any U.S. dollar-denominated investments we make in the
future.

Since July 2005, the RMB has no longer been pegged to the U.S.
dollar. Although the Peoples Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in the exchange
rate, the RMB may appreciate or depreciate significantly in value against the
U.S. dollar in the medium to long term. Moreover, it is possible that in the
future PRC authorities may lift restrictions on fluctuations in the RMB exchange
rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions. While we may enter into hedging transactions in
the future, the availability and effectiveness of these transactions may be
limited, and we may not be able to successfully hedge our exposure at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign
currencies.

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Restrictions under PRC law on our PRC subsidiaries
ability to make dividends and other distributions could materially and adversely
affect our ability to grow, make investments or acquisitions that could benefit
our business, pay dividends to you, and otherwise fund and conduct our
business.

Substantially all of our sales are earned by our PRC
subsidiaries. However, as discussed more fully under Item 1, Business  PRC
Government Regulations  Dividend Distributions, PRC regulations restrict the
ability of our PRC subsidiaries to make dividends and other payments to their
offshore parent company. Any limitations on the ability of our PRC subsidiaries
to transfer funds to us could materially and adversely limit our ability to
grow, make investments or acquisitions that could be beneficial to our business,
pay dividends and otherwise fund and conduct our business.

Failure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may subject
our PRC resident stockholders to personal liability, limit our ability to
acquire PRC companies or to inject capital into PRC subsidiaries, limit our PRC
subsidiary's ability to distribute profits to us or otherwise materially
adversely affect us.

In October 2005, SAFE issued the Notice on Relevant Issues in
the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside China, generally referred to as
Circular 75. Circular 75 requires PRC residents to register with the competent
local SAFE branch before establishing or acquiring control over an SPV for the
purpose of engaging in an equity financing outside of China. See Item 1,
Business  PRC Government Regulations  Circular 75 for a detailed discussion
of Circular 75 and its implementation.

We expect to ask our stockholders, who are PRC residents as
defined in Circular 75, to register with the relevant branch of SAFE as
currently required in connection with their equity interests in us and our
acquisitions of equity interests in our PRC subsidiary. However, we cannot
provide any assurances that they can obtain the above SAFE registrations
required by Circular 75. Moreover, because of uncertainty over how Circular 75
will be interpreted and implemented, and how or whether SAFE will apply it to
us, we cannot predict how it will affect our business operations or future
strategies. For example, our present and prospective PRC subsidiaries' ability
to conduct foreign exchange activities, such as the remittance of dividends and
foreign currency-denominated borrowings, may be subject to compliance with
Circular 75 by our PRC resident beneficial holders.

In addition, such PRC residents may not always be able to
complete the necessary registration procedures required by Circular 75. We also
have little control over either our present or prospective direct or indirect
stockholders or the outcome of such registration procedures. A failure by our
PRC resident beneficial holders or future PRC resident stockholders to comply
with Circular 75, if SAFE requires it, could subject these PRC resident
beneficial holders to fines or legal sanctions, restrict our overseas or
cross-border investment activities, limit our subsidiaries' ability to make
distributions or pay dividends or affect our ownership structure, which could
adversely affect our business and prospects.

Our business and financial performance may be materially
adversely affected if the PRC regulatory authorities determine that our
acquisition of Aosen Forestry constitutes a Round-trip Investment without MOFCOM
approval.

On August 8, 2006, six PRC regulatory agencies promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, referred to as the 2006 M&A Rule, which regulate Round-trip
Investments, defined as having taken place when a PRC business that is owned by
PRC individual(s) is sold to a non-PRC entity that is established or controlled,
directly or indirectly, by those same PRC individual(s). See Item 1, Business 
PRC Government Regulations  Mergers and Acquisitions for a detailed discussion
of the 2006 M&A Rule.

The PRC regulatory authorities may take the view that Mr. Bais
acquisition of our equity interest (following exercise of his option), or the
Acquisition, and the reverse acquisition of Bingwu Forestry, are part of an
overall series of arrangements constituting a Round-trip Investment because at
the end of these transactions, Mr. Bai will become the majority owner and
effective controlling party of a foreign entity that acquired ownership of our
Chinese subsidiaries. The PRC regulatory authorities may also take the view that
the registration of the Acquisition with the relevant AIC in Beijing and the
filings with the Beijing SAFE may not be evidence that the Acquisition has been
properly approved because the relevant parties did not fully disclose to the
AIC, SAFE or MOFCOM the overall restructuring arrangements, the existence of the
reverse acquisition and its link with the Acquisition. If the PRC regulatory
authorities take the view that the Acquisition constitutes a Round-trip
Investment under the 2006 M&A Rules, we cannot assure you we may be able to
obtain the approval required from MOFCOM.

In the opinion of our PRC counsel, the Acquisition does not
constitute a Round-trip Investment because Ms. Ren Ping Tu, the sole shareholder
of Bingwu Forestry, is neither a PRC citizen, a shareholder of Aosen Forestry,
nor a member of Aosen Forestrys management. Furthermore, our counsel does not
believe that the existence of the option agreement defeats the status of the
acquisition. However, if the PRC regulatory authorities take the view that the
Acquisition constitutes a Round-trip Investment without MOFCOM approval, they
could invalidate our acquisition and ownership of our Chinese subsidiaries.
Additionally, the PRC regulatory authorities may take the view that the Acquisition constitutes
a transaction which requires the prior approval of the China Securities
Regulatory Commission, or CSRC, before MOFCOM approval is obtained. We believe
that if this takes place, we may be able to find a way to re-establish control
of our Chinese subsidiaries business operations through a series of contractual
arrangements rather than an outright purchase of our Chinese subsidiaries, but
we cannot assure you that such contractual arrangements will be protected by PRC
law or that we can receive as complete or effective economic benefit and overall
control of our Chinese subsidiaries business as if the Company had direct
ownership of our Chinese subsidiaries. In addition, we cannot assure you that
such contractual arrangements can be successfully effected under PRC law. If we
cannot obtain MOFCOM or CSRC approval if required by the PRC regulatory
authorities to do so, and if we cannot put in place or enforce relevant
contractual arrangements as an alternative and equivalent means of control of
our Chinese subsidiaries, our business and financial performance will be
materially adversely affected.

22

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Under the New Enterprise Income Tax Law, we may be
classified as a resident enterprise of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC stockholders.

The EIT Law and its implementing rules became effective on
January 1, 2008. Under the EIT Law, an enterprise established outside of China
with de facto management bodies within China is considered a resident
enterprise, meaning that it can be treated in a manner similar to a Chinese
enterprise for enterprise income tax purposes. The implementing rules of the EIT
Law define de facto management as substantial and overall management and
control over the production and operations, personnel, accounting, and
properties of the enterprise.

On April 22, 2009, the State Administration of Taxation issued
the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to
Criteria of de facto Management Bodies, or the Notice, further interpreting the
application of the EIT Law and its implementation non-Chinese enterprise or
group controlled offshore entities. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a Chinese enterprise
or group will be classified as a non-domestically incorporated resident
enterprise if (i) its senior management in charge of daily operations reside or
perform their duties mainly in China; (ii) its financial or personnel decisions
are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate chops, board and shareholder minutes
are kept in China; and (iv) at least half of its directors with voting rights or
senior management often resident in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide income and must
pay a withholding tax at a rate of 10% when paying dividends to its non-PRC
stockholders. However, it remains unclear as to whether the Notice is applicable
to an offshore enterprise incorporated by a Chinese natural person. Nor are
detailed measures on imposition of tax from non-domestically incorporated
resident enterprises are available. Therefore, it is unclear how tax authorities
will determine tax residency based on the facts of each case.

We may be deemed to be a resident enterprise by Chinese tax
authorities. If the PRC tax authorities determine that we are a resident
enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we may be subject to the enterprise income
tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such
as interest on financing proceeds and non-China source income would be subject
to PRC enterprise income tax at a rate of 25%. Second, although under the EIT
Law and its implementing rules dividends paid to us from our PRC subsidiary
would qualify as tax-exempt income, we cannot guarantee that such dividends
will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that
are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new
resident enterprise classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC stockholders and
with respect to gains derived by our non-PRC stockholders from transferring our
shares. We are actively monitoring the possibility of resident enterprise
treatment for the 2011 tax year and are evaluating appropriate organizational
changes to avoid this treatment, to the extent possible.

If we were treated as a resident enterprise by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax.

We face uncertainty from Chinas Circular on
Strengthening the Administration of Enterprise Income Tax on Nonresident
Enterprises' Share Transfer that was released in December 2009 with retroactive
effect from January 1, 2008.

The Chinese State Administration of Taxation, or SAT, released
a circular on December 15, 2009 that addresses the transfer of shares by
nonresident companies, generally referred to as Circular 698. Circular 698,
which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore
holding companies to invest in China. Circular 698, which provides parties with
a short period of time to comply with its requirements, indirectly taxes foreign
companies on gains derived from the indirect sale of a Chinese company. Where a
foreign investor indirectly transfers equity interests in a Chinese resident
enterprise by selling the shares in an offshore holding company, and the latter
is located in a country or jurisdiction where the effective tax burden is less
than 12.5% or where the offshore income of his, her, or its residents is not
taxable, the foreign investor is required to provide the tax authority in charge
of that Chinese resident enterprise with the relevant information within 30 days
of the transfers. Moreover, where a foreign investor indirectly transfers equity
interests in a Chinese resident enterprise through an abuse of form of
organization and there are no reasonable commercial purposes such that the
corporate income tax liability is avoided, the PRC tax authority will have the
power to re-assess the nature of the equity transfer in accordance with PRCs
substance-over-form principle and deny the existence of the offshore holding
company that is used for tax planning purposes. There is uncertainty as to the
application of Circular 698. For example, while the term "indirectly transfer"
is not defined, it is understood that the relevant PRC tax authorities have
jurisdiction regarding requests for information over a wide range of foreign
entities having no direct contact with China. Moreover, the relevant authority
has not yet promulgated any formal provisions or formally declared or stated how
to calculate the effective tax in the country or jurisdiction and to what extent
and the process of the disclosure to the tax authority in charge of that Chinese
resident enterprise. In addition, there are not any formal declarations with
regard to how to decide abuse of form of organization and reasonable
commercial purpose, which can be utilized by us to balance if our Company
complies with the Circular 698. As a result, we may become at risk of being
taxed under Circular 698 and we may be required to expend valuable resources to
comply with Circular 698 or to establish that we should not be taxed under
Circular 698, which could have a material adverse effect on our financial
condition and results of operations.

23

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We may be exposed to liabilities under the Foreign
Corrupt Practices Act and Chinese anti-corruption laws, and any determination
that we violated these laws could have a material adverse effect on our
business.

We are subject to the Foreign Corrupt Practice Act, or FCPA,
and other laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties by U.S. persons and
issuers as defined by the statute, for the purpose of obtaining or retaining
business. We have operations, agreements with third parties, and make most of
our sales in China. The PRC also strictly prohibits bribery of government
officials. Our activities in China create the risk of unauthorized payments or
offers of payments by the employees, consultants, sales agents, or distributors
of our Company, even though they may not always be subject to our control. It is
our policy to implement safeguards to discourage these practices by our
employees. However, our existing safeguards and any future improvements may
prove to be less than effective, and the employees, consultants, sales agents,
or distributors of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA or Chinese anti-corruption laws may result
in severe criminal or civil sanctions, and we may be subject to other
liabilities, which could negatively affect our business, operating results and
financial condition. In addition, the U.S. government may seek to hold our
Company liable for successor liability FCPA violations committed by companies in
which we invest or that we acquire.

We have not received formal land use rights to the land
where our manufacturing facility is located.

We hold 20,128 square meters of land in Xingyi, Guizhou
province which houses, plants, warehousing and packaging facilities, dormitory
space, administrative offices, and maintenance facilities. Our use of this land
was authorized by the authorities of the Dingxiao Economic Development Zone,
Guizhou province, and since that time our application for the formal land use
right was forwarded to the Guizhou Province Land Resources authority for
approval. However, due to differences in the planning of the Economic
Development Zone and the Land Resources authorities, we have still not obtained
formal land use rights for such land. The Economic Development Zone has been
actively working to obtain formal approval, which they expect to receive during
the second quarter of 2011. Since our company was a key invitee to the Dingxiao
Economic Development Zone and they are actively helping us with the land use
rights application process. As a result, we do not expect our operations to be
jeopardized while we await such land use rights.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

Our common stock is quoted on the OTCQB market which may
have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTCQB over-the-counter
electronic quotation system maintained by The OTC Markets, LLC. The
over-the-counter market is a significantly more limited market than exchanges
such as the New York Stock Exchange and NASDAQ. The quotation of our shares on
the OTCQB may result in a less liquid market available for existing and
potential stockholders to trade shares of our common stock, could depress the
trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
We plan to list our common stock on a stock exchange as soon as practicable,
however, we cannot assure you that we will be able to meet the initial listing
standards of any stock exchange, or that we will be able to maintain any such
listing.

24

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We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define
so-called penny stocks to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. Our common stock is a penny stock and is subject to
Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and accredited
investors (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market,
thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.

We do not intend to pay dividends for the foreseeable
future.

For the foreseeable future, we intend to retain any earnings to
finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Accordingly, investors must be
prepared to rely on sales of their common stock after price appreciation to earn
an investment return, which may never occur. Investors seeking cash dividends
should not purchase our common stock. Any determination to pay dividends in the
future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant.

Certain provisions of our Articles of Incorporation may
make it more difficult for a third party to effect a change-of-control.

Our Articles of Incorporation authorize our board of directors
to issue up to 5,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by our board of directors without further action by the
stockholders. These terms may include voting rights including the right to vote
as a series on particular matters, preferences as to dividends and liquidation,
conversion rights, redemption rights and sinking fund provisions. The issuance
of any preferred stock could diminish the rights of holders of our common stock,
and therefore could reduce the value of such common stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
our ability to merge with, or sell assets to, a third party. The ability of our
board of directors to issue preferred stock could make it more difficult, delay,
discourage, prevent or make it more costly to acquire or effect a
change-in-control, which in turn could prevent our stockholders from recognizing
a gain in the event that a favorable offer is extended and could materially and
negatively affect the market price of our common stock.

ITEM 2. PROPERTIES.

There is no private ownership of land in China and all urban
land ownership is held by the government of the PRC, its agencies and
collectives. Land use rights can be obtained from the government for a period of
up to 50 years for industrial usage, 40 years for commercial usage and 70 years
for residential usage, and are typically renewable. Land use rights can be
transferred upon approval by the land administrative authorities of the PRC
(State Land Administration Bureau) upon payment of the required land transfer
fee.

25

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We have purchased the following forestry land use rights for a
total of $5,856,515 (RMB 40,000,000):

Certificate
      Number
    Locality
    Area (square kilometers)
    Expiration DateB520802335298
    Liping County, Guizhou Province
    17.34
    October, 2041B5208022556795
    Liping
      County, Guizhou Province
    5.17
    October, 2041


Our corporate headquarters are located in Guiyang, Guizhou
Province. We hold 20,128 square meters of land which houses plants, warehousing
and packaging facilities, dormitory space, administrative offices, and
maintenance facilities. Our construction on this land was authorized in 2004 by
the authorities of the DEDZ, and at that time, our application for formal land
use rights was forwarded to the Guizhou LRD for approval. We have been advised
by the Guizhou LRD that, due to DEDZ planning changes, the Guizhou LRD had
suspended the issuance of any land use rights to DEDZ residents, including the
Company, until it could approve such planning changes. However, we understand
that the Guizhou LRD has now agreed to the DEDZ planning changes and the DEDZ
has been actively working to obtain formal approval for the Company, which they
expect to receive in 2011. Since our Company was a key invitee to the DEDZ and
they have been actively assisting the Company with the land use rights
application process, we do not expect our operations to be jeopardized while we
await such land use rights. If we are denied land use rights or other approvals
for all uses of this property, it may be resumed by the state without
compensation, along with all buildings, fixtures, structures and improvements on
such land. If this were to happen, our financial condition would be materially
and adversely affected.

Our production facility is located over an hours drive away
from the nearest city residential area. In order to reduce the burden of
commuting and provide better benefits for our employees, we built housing for
our employees use on the same tract of land where our production facilities are
located. To date, 82 employees are taking advantage of such housing. Our
employee housing averages 12 square meters per apartment. Each apartment has its
own bathroom, water heater, desks, chairs, beds, bedding and other basic living
facilities and is usually shared by 2 employees. We have a total of 63 such
apartments. As we disclosed above, since we are still in the process of applying
for land use rights over the land which houses our production facilities and
dormitory space, we have not received the applicable government housing permits
for such housing. According to relevant Chinese laws, we are not allowed to
obtain government housing permits without the land use right over the land where
our employee apartments are located. We employ 3 staff members to safeguard our
employee housing and our executive office buildings.

We also hold the land use rights for 3,723 square meters of
office space.

We sell some of our products through eight retail stores which
we refer to as flagship stores because they are generally larger and better
equipped with samples, promotional material and product inventory, as compared
to regular retail stores, and as a result, they better promote our image and the
quality of our products. These flagship stores are leased from third parties and
we do not have ownership of or land use rights over any of them. Currently, five
of these eight stores are leased by GST or its affiliates. As we discussed
above, Aosen Forestry and GST jointly formed Silvan Flooring on October 22,
2007. This joint venture arrangement has now been terminated and Aosen Forestry
now owns 100% of Silvan Flooring. As a result, GST is gradually assigning these
leases to us. The other three stores are leased by non GST distributors, but we
have supported these three stores with funds for advertisement, decoration,
samples and various promotions, and placed standard requirements on these three
flagship stores. The aggregate monthly payments under these leases total $9,249,
as set forth on the table below:

Store
    Location
    Leasing Parties
    Material Terms
    Expiration DateZhong Xin
    Guizhou
    Lessor: Guizhou Military Region Logistic Dept Property
      Mgmt Office Lessee: GST, Guizhou Subsidiary
    - Store Leased Area: 128 m^2 - Store Monthly fee:
      $1,108 - Warehouse Leased Area: 700 m^2 - Warehouse Monthly fee:
      $2,194
    December 31, 2010 (renewal pending)Red Star Macalline
    Guizhou
    Lesser: Guizhou Fuyuanmei Furniture Investment
      Development Co., Ltd Lessee: GST, Guizhou Subsidiary
    - Leased Area: 191 m^2 - Monthly fee:$1,668
    May 15, 2011Xinfa
    Guizhou
    Lesser: Guiyang Xinfa Large Decoration Material Market
      Lessee: Huaneng Guo (individual, GST affiliate)
    - Leased Area:81 m^2 - Monthly fee: $619
    June 30, 2011


26

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Jinyang
    Guizhou
    Lesser: Guizhou Southwest International
      Decoration Showcase City Co., Ltd Lessee: Yi Ran (individual)
    - Leased Area: 198 m^2 - Monthly fee: $712
      from April 1, 2010 to March 31, 2011; $781 from April 1, 2011 to March 21,
      2012
    December 31, 2012Xingyi
    Guizhou
    Lesser: Tan, Dalin (individual)
      L Lessee: Minggang Liu (individual)
    - Store Leased Area: 150 m^2
      - Warehouse Leased Area: 190m^2 - Total Monthly fee: $821
    2011 ,24February (renewal
      pending)Huqiu
    Guangxi
    Lesser: Nanning Xungui Trading Co., Ltd
      Lessee: GST, Guangxi Subsidiary
    - Leased Area: 222 m^2 - Monthly fee: $563
    August 31, 2013Daguanlou
    Yunnan
    Lesser: Kunming Daguan Building
      and Wood Material Market Lessee: Xu Li (individual, GST affiliate)
    - Leased Area: 260 m^2 -
      Monthly fee: $1,048
    MonthlyNanchong
    Sichuan
    Lesser: Nanchong Guangcai Properties Management
      Co., Ltd Lessee: Mingxing Wu (individual)
    - Leased Area: 187 m^2 - Monthly fee: $477
      in year 1; $502 in year 2; $558 in year 3
    August 12, 2012


We have engaged in verbal commercial arrangements with GST and
the three third-party distributors for marketing and distributing our products.
They purchase products from us and resell them to consumers. However, we do not
have written agreements with them.

We believe that all leased space is in good condition.

27

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted on the OTCQB Market trades under the
symbol PNXE. Historically, there has not been an active trading market for our
common stock. The first trade in our stock did not occur until October 21, 2009
and from that time until the third quarter of 2010, our common stock was traded
on a very sporadic basis.

The following table sets forth, for the periods indicated, the
high and low closing prices of our common stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.

|                                                                                                                                                                                       |   | **Closing Bid Prices(1)** | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | 
|                                                                                                                                                                                       |   | High                      | 
|Fiscal year ended December 31, 2010                                                                                                                                                    |   |                           | 
|1stQuarter                                                                                                                                                                             | $ | 0.21                      | 
|2ndQuarter                                                                                                                                                                             |   | 0.28                      | 
|3rdQuarter                                                                                                                                                                             |   | 0.14                      | 
|4thQuarter                                                                                                                                                                             |   | 0.27                      | 
|                                                                                                                                                                                       |   |                           | 
|Fiscal year ended December 31, 2009                                                                                                                                                    |   |                           | 
|1stQuarter                                                                                                                                                                             | $ | 1.01                      | 
|2ndQuarter                                                                                                                                                                             |   | 1.01                      | 
|3rdQuarter                                                                                                                                                                             |   | 0.25                      | 
|4thQuarter                                                                                                                                                                             |   | 0.25                      | 
|                                                                                                                                                                                       |   |                           | 
|(1)The above table sets
      forth the range of high and low closing bid prices per share of our common
      stock as reported by www.quotemedia.comfor the periods
      indicated. |  
|

Holders

As of March 16, 2011, there were approximately 125 stockholders
of record of our common stock. This number does not include shares held by
brokerage clearing houses, depositories or others in unregistered form.

Dividends

Any decisions regarding dividends will be made by our board of
directors. We currently intend to retain and use any future earnings for the
development and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Our board of directors has complete
discretion on whether to pay dividends, subject to the approval of our
stockholders. Even if our board of directors decides to pay dividends, the form,
frequency and amount will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions and other factors that the board of directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation
Plans

We do not have any compensation plans in effect under which our
equity securities are authorized for issuance.

Recent Sales of Unregistered Securities

We have not sold any equity securities during the fiscal year
ended December 31, 2010 that were not previously disclosed in a quarterly report
on Form 10-Q or a current report on Form 8-K that was filed during the 2010
fiscal year.

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Purchases of Equity Securities

No repurchases of our common stock were made during the fourth
quarter of 2010.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The following managements discussion and analysis should be
read in conjunction with our financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. In addition to
historical information, the following discussion contains certain
forward-looking information. See Special Note Regarding Forward Looking
Statements above for certain information concerning those forward looking
statements. Our financial statements are prepared in U.S. dollars and in
accordance with U.S. GAAP.

Overview

Our company manufactures and sells floor materials and related
products to residential and commercial customers in China. Our product lines
include laminate flooring and fiber floor boards that are manufactured in a
variety of colors, dimensions and designs.

Our manufacturing facility in Qianxinan, Guizhou province has
annual production capacity of six million square meters of laminate flooring and
75,000 cubic meters of industrial fiber boards. We are constructing new
manufacturing facility that we expect will increase our overall capacity to
200,000 cubic meters of fiber boards and 12 million square meters of laminate
floor. We are in the process of obtaining the land use rights for this new
facility, which we expect to receive by mid-2012 when we launch our new plant,
however, we cannot guarantee that such approval will be obtained by that time.

We market and sell our products through five branch offices and
approximately several hundred specialty retail flooring stores, concentrated
mostly in southwestern China. We also sell some of our products through eight
retail stores which we refer to as flagship stores because they are generally
larger and better equipped with samples, promotional material and product
inventory, as compared to regular retail stores, and as a result, they are
better promote our image and the quality of our products. We are also pursuing
commercial arrangements for the sale of our products through home supply stores.
We believe that home supply stores are an important channel for the sale of
building/home renovation materials and we plan to increase our efforts to work
with more home supply stores in the future.

Recent Developments

There has been no material developments since fiscal year end.
The Company plans to continue expanding its production capacity by construction
a new manufacture facility which is in progress and expanding its nationwide
sales network.

2010 Financial Performance Highlights

In the 2010 fiscal year, we improved our performance in terms
of revenues, gross profit, gross margin and net income, primarily as a result of
the rapid growth in our production and sales volume.

The following summarizes certain key financial information for
the 2010 fiscal year.

- Revenues: Our revenues were $37.0 million for the 2010
  fiscal year, an increase of approximately $23.7 million, or 178.8%, from $13.3
  million for fiscal year 2009.
- Gross Profit and Margin: Gross profit was $11.7 million for
  the 2010 fiscal year, as compared to $3.3 million for fiscal year 2009. Gross
  margin was 31.7% for the 2010 fiscal year, as compared to 24.8% for fiscal
  year 2009.
- Net Income: Net income was $9.3 million for the 2010 fiscal
  year, an increase of approximately $7.1 million, or approximately 322.7%, from
  $2.2 million for fiscal year 2009.
- Fully diluted net income per share: Fully diluted net income
  per share was approximately $0.42 for the 2010 fiscal year, as compared to
  approximately $0.11 for fiscal year 2009.

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Principal Factors Affecting Our Financial
Performance

The overall performance of the flooring industry and our
business is influenced by consumer confidence, spending for durable goods,
interest rates, turnover in housing, the condition of the residential and
commercial construction industries and the overall strength of the economy.
Demand for our flooring products in the PRC heavily depends on many other
economic factors and government policies designed to drive growth in the
construction and real estate development sectors of the PRC economy, including
the following:

- Urbanization.Over the last twenty years, China has
  experienced rapid urbanization due to the increasingly limited capacity of
  rural areas to provide adequate economic support for a large agrarian
  population, the increasing disparity in disposable incomes between rural and
  urban dwellers and the easing of restrictions which historically limited rural
  to urban migration from rural areas to towns and cities. The development of an
  industrial base and service sector in urban areas has also driven large labor
  pools with a broad range of skills to urban areas. It is estimated that
  China's urban population will expand from 572 million in 2005 to 926 million
  in 2025 and hit the one billion mark by 2030. As a result of the urbanization
  trend and the associated need to expand an underdeveloped infrastructure to
  accommodate and house such growth, we believe that commercial and residential
  construction will expand measurably in future years thereby creating
  additional demand for our flooring products.
- Government policies.Despite the Chinese Governments
  adoption of unfavorable policies and regulation to control growth in the real
  estate market in China, we believe these policies will not have a negative
  impact on our sales. The policies are intended to control unbounded
  escalations in the price of real estate. We believe that the desire to
  purchase or renovate real estate will increase with the suppression of housing
  prices. From this perspective, we expect that policies to suppress housing
  prices will have a positive impact on the sales of our flooring products.
- Growth of Chinas laminate flooring industry. According to
  China Wood Flooring Industry Status and Trend, available at
  http://hi.baidu.com/xlove813/blog/item/03c675f0d81a6ac67931aadf.html,
  the value of Chinas laminate flooring industry is approximately $4.1 billion
  per year, with approximately 370 million square meters sold each year, at an
  average sale price of $11 per square meter. We believe that many Chinese
  residential property owners will elect to purchase laminate flooring over
  hardwood floor which is considerably cheaper at approximately roughly $38 per
  square meter.
- Expansion of our production capacity.We expect to increase
  our overall capacity from 75 million to 200,000 cubic meters of fiber boards
  and from 6 million to 12 million square meters of laminate floor. We expect to
  complete this new facility by late 2012. We expect to incur significant costs
  in connection with the expansion of our business, and any failure to
  successfully implement our expansion plans may materially and adversely affect
  our business, financial condition and results of operations.

Taxation

We are subject to United States tax at a tax rate of 34%. No
provision for income taxes in the United States has been made as we have no
income taxable in the United States.

Bingwu Forestry was incorporated in Hong Kong and under the
current laws of Hong Kong, is subject to Profits Tax of 16.5% . No provision for
Hong Kong Profits Tax has been made as Bingwu Forestry has no taxable income.

Under the EIT Law, Aosen Forestry and Silvan Flooring are
subject to an earned income tax of 25.0% for 2010 and 2011. For 2008-2009, they
were entitled to certain preferential tax treatments and were subject to an
earned income tax rate of 12.5% . See Item 1, Business  PRC Government
Regulations  Taxation for a detailed description of the EIT Law and tax
regulations applicable to our Chinese subsidiaries.

Results of Operations

As a result of the urbanization trend and the associated need
to expand an underdeveloped infrastructure to accommodate and house such growth,
we believe that commercial and residential construction will expand measurably
in future years thereby creating additional demand for our flooring products. We expect to focus
on our five-pronged growth plan that involves the expansion of sales through our
retail stores and distribution networks, brand building efforts, production
capacity expansion for the fiber board and laminate flooring segment, raw
material resource cultivation and expansion of forestry assets through
maintenance and upstream acquisitions, and horizontal acquisitions of regional
market leading flooring companies in key growth regions in China. We believe
that while the capacity for fiber board production is expected to meet customer
demand in the coming quarters, current production capacity of laminate flooring
may only suffice to cover customer orders for a short period due to anticipated
demand growth. As a result, we will continue our efforts to expand our
production capacity within the next three years.

30

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Comparison of Years Ended December 31, 2010 and December
31, 2009

The following table sets forth key components of our results of
operations during the fiscal years ended December 31, 2010 and 2009, both in
dollars and as a percentage of our net sales.

|                                    |   | For the year ended |   |  | For the year ended |   |  | Increase   |   |  | Increase   |  
|----------------------------------- | - | ------------------ | - |  | ------------------ | - |  | ---------- | - |  | ---------- | -
|                                    |   | December 31, 2010  |   |  | December 31, 2009  |   |  | (Decrease) |   |  | (Decrease) |  
|                                    |   |                    |   |  |                    |   |  |            |   |  | Percentage |  
|                                    |   |                    |   |  |                    |   |  |            |   |  |            |  
|                                    |   | % of Net revenue   |   |  | % of Net revenue   |   |  |            |   |  |            |  
|Net revenue                         | $ | 37,042,160         |   |  | 100.0%             |   |  | 13,285,949 |   |  | 100.0%     |  
|Cost of goods sold                  |   | 25,296,696         |   |  | 68.3%              |   |  | 9,996,622  |   |  | 75.2%      |  
|Gross profit                        |   | 11,745,464         |   |  | 31.7%              |   |  | 3,289,327  |   |  | 24.8%      |  
|Operating expenses                  |   |                    |   |  |                    |   |  |            |   |  |            |  
|Selling and marketing expenses      |   | (252,042           | ) |  | (0.7%              | ) |  | (90,273    | ) |  | (0.7%      | )
|General and administrative expenses |   | (1,446,629         | ) |  | (3.9%              | ) |  | (612,054   | ) |  | (4.6%      | )
|Total operating expenses            |   | (1,698,671         | ) |  | (4.6%              | ) |  | (702,327   | ) |  | (5.3%      | )
|Income from operations              |   | 10,046,793         |   |  | 27.1%              |   |  | 2,587,000  |   |  | 19.5%      |  
|Other income (expense)              |   |                    |   |  |                    |   |  |            |   |  |            |  
|Other income                        |   | 103,411            |   |  | 0.3%               |   |  | 30,440     |   |  | 0.2%       |  
|Government grant                    |   | 2,110,792          |   |  | 5.7%               |   |  | 169,546    |   |  | 1.3%       |  
|Interest expense                    |   | (289,408           | ) |  | (0.8%              | ) |  | (162,860   | ) |  | (1.2%      | )
|Total other income (expenses)       |   | 1,924,795          |   |  | 5.2%               |   |  | 37,126     |   |  | 0.3%       |  
|Income before income taxes          |   | 11,971,588         |   |  | 32.3%              |   |  | 2,624,126  |   |  | 19.8%      |  
|Provision for income taxes          |   | (2,680,096         | ) |  | (7.2%              | ) |  | (378,095   | ) |  | (2.8%      | )
|Net income                          | $ | 9,291,492          |   |  | 25.1%              |   |  | 2,246,031  |   |  | 16.9%      |  

Revenues. We generate revenues from the sales of
our industrial fiber boards, laminate flooring and related flooring products.
Our revenues increased to $37.0 million in the fiscal year ended December 31,
2010, from $13.3 million last year, representing an approximate 178.2% increase
year-over-year. The increase in revenue was mainly due to higher sales volume
after the expansion of our sales and distribution network. During the 2010
fiscal year, we sold 3,208,000 square meters of laminate flooring and 2,804,416
pieces of fiber boards, as compared to 190,000 square meters of laminate
flooring and 1,550,605 pieces of fiber boards during the 2009 fiscal year. Sales
of our laminate flooring and fiber board products accounted for approximately
53.6% and 46.4% of our sales revenues, respectively, during the 2010 fiscal
year, as compared to 12% and 88%, respectively, in 2009.

Cost of sales. Our cost of goods sold is
primarily comprised of the costs of our raw materials, labor and overhead. Our
cost of sales increased approximately $15.3 million, or 153.0%, to $25.3 million
in the fiscal year ended December 31, 2010, from $10.0 million in 2009. The
increase was generally in line with the increase in volume of our product sales.
The cost of sales as a percentage of revenue changed from 75.2% in 2009 to 68.3%
in 2010. primarily due to improvement in production equipment and techniques.

We currently purchase raw materials essential to our business
from numerous suppliers, but in the future, we expect to utilize raw materials
from our 2,250 hectares (approximately, 22.5 km2) of fir trees for which we hold
land use rights. We acquired land use right over such piece of land with the fir
trees already planted. We expect to start harvesting these trees in the fourth
quarter of 2012.

31

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After harvesting these fir trees, we plan to cultivate
eucalyptus trees on this land. We expect that the cost for developing and
harvesting will be approximately RMB 39 million (approximately $6.0 million).

Gross profit and gross margin. Our gross profit
is equal to the difference between our revenues and our cost of goods sold. Our
gross profit increased approximately $8.4 million, or 254.5%, to $11.7 million
in the fiscal year ended December 31, 2010, from $3.3 million in 2009. Gross
profit as a percentage of net revenue (gross margin) was 31.7% and 24.8% for the
years ended December 31, 2010 and 2009, respectively. The increase in the gross
margin was primarily driven by raw material cost controls and a higher level of
vertical integration due to our increased internal production and self sourcing
of fiber boards. The gross margins from sales of our laminate flooring and fiber
board products were 28.3% and 23.4%, respectively, for the fiscal year ended
December 31, 2010, as compared to 33.5% and 21.8%, respectively, for the 2009
fiscal year.

Selling and marketing expenses. Our selling and
marketing expenses are comprised primarily of sales commissions, the cost of
advertising and promotional materials, salaries and fringe benefits of sales
personnel and other sales related costs. Our selling and marketing expenses
increased by approximately $162,000, or 180.0%, to $252,000 in the fiscal year
ended December 31, 2010, from $90,000 in 2009. The increase was primarily a
result of the expansion of our sales network leading to increased advertisement
expenses. Our advertisement expenses in the 2010 fiscal year amounted to
$141,084, compared to $7,163 in 2009.

General and administrative expenses. General and
administrative expenses consist primarily of compensation and benefits to our
general management, finance and administrative staff, professional advisor fees,
audit fees and other expenses incurred in connection with general operations.
Our general and administrative expenses increased approximately $835,000, or
136.4%, to $1, 447,000 in the fiscal year ended December 31, 2010, from $612,000
in 2009. This increase was mainly due to the hiring of additional staff to
manage our expanding business, particularly in our finance department, in
anticipation of our public listing.

Other income (expense). We had $1,924,795 in
other income in the fiscal year ended December 31, 2010, as compared to other
income of $37,126 during 2009. Other income in the 2010 fiscal year consisted of
$103,411 in non-operating income, $2,110,792 in government grants and interest
expense of $289,408, while other income in the 2009 fiscal year consisted of
$30,440 in non-operating income, $169,546 in government grants, and interest
expense of $162,860.

Income before income taxes. Our income before
income taxes increased by approximately $9.4 million, or 361.5%, to $12.0
million in the fiscal year ended December 31, 2010, from $2.6 million in 2009.
The reason for such increase was mainly due to higher revenues and a decrease in
cost of sales resulting from our efforts to streamline our supplier
relationships and procurement processes.

Government grant. We had $2.1 million in
government grant in the 2010 fiscal year, as compared to $169,546 in the 2009
fiscal year. Government grant consists entirely of the value added tax refund
during the 2010 period. According to a tax refund approval notice issued by the
Tax Administration of the Ministry of Finance, certain items, including our wood
flooring and wooden fiber sheets are qualified for the refund of VAT tax and the
tax refund rates are 100% in 2009 and 80% in 2010.

Income taxes. Our income taxes increased by
approximately $2,302,000, or 609.0%, to $2,680,000 in the fiscal year ended
December 31, 2010, from $378,000 in 2009. The increase was due to our increase
in income.

Net income. In the fiscal year ended December 31,
2010, we generated a net income of $9.3 million, an increase of approximately
$7.1 million, or 322.7%, from $2.2 million in 2008. This increase was primarily
attributable to the rapid growth in our production and sales as noted above.

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of
$2.3 million, primarily consisting of cash on hand and demand deposits. To date,
we have financed our operations primarily through cash flows from operations,
augmented by short-term bank borrowings and equity contributions by our
stockholders.

The following table sets forth a summary of our cash flows for
the periods indicated:

32

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Cash Flows

|                                                          |   | Fiscal Year Ended |  
|--------------------------------------------------------- | - | ----------------- | -
|                                                          |   | December 31,      |  
|                                                          |   | 2010              |  
|Net cash provided by (used in) operating
      activities | $ | (609,846          | )
|Net cash used in investing activities                     | $ | (1,986,787        | )
|Net cash provided by financing activities                 | $ | 2,389,363         |  
|Effects of exchange rate change in cash                   | $ | 1,070,451         |  
|Net increase in cash and cash equivalents                 | $ | 863,181           |  
|Cash and cash equivalent at beginning of the period       | $ | 1,471,729         |  
|Cash and cash equivalent at end of the
      period       | $ | 2,334,910         |  

Operating activities

Net cash used in operating activities was $0.6 million for the
year ended December 31, 2010, as compared to net cash provided by operating
activities of $1.9 million for 2009. Although there was an increase of
approximately $7.1 million in net income and a decrease of $3.8 million in
inventories due to our efforts to reduce our inventory level, this gain was
reduced by a $4.4 million increase in deposits and prepaid expenses primarily
relating to prepayments for raw materials and goods supplies and a decrease of $6.1 million in
accounts payable.

Investing activities

Net cash used in investing activities for the year ended
December 31, 2010 was $2.0 million, as compared to $1.7 million in 2009. The
net cash used in investing activities was primarily due to prepayment for
property and equipment relating to expansion of our production facilities.

Financing activities

Net cash provided by financing activities for the year ended
December 31, 2010 was $2.4 million, as compared to $1.0 million in 2009. The
increase in net cash used in financing activities was primarily due to a loan
from the Bank of Chongqing for $3.0 million, a loan from the Xingyi City Rural
Cooperative Bank for $0.7 million and the issuance of two non-interest bearing
convertible notes in the aggregate principal amount of $4,800,000 in connection
with the reverse acquisition and recapitalization during the 2010 fiscal year.
Of the $4.8 million proceeds from the issuance of convertible notes, $2.8
million was received by the Company and approximately $2 million was deposited
into Mr. Bai's account and recorded as due from related party which was netted
with amount due to Mr. Bai in Other Payable.

Loan Commitments

As of December 31, 2010, the amount, maturity date and term of
each of our bank loans were as follows:

(all amounts in U.S. Dollars)

Bank
    
    Amount
    
    
    Interest Rate
    
    
    Maturity Date
    
    
    DurationBank of Chongqing
    
    3,034,000
    
    
    5.310%
    
    
    June 20, 2011
    
    
    1 yearGuizhou Xingyi Rural Cooperative Bank**
    
    743,330
    
    
    7.965%
    
    
    March 25, 2011
    
    
    1 yearGuizhou Xingyi Rural Cooperative Bank
    
    758,500
    
    
    8.100%
    
    
    July 16, 2011
    
    
    2 yearsTOTAL
    
    4,535,830* Calculated based on the
      exchange rate of $1 = RMB6.59** The amount has been repaid on
      March 25, 2011.


We are not aware of any material trend, event or capital
commitment, which would potentially adversely affect liquidity. In the event a
material trend develops, we believe that our cash on hand and cash flow from
operations will meet part of our present cash needs and we will require
additional cash resources, including loans, to meet our expected capital
expenditure and working capital for the next 12 months. In the future we may
also require additional cash resources due to changed business conditions or
acquisitions that we may decide to pursue. In addition, because substantially
all of our revenues are generated from our indirect PRC subsidiaries, Aosen
Forestry and Silvan Flooring, the ability of our PRC subsidiaries to make
dividends and other payments to us is subject to the PRC dividend restrictions. Current PRC law permits payments of
dividend by our PRC subsidiaries only out of their accumulated after-tax
profits, if any, determined in accordance with PRC accounting standards and
regulations. Our PRC subsidiaries are also required under PRC laws and
regulations to allocate at least 10% of their annual after-tax profits
determined in accordance with PRC GAAP to a statutory general reserve fund until
the amounts in said fund reaches 50% of their registered capital. Allocations to
the statutory reserve fund can only be used for specific purposes and are not
transferable to us in the form of loans, advances or cash dividends. As we
disclosed above, our PRC subsidiaries did not allocate their after-tax profits
to the statutory general reserve fund pursuant to the PRC regulations. We had
allocated an aggregate of aggregate of RMB10,380,366 (approximately $1.6
million) to our fund to our fund as of September 30, 2011.

33

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If our own financial resources are insufficient to satisfy our
capital requirements, we may seek to sell additional equity or debt securities
or obtain additional credit facilities. The sale of additional equity securities
could result in dilution to our stockholders. The incurrence of indebtedness
would result in increased debt service obligations and could require us to agree
to operating and financial covenants that would restrict our operations.
Financing may not be available in amounts or on terms acceptable to us, if at
all. Any failure by us to raise additional funds on terms favorable to us, or at
all, could limit our ability to expand our business operations and could harm
our overall business prospects.

Obligations under Material Contracts

The table below sets forth our contractual obligations as of
December 31, 2010.

MoreLess than
    
    
    1-3
    
    
    4-5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-Term Debt Obligations
    $
    4,535,830
    
    $
    4,535,830
    
    
    -
    
    
    -
    
    
    -Capital Lease Obligations
    $
    -
    
    $
    -
    
    
    -
    
    
    -
    
    
    -Operating Lease Obligations
    $
    -
    
    $
    -
    
    
    -
    
    
    -
    
    
    -Purchase obligations
    $
    658,402
    
    $
    658,402
    
    
    -
    
    
    -
    
    
    -Other Long-term Obligations Reflected on
      the Balance Sheet
    $
    -
    
    $
    -
    
    
    -
    
    
    -
    
    
    -Total
    $
    5,194,232
    
    $
    5,194,232
    
    
    -
    
    
    -
    
    
    -


- We are obligated to repay, our Chief Executive Officer, Mr. Yulu Bai RMB
  40 million (approximately, $6 million) in connection with forestry rights for
  the 2,250 hectares (approximately, 22.5 km2) of a eucalyptus tree
  forest in Guizhou province valued at RMB 40 million (approximately, $6
  million), transferred from Mr. Bai to us on December 10, 2009, to secure our
  long-term raw material needs. We initially intended to repay Mr. Bai for the
  rights prior to the 2010 year end. Due to the Companys working capital needs
  during 2010, we only repaid Mr. Bai RMB21,097,452 (approximately, $3.2
  million) during 2010. We did not enter into a written agreement with Mr. Bai
  in connection with the transfer and repayment obligation, and there is no
  interest or late payment penalties in connection with the obligation. We
  repaid Mr. Bai the remaining RMB18,902,548 (approximately, $2.8 million) in
  March 2011.
- The Company entered into a financial advisory agreement dated February 2,
  2010 to appoint Asia Regal Financial Capital Group Co., Ltd. and Shenzhen
  Junwei Investment and Development Co., Ltd. as financial advisors. Pursuant to
  the agreement, the Company is obligated to issue 100,000 of common shares at
  $0.10 per share to hem prior to December 31 of every year within 5 years from
  the quotation of the Company stock in the OTC markets. The agreement contains
  an exclusivity provision whereby the Company has agreed to engage them as the
  sole financial advisor of the Companys and its affiliates for a 2-year period
  following such stock quotation and contains a $1 million liquidated damages
  provision for breach of such exclusivity.
- CCG Investor Relations Partners LLC, CCG, the Companys investor relations
  firm, was issued a warrant to purchase up to 60,000 shares of the Companys
  stock, at a price of $4.00 per share, pursuant to the terms and conditions of
  an engagement letter agreement, dated December 15, 2010, between the Company
  and CCG. The warrant has a term of 5 years and expires on December 15, 2015.
  CCG had not exercised the warrant and had not purchased any shares of the
  Companys stock.

34

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Inflation

Inflation and changing prices have not had a material effect on
our business and we do not expect that inflation or changing prices will
materially affect our business in the foreseeable future. However, our
management will closely monitor the price change in our industry and continually
maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically
have not been subject to seasonal variations. This pattern may change, however,
as a result of new market opportunities or new product introduction.

Critical Accounting Policies

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts
reported, including the notes thereto, and related disclosures of commitments
and contingencies, if any. We have identified certain accounting policies that
are significant to the preparation of our financial statements. These accounting
policies are important for an understanding of our financial condition and
results of operation. Critical accounting policies are those that are most
important to the portrayal of our financial conditions and results of operations
and require managements difficult, subjective, or complex judgment, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial
statements and because of the possibility that future events affecting the
estimate may differ significantly from managements current judgments. We
believe the following critical accounting policies involve the most significant
estimates and judgments used in the preparation of our financial statements:

Fiscal year

On November 1, 2010, the Company changed its fiscal year end
from June 30 to December 31.

Reporting entity

The accompanying consolidated financial statements include the
following entities:

Name of subsidiary
    Place of incorporation
    Date of incorporation
    Percentage of interest
    Principal activityChina Bingwu Forestry Group Limited
    Hong Kong Special
      Administrative Region, PRC
    April 9, 2010
    100% directly
    Investment holdingQianxinan Aosen Forestry People's Republic of Co., Limited
    China
    November 22, 2004
    100% directly
    Manufacturing and wholesaling of fiber boards,
      wood flooring, carpentry boards, wood products, furniture, and timberQianxinan Silvan Touch Flooring Co., Limited
    People's Republic of China
    October 22, 2007
    100% directly
    Manufacturing and wholesaling of wood flooring,
      furniture and decorations


35

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Basis of presentation

The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP").

Basis of consolidation

The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America, or US GAAP. In the opinion of management, the accompanying balance
sheets, and statements of income, and cash flows and include all adjustments,
consisting only of normal recurring items, considered necessary to give a fair
presentation of operating results for the periods presented. All material
inter-company transactions and balances have been eliminated in consolidation.

Business combination

The Company adopted the accounting pronouncements relating to
business combination (primarily contained in ASC Topic 805 Business
Combinations), including assets acquired and liabilities assumed arising from
contingencies. These pronouncements established principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquire as well as provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. In addition, these pronouncements eliminate the distinction between
contractual and non-contractual contingencies, including the initial recognition
and measurement criteria and require an acquirer to develop a systematic and
rational basis for subsequently measuring and accounting for acquired
contingencies depending on their nature. Our adoption of these pronouncements
will have an impact on the manner in which we account for any future
acquisitions.

Use of estimates

The preparation of consolidated financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.

Economic and political risk

The Company's operations are carried out in the PRC.
Accordingly, the Company's business, financial condition and results of
operations may be influenced by the political, economic and legal environment in
the PRC, and by the general state of the PRC's economy. The Company's operations
in the PRC are subject to specific considerations and significant risks not
typically associated with companies in North America and Western Europe. The
Company's results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.

Revenue recognition

The Companys revenue recognition policies are in compliance
with ASC 605. Sales revenue is recognized when all of the following have
occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the price is fixed or
determinable, and (iv) the ability to collect is reasonably assured. These
criteria are generally satisfied at the time of shipment when risk of loss and
title passes to the customer, including the distributor and the end user. No
return allowance is made as products returns are insignificant based on
historical experience.

The Company recognizes revenue upon shipment. Sales revenue
represents the invoiced value of goods, net of a value-added tax (VAT). All of
the Companys products that are sold in the PRC are subject to a Chinese
value-added tax at a rate of 17% of the gross sales price or at a rate approved
by the Chinese local government. This VAT may be offset by the VAT paid by the
Company on raw materials and other materials included in the cost of producing
their finished product.

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the US dollars. The
functional currency of the Company is the Chinese Renminbi (RMB).

36

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For those entities whose functional currency is other than the
US dollars, all assets and liabilities are translated into US dollars at the
exchange rate on the balance sheet date; stockholders equity is translated at
historical rates and items in the statements of income and comprehensive income
and of cash flows are translated at the average rate for the year. Because cash
flows are translated based on the average translation rate, amounts related to
assets and liabilities reported in the statement of cash flows will not
necessarily agree with changes in the corresponding balances in the balance
sheet. Translation adjustments resulting from this process are included in
accumulated other comprehensive income in the statements of stockholders
equity. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are
included in the statements of income and comprehensive income as incurred.

Accumulated comprehensive income in the consolidated statements
of stockholders equity amounted to $2,291,800 as of December 31, 2010 and
$1,263,287 as of December 31, 2009. The balance sheet amounts with the exception
of equity at December 31, 2010 and December 31, 2009 were translated at RMB6.59
to $1.00 and RMB6.82 to $1.00, respectively. The average translation rates
applied to the statements of income and comprehensive income and of cash flows
for the years ended December 31, 2010 and December 31, 2009 were RMB6.76 to
$1.00 and RMB6.82 to $1.00, respectively.

Cash and cash equivalents

The Company considers all highly liquid securities with
original maturities of three months or less when acquired to be cash
equivalents. Cash and cash equivalents kept with financial institutions in
Peoples Republic of China (PRC) are not insured or otherwise protected.
Should any of those institutions holding the Companys cash become insolvent, or
the Company is unable to withdraw funds for any reason, the Company could lose
the cash on deposit on that institution.

Accounts receivable

The Company maintains reserves for potential credit losses on
accounts receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis.

The standard credit period of the Companys most of clients is
three months. Management evaluates the collectability of the receivables at
least quarterly. The estimated average collection period was 90 days as of
December 31, 2010 and December 31, 2009. There was no allowance for doubtful
accounts as of December 31, 2010 and December 31, 2009.

Inventory

Inventory is valued at the lower of cost (determined on a
weighted average method) and net realizable value.

Costs incurred in bringing each product to its location and
conditions are accounted for as follows: raw materials  purchase cost on a
weighted average basis; manufactured finished goods and work-in-progress  cost
of direct materials and labor and a proportion of manufacturing overheads based
on normal operation capacity but excluding borrowing costs; and retail and
wholesale merchandise finished goods  purchase cost on a weighted average
basis.

Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.

Property and equipment

Property and equipment are stated at cost less accumulated
depreciation and any accumulated impairment losses.

Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets.

37

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|Assets Classifications | Estimated useful life
|---------------------- | ---------------------
|Buildings              | 30 years             
|Plant and machinery    | 3 to 50 years        
|Motor vehicles         | 5 to 10 years        
|Office equipment       | 3 to 10 years        
|Furniture and fixtures | 4 to 30 years        

An item of property and equipment is removed from the accounts
upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on disposal of the asset
(calculated as the difference between the net disposal proceeds and the carrying
amount of the item) is included in the consolidated statements of income in the
period the item is disposed. Expenditures for maintenance and repairs are
charged to expense as incurred, whereas major betterments are capitalized as
additions to property and equipment. The Company reviews its property and
equipment whenever events or changes in circumstances indicate that the carrying
value of certain assets might not be recoverable. In these instances, the
Company recognizes an impairment loss when it is probable that the estimated
cash flows are less than the carrying value of the asset. To date, no such
impairment losses have been recorded.

Construction in progress

Construction in progress represents the direct cost of
construction and cost of plant and machinery installed as well as acquisition
cost and design fees incurred. Capitalization of these costs ceases and the
construction in progress is transferred to property and equipment when
substantially all the activities necessary to prepare the assets for their
intended use are completed. No depreciation is provided until construction in
progress is completed and the asset is ready for its intended use.

Land use rights

Land use rights represent acquisition of land use rights of
agriculture land from farmers and is amortized on the straight line basis over
their respective lease periods. The lease period of agriculture land ranges from
30 years to 60 years.

Impairment of long-lived assets and intangible
assets

In accordance with ASC 360, Property, Plant and Equipment,
long-lived assets to be held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. The Company reviews the carrying amount of its
long-lived assets, including intangibles, for impairment, each reporting period.
An asset is considered impaired when estimated future cash flows are less than
the carrying amount of the asset. In the event the carrying amount of such asset
is considered not recoverable, the asset is adjusted to its fair value. Fair
value is generally determined based on discounted future cash flow. As of
December 31, 2010 and December 31, 2009, the Company determined no impairment
charges were necessary.

Income taxes

The Company accounts for income taxes under the provisions of
ASC 740 "Accounting for Income Taxes". Under ASC 740, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.

The provision for income tax is based on the results for the
year as adjusted for items, which are non-assessable or disallowed. It is
calculated using tax rates that have been enacted or substantively enacted at
the balance sheet date. Deferred tax is accounted for using the balance sheet
liability method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax basis used in the computation of assessable
tax profit. In principle, deferred tax liabilities are recognized for all
taxable temporary differences, and deferred tax assets are recognized to the
extent that it is probable that taxable profit will be available against which
deductible temporary differences can be utilized.

Deferred income taxes are calculated at the tax rates that are
expected to apply to the period when the asset is realized or the liability is
settled. Deferred tax is charged or credited in the income statement, except
when it related to items credited or charged directly to equity, in which case
the deferred tax is also dealt with in equity. Deferred tax assets and
liabilities are offset when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current tax assets and
liabilities on a net basis.

38

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ASC 740 also prescribes a more-likely-than-not threshold for
financial statement recognition and measurement of a tax position taken, or
expected to be taken, in a tax return. ASC 740 also provides guidance related
to, among other things, classification, accounting for interest and penalties
associated with tax positions, and disclosure requirements. Any interest and
penalties accrued related to unrecognized tax benefits will be recorded in tax
expense.

Trade and other payables

Trade payables and other payables are carried at cost and
represent liabilities for goods and services provided to the Company prior to
the end of the fiscal year that are unpaid and arise when the Company becomes
obliged to make future payments in respect of the purchase of these goods and
services. Trade payables are non-interest bearing and are normally settled on 7
to 60 day terms.

Product warranties

Substantially all of the Companys products are covered by a
standard warranty of 1 year for products. In the event of a failure of products
covered by this warranty, the Company must repair or replace the products or, if
those remedies are insufficient, and at the discretion of the Company, provide a
refund. The Company provides nil% of sales income for product warranties for the
years ended December 31, 2010 and December 31, 2009 in the warranty reserve to
reflect estimated material and labor costs of maintenance for potential or
actual product issues but for which the Company expects to incur an obligation.
The product warranty reserve was $nil as of December 31, 2010 and December 31,
2009.

Related parties

Parties are considered to be related to the Company if the
related party has the ability, directly or indirectly, to control the party, or
exercise significant influence over the party in making financial and operating
decisions, or where the Company and the party are subject to common control.
Related parties may be individuals (being members of key management personnel,
significant shareholders and/or their close family members) or other entities
which are under the significant influence of related parties of the company.

Weighted average number of shares

On November 1, 2010, the Company entered into a share exchange
agreement which has been accounted for as a reverse merger since there has been
a change of control. The Company computes the weighted-average number of common
shares outstanding in accordance with ASC Topic 805 Business Combination which
states that in calculating the weighted average shares when a reverse merger
takes place in the middle of the year, the number of common shares outstanding
from the beginning of that period to the acquisition date shall be computed on
the basis of the weighted average number of common shares of the legal acquiree
(the accounting acquirer) outstanding during the period multiplied by the
exchange ratio established in the merger agreement. The number of common shares
outstanding from the acquisition date to the end of that period shall be the
actual number of common shares of the legal acquirer (the accounting acquiree)
outstanding during that period.

Concentration of credit risk

Cash includes cash at bank and demand deposits in accounts
maintained at banks within the Peoples Republic of China. Total cash (not
including restricted cash balances) in these banks on December 31, 2010 and
December 31, 2009 amounted to $2,172,488 and $1,470,037 of which no deposits are
covered by insurance. The Company has not experienced any losses in such
accounts and believes it is not exposed to any risks on its cash in bank
accounts.

Accounts receivable are derived from revenue earned from
customers located primarily in the Peoples Republic of China. The Company
performs ongoing credit evaluations of customers and has not experienced any
material losses to date.

The Company had 5 major customers whose revenue individually
represented the following percentages of the Companys total revenue:

39

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|           |  | 2010   |  |  | 2009   | 
|---------- |  | ------ |  |  | ------ | 
|Customer A |  | 47.95% |  |  | 10.96% | 
|Customer B |  | 25.75% |  |  | 6.69%  | 
|Customer C |  | 4.02%  |  |  | 63.27% | 
|Customer D |  | 1.68%  |  |  | -      | 
|Customer E |  | 1.34%  |  |  | 1.51%  | 
|Customer F |  | -      |  |  | 5.13%  | 
|           |  | 80.74% |  |  | 87.56% | 

The company had 5 major customers whose accounts receivable
balance individually represented of the Companys total accounts receivable as
follows:

|           |  | 2010   |  |  | 2009   | 
|---------- |  | ------ |  |  | ------ | 
|Customer A |  | 22.50% |  |  | 9.60%  | 
|Customer B |  | 21.67% |  |  | 39.51% | 
|Customer C |  | 7.39%  |  |  | -      | 
|Customer D |  | 1.54%  |  |  | -      | 
|Customer E |  | 1.36%  |  |  | -      | 
|Customer F |  | -      |  |  | 31.93% | 
|Customer G |  | -      |  |  | 17.06% | 
|Customer H |  | -      |  |  | 0.85%  | 
|           |  | 54.46% |  |  | 98.95% | 

Accumulated other comprehensive income

ASC Topic 220 Comprehensive Income establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. Comprehensive income is defined as the change in stockholders
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The comprehensive income for
all periods presented includes both the reported net income and net change in
cumulative translation adjustments.

Stock-based compensation

The Company adopts both ASC Topic 718, Compensation  Stock
Compensation and ASC Topic 505-50, Equity-Based Payments to Non-Employees
using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock
compensation expenses is measured at the grant date on the value of the option
or restricted stock and is recognized as expenses, less expected forfeitures,
over the requisite service period, which is generally the vesting period.

Fair value of financial instruments

The Company follows paragraph 825-10-50-10 of the FASB
Accounting Standards Codification for disclosures about fair value of its
financial instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (Paragraph 820-10-35-37) to measure the fair value of
its financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value in accounting principles generally accepted in the United
States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels. The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:

| | Level 1 Quoted market prices available in
      active markets for identical assets or liabilities as of the reporting
      date.                                             
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 2 Pricing inputs other than quoted prices in active
      markets included in Level 1, which are either directly or indirectly
      observable as of the reporting date.
| | Level 3 Pricing inputs that are generally
      observable inputs and not corroborated by market data.                                                                         

The carrying amounts of the Companys financial assets and
liabilities, such as cash and accrued expenses, approximate their fair values
because of the short maturity of these instruments.

40

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The Company does not have any assets or liabilities measured at
fair value on a recurring or a non-recurring basis, consequently, the Company
did not have any fair value adjustments for assets and liabilities measured at
fair value as of December 31, 2010 or December 31, 2009, nor gains or losses are
reported in the statements of income and other comprehensive income that are
attributable to the change in unrealized gains or losses relating to those
assets and liabilities still held at the reporting date for the years ended
December 31, 2010 and December 31, 2009.

Recent Accounting Pronouncements

In January 2010, FASB issued ASU No. 2010-01 Accounting for
Distributions to Shareholders with Components of Stock and Cash. The amendments
in this Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation
on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in EPS prospectively
and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity
and Earnings Per Share). The amendments in this update are effective for interim
and annual periods ending on or after December.

In January 2010, FASB issued ASU No. 2010-02 regarding
accounting and reporting for decreases in ownership of a subsidiary. Under this
guidance, an entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, and entity recognizes a gain or loss on the
transaction and measures any retained investment in the subsidiary at fair
value. In contrast, an entity is required to account for a decrease in its
ownership interest of a subsidiary that does not result in a change of control
of the subsidiary as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU
is effective for beginning in the first interim or annual reporting period
ending on or after December 31, 2009. The Company does not expect the adoption
of this ASU to have a material impact on its consolidated financial statements
In January 2010, FASB issued ASU No. 2010-02  Accounting and Reporting for
Decreases in Ownership of a Subsidiary  a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements  An Amendment of ARB No. 51. If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The Company adopted this standard and has determined the
standard does not have material effect on the Companys consolidated financial
statements.

In January 2010, FASB issued ASU No. 2010-06  Improving
Disclosures about Fair Value Measurements. This update provides amendments to
Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out
of Levels 1 and 2. A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should present
separately information about purchases, sales, issuances, and settlements (that
is, on a gross basis rather than as one net number). This update provides
amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1)
Level of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in the statement of
financial position. A reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities. 2) Disclosures about inputs and
valuation techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. Those disclosures are required for
fair value measurements that fall in either Level 2 or Level 3.The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update
2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements, or ASU 2010-09. ASU 2010-09 primarily rescinds the
requirement that, for listed companies, financial statements clearly disclose
the date through which subsequent events have been evaluated. Subsequent events
must still be evaluated through the date of financial statement issuance;
however, the disclosure requirement has been removed to avoid conflicts with
other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and
was adopted in February 2010.

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In April 2010, the FASB issued Accounting Standards Update
2010-13,"Compensation-Stock Compensation (Topic 718): Effect of Denominating the
Exercise Price of a Share-Based Payment Award in the Currency of the Market in
Which the Underlying Equity Security Trades," or ASU 2010-13. ASU 2010-13
provides amendments to Topic 718 to clarify that an employee share-based payment
award with an exercise price denominated in currency of a market in which a
substantial porting of the entity's equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The Company does not expect the adoption of ASU 2010-17
to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update
2010-17, "Revenue Recognition-Milestone Method (Topic 605): Milestone Method of
Revenue Recognition" or ASU 2010-17. This Update provides guidance on the
recognition of revenue under the milestone method, which allows a vendor to
adopt an accounting policy to recognize all of the arrangement consideration
that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement is
effective on a prospective basis for milestones achieved in fiscal years and
interim periods within those years, beginning on or after June 15, 2010. The
adoption of ASU 2010-17 does not have any significant impacts on the
consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. This update amends codification topic 310 on receivables to improve the
disclosures that an entity provides about the credit quality of its financing
receivables and the related allowance for credit losses. As a result of these
amendments, an entity is required to disaggregate by portfolio segment or class
certain existing disclosures and provide certain new disclosures about its
financing receivables and related allowance for credit losses. This guidance is
being phased in, with the new disclosure requirements for period end balances
effective as of December 31, 2010, and the new disclosure requirements for
activity during the reporting period are effective March 31, 2011. The troubled
debt restructuring disclosures in this ASU have been delayed by ASU 2011-01
Deferral of the Effective Date of Disclosures about Troubled Debt
Restructurings in Update No. 2010-20, which was issued in January 2011.

In December 2010, the FASB issued Accounting Standards Update
2010-28 which amend Intangibles- Goodwill and Other (Topic 350). The ASU
modifies Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting entities, they are required to
perform Step 2 of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. An entity should consider whether there are
any adverse qualitative factors indicating that impairment may exist. The
qualitative factors are consistent with the existing guidance in Topic 350,
which requires that goodwill of a reporting unit be tested for impairment
between annual tests if an event occurs or circumstances changes that would more
likely than not reduce the faire value of a reporting unit below its carrying
amount. ASU 2010-28 is effective for fiscal years, and interim periods within
those years beginning after December 15, 2010. Early adoption is not permitted.
The Company is currently evaluating the impact of this ASU; however, the Company
does not expect the adoption of this ASU will have a material impact on its
consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update
2010-29 which address diversity in practice about the interpretation of the pro
forma revenue and earnings disclosure requirements for business combinations
(Topic 805). This ASU specifies that if a public entity presents comparative
financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual
reporting period only. This ASU also expands the supplemental pro forma
disclosures under Topic 805 to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings.
ASU 2010-29 is effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Early adoption is permitted. The
Company is currently evaluating the impact of this ASU and expected the adoption
of this ASU will have an impact on its future business combinations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The full text of our audited consolidated financial statements
as of December 31, 2010 and 2009 begins on page F-1 of this report.

ITEM 9A. CONTROLS AND PROCEDURES.

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Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer, Mr. Yulu Bai, and our Chief
Financial Officer, Mr. Jiyong He, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2010.
Based on our assessment, Mr. Bai and Mr. He determined that, as of December 31,
2010, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, because of the material
weaknesses in our internal control over financial reporting described below, our
disclosure controls and procedures were not effective.

Notwithstanding managements assessment that our internal
control over financial reporting was ineffective as of December 31, 2010 due to
the material weakness described below, we believe that the consolidated
financial statements included in this Annual Report on Form 10-K correctly
present our financial condition, results of operations and cash flows for the
fiscal years covered thereby in all material respects.

Internal Controls over Financial Reporting

Managements Annual Report on Internal Control over
Financial Reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal
control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and
effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with
U.S. GAAP, and includes those policies and procedures that:

|(1) | pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      our assets;                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                  
|(2) | provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with U.S. GAAP, and that our receipts and expenditures are
      being made only in accordance with the authorization of our management and
      directors; and
|    |                                                                                                                                                                                                                                                                                                                  
|(3) | provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of our
      assets that could have a material effect on the financial
    statements.                                                                                               

Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010. In making this assessment,
management used the framework set forth in the report entitled Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on that evaluation, our management concluded that
our internal control over financial reporting was not effective, as of December
31, 2010, because of the material weaknesses in our internal control over
financial reporting described below.

During its evaluation of the effectiveness of internal control
over financial reporting as of December 31, 2010, management concluded that the
Company needs to increase its qualified accounting personnel and enhance the
supervision, monitoring and reviewing of financial statements preparation
processes. The Company is currently seeking additional seasoned financial
reporting and accounting staff member with relevant accounting experience,
skills and knowledge in the preparation of financial statements in accordance
with of U.S. GAAP and financial reporting disclosure requirements under SEC
rules. In addition, the Company is actively seeking a new CFO who is
knowledgeable and experienced in US GAAP and SEC reporting matters. The Company
has posted advertisements and hired recruiting agency to seek for these
qualified accounting staff and CFO.

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In the meantime, the Company has hired AuditPrep Limited to
assist with the preparation of US GAAP financial statements and assisting with
the preparation of periodic reports under the 1934 Securities Exchange Act.
AuditPrep Limiteds professionals consist of managers and partners that are
either AICPA or trained and experienced in US GAAP and SEC reporting
matters.

Attestation Report of Registered Public Accounting
Firm

Because the Company is a smaller reporting company, this annual
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm.

Changes in Internal Controls over Financial
Reporting

There have been no changes in our internal control over
financial reporting during the fourth quarter of fiscal year 2010 that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

44

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.

Directors and Executive Officers

The following sets forth information about our directors and
executive officers as of the date of this report:

|Name          | Age | Position                                  
|------------- | --- | ------------------------------------------
|Yulu Bai      | 46  | Chairman and Chief Executive
      Officer
|Jiyong He     | 27  | Chief Financial Officer                   
|Fangping Peng | 47  | Chief Operating Officer                   
|Dongsheng Tan | 35  | Chief Marketing Officer                   
|Yudong Ji     | 56  | Director                                  
|Yi Zeng       | 41  | Director                                  

Mr. Yulu Bai.Mr. Bai became our Chairman and Chief
Executive Officer on November 1, 2010 and has served as the General Manager of
Aosen Forestry since 2004. Mr. Bai is the vice chairman of Guizhou Forestry
Industry Association and vice chairman of Guizhou Small and Medium Size Private
Business Credit Promotion Association. Mr. Bai holds a Bachelors Degree from
Nanjing Forestry University (now called Northeastern Forestry University).

Mr. Bai is a founder of the Company and brings more than 15
years of experience in the forestry industry, in particular in the production of
fiber board. His historical knowledge of the Company and his knowledge of the
forestry industry makes him qualified to serve as a board member.

Mr. Jiyong He.Mr. He was appointed to serve as our
Chief Financial Officer on November 1, 2010, and has served as a senior finance
manager at our company since September 2007. Mr. He graduated from Guizhou
College of Finance and Economics in July 2007 and holds a Bachelor of Science
Degree in Accounting. Mr. He lacks US GAAP experience. We are actively seeking
for a CFO candidate with sufficient US GAAP experience.

Mr. Fangping Peng.Mr. Peng became our Chief Operating
Officer on November 1, 2010 and has served as the Chairman of our subsidiary
Silvan Flooring since 2004. Prior to joining us, Mr. Peng worked as a director
at Chongqing Comprehensive Wood Company, from 1986 to 2004. Mr. Peng holds a
Bachelors Degree in Artificial Boards from Nanjing Forestry University.

Mr. Dongsheng Tan.Mr. Tan became our Chief Marketing
Officer on November 1, 2010 and has served as Aosen Forestrys Director of
Marketing since May 2009. Prior to joining us, Mr. Tan served as an officer at
Shenzhen Zhongxu Corporate Citizenship in Action, from 2007 to 2009. Prior to
joining us, Mr. Tan worked, from 2004 to 2006, as a regional sales manager for
Foshan Shunde KDS Electronics Col, Ltd. . Mr. Tan holds a Bachelors Degree in
Marketing from Xiangtan University.

Mr. Yudong Ji.Mr. Ji became a member of our board of
directors on November 28, 2010, and has served since July 1993, as a principal
of Guizhou Huacheng Group, a company engaged in various real estate development
projects. Mr. Ji was a member of the Guiyang 9thCommittee of
Peoples Political Consulting Conference in 2004, and a member of the Guiyang
12thPeoples Congress in 2007. Mr. Ji holds a Bachelors Degree in
general management from Guizhou University of Ethnicities.

Mr. Ji has over 10 years experience as a real estate developer.
We believe his knowledge of the domestic real estate market makes him qualified
to serve as a director.

Mr. Yi Zeng.Mr. Zeng became a member of our board of
directors on November 28, 2010, and has served since 1996, as the general
manager of Zhong Ruixin Investment Guarantee Co., Ltd., a company engaged in
credit guarantee services, investment management and consulting. Mr. Zeng also
serves as the vice president of the Guizhou Entrepreneur Association and vice
president of the Guizhou Small and Medium Size Private Business Credit Promotion
Association. Mr. Zeng holds a Bachelors Degree in business management from
Guizhou University.

45

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Mr. Zeng has extensive experience in the domestic financial
services industry and capital markets, especially in Guizhou province, which we
believe qualifies him to serve as a member of the Board.

Directors are elected until their successors are duly elected
and qualified.

Except as set forth in our discussion below in Item 13,
Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons, none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.

There are no agreements or understandings for any of our
executive officers or directors to resign at the request of another person and
no officer or director is acting on behalf of nor will any of them act at the
direction of any other person.

Family Relationships

There are no family relationships among any of our officers or
directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or
executive officers has, during the past ten years:

- been convicted in a criminal proceeding or been subject to a pending
  criminal proceeding (excluding traffic violations and other minor offences);
- had any bankruptcy petition filed by or against the business or property
  of the person, or of any partnership, corporation or business association of
  which he was a general partner or executive officer, either at the time of the
  bankruptcy filing or within two years prior to that time;
- been subject to any order, judgment, or decree, not subsequently reversed,
  suspended or vacated, of any court of competent jurisdiction or federal or
  state authority, permanently or temporarily enjoining, barring, suspending or
  otherwise limiting, his involvement in any type of business, securities,
  futures, commodities, investment, banking, savings and loan, or insurance
  activities, or to be associated with persons engaged in any such activity;
- been found by a court of competent jurisdiction in a civil action or by
  the SEC or the Commodity Futures Trading Commission to have violated a federal
  or state securities or commodities law, and the judgment has not been
  reversed, suspended, or vacated;
- been the subject of, or a party to, any federal or state judicial or
  administrative order, judgment, decree, or finding, not subsequently reversed,
  suspended or vacated (not including any settlement of a civil proceeding among
  private litigants), relating to an alleged violation of any federal or state
  securities or commodities law or regulation, any law or regulation respecting
  financial institutions or insurance companies including, but not limited to, a
  temporary or permanent injunction, order of disgorgement or restitution, civil
  money penalty or temporary or permanent cease-and-desist order, or removal or
  prohibition order, or any law or regulation prohibiting mail or wire fraud or
  fraud in connection with any business entity; or
- been the subject of, or a party to, any sanction or order, not
  subsequently reversed, suspended or vacated, of any self- regulatory
  organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
  78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the
  Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange,
  association, entity or organization that has disciplinary authority over its
  members or persons associated with a member.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive
officers, directors and beneficial owner of more than 10% of a registered class
of our equity securities to file with the SEC statements of ownership and
changes in ownership. The same persons are required to furnish us with copies of
all Section 16(a) forms they file. In fiscal year 2010, Form 3s for Yulu Bai,
Jiyong He, Fangping Peng, Dongsheng Tan, Yudong Ji, Yi Zeng, Ren Ping Tu and Violet
Phoenix Limited and a Form 4 for Violet Phoenix Limited were filed late due to
administrative oversight.

46

---

In making these statements, we have relied upon examination of
the copies of all Section 16(a) forms provided to us and the written
representations of our executive officers, directors and beneficial owner of
more than 10% of a registered class of our equity securities.

Code of Ethics

We have not adopted a code ethics. However, we intend to adopt
a code of ethics in the future. We envision that the code of ethics will apply
to all of our employees, officers and directors.

Material Changes to Director Nomination Procedures

There have been no material changes to the procedures by which
stockholders may recommend nominees to our board of directors since such
procedures were last disclosed.

Audit Committee and Audit Committee Financial Expert

We do not have an audit committee or an audit committee
financial expert serving on the audit committee. Our entire board of directors
currently is responsible for the functions that would otherwise be handled by an
audit committee. However, we intend to establish an audit committee of the board
of directors in the near future. We envision that the audit committee will be
primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls. Upon the establishment of an audit committee, the board will determine
whether any of the directors qualify as an audit committee financial expert.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.

Transactions with Related Persons

The following includes a summary of transactions since the
beginning of the 2009 year, or any currently proposed transaction, in which we
were or are to be a participant and the amount involved exceeded or exceeds the
lesser of $120,000 or one percent of the average of our total assets at year end
for the last two completed fiscal years, and in which any related person had or
will have a direct or indirect material interest (other than compensation
described under Executive Compensation). We believe the terms obtained or
consideration that we paid or received, as applicable, in connection with the
transactions described below were comparable to terms available or the amounts
that would be paid or received, as applicable, in arm's-length transactions.

- On October 22, 2007, Aosen Forestry established Silvan Flooring as a 55%
  majority owned joint venture with Guizhou Yinyan Wood Co. Limited, or GST, the
  45% minority holder, which was 78.21% owned and controlled at the time by Mr.
  Yulu Bai, our Chief Executive Officer and Aosen Forestrys General Manager at
  the time. On May 8, 2009, Aosen Forestry acquired GSTs minority interest in
  Silvan Flooring from Mr. Bai and Silvan Flooring became Aosen Forestrys
  wholly owned subsidiary. On May 28, 2010, Mr. Bai sold his entire ownership
  interest in GST and no longer holds any equity interest in GST.
- In connection with the acquisition of Silvan Flooring, Silvan Flooring and
  GST entered into a trademark transfer agreement, dated November 18, 2009,
  pursuant to which GST transferred the ownership of its "Silvan Touch"
  trademark (aka Yinyan) (Registration No. 1182064) to Silvan Flooring for
  free. On November 19, 2009, the same parties entered into a trademark
  licensing agreement, pursuant to which, the "Silvan Touch" trademark was
  licensed back to GST to be used in connection with its distribution of our
  "Silvan Touch" products. There was no consideration paid by GST for the
  licensing of trademark. GST may use the trademark until it has completed the
  distribution of all inventories of Silvan Touch products that we provided to
  GST. GST is required to provide a one-month notice regarding the completion of
  distribution and this agreement will be terminated upon the completion.

47

---

- During the fiscal years ended December 31, 2010 and 2009, 4.02% and
  65.79%, respectively, of our sales were to GST. GST procures industrial fiber
  boards from us for the production of laminate flooring. However, GST ceased
  the production of laminate flooring during the second quarter of 2010, and
  stopped procuring industrial fiber boards from us.
- On May 18, 2010, Bingwu Forestrys sole shareholder, Ms. Ren Ping Tu,
  entered into an Equity Ownership Transfer Agreement with the founders of Aosen
  Forestry, represented by Mr. Bai, to acquire all of the equity interest of
  Aosen Forestry for $2,488,471. Ms. Ren Ping Tu is Mr. Bais wife.
- From time to time, Mr. Bai has loaned funds to the Company to be used as
  working capital. As of December 31, 2010 and 2009, we owed Mr. Bai $1,527,080
  and $511,674, respectively. The amounts are unsecured, interest free and have
  no fixed term of repayment. On March 23, 2011, the Company repaid the
  $1,527,080 due to Mr. Bai.

Except as set forth in our discussion above, none of our
directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.

Director Independence

We currently do not have any independent directors, as the term
independent is defined by the rules of the Nasdaq Stock Market.

48

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. Financial
Statements and Schedules

The financial statements are set forth under Item 8 of this
annual report on Form 10-K. Financial statement schedules have been omitted
since they are either not required, not applicable, or the information is
otherwise included.

Exhibit List

The following exhibits are filed as part of this report or
incorporated by reference:

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                                                       
|2.1         |  | Share Exchange Agreement, dated
      November 1, 2010, among the Company, China Bingwu Forestry Group Limited
      and its sole shareholder [incorporated by reference to Exhibit 2.1 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                  
|3.1         |  | Amended and Restated Articles of Incorporation of the
      Company [incorporated by reference to Exhibit 3.1 to the Companys Current
      Report on Form 8-K filed on January 13, 2011]                                                                                                                                                            
|3.2         |  | Amended and Restated Bylaws of the Company
      [incorporated by reference to Exhibit 3.1 to the Companys Current Report
      on Form 8-K filed on December 9, 2010]                                                                                                                                                                               
|4.1         |  | Convertible Note, dated July 23, 2010, payable to Horoy
      International Holdings Limited [incorporated by reference to Exhibit 4.1
      to the Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                                                                   
|4.2         |  | Convertible Note, dated
      September 7, 2010, payable to Goldenbridge Investment Holdings Limited
      [incorporated by reference to Exhibit 4.2 to the Companys Current Report
      on Form 8-K filed on November 5, 2010]                                                                                                                     
|4.3         |  | Note Cancellation Agreement, dated September 9,
      2010, among the Company and the holders of certain notes payable signatory
      thereto [incorporated by reference to Exhibit 4.3 to the Companys Current
      Report on Form 8-K filed on November 5, 2010]                                                                                 
|4.4*        |  | Common Stock Purchase Warrant,
      dated December 15, 2010, issued to CCG Investor Relations Partners LLC.                                                                                                                                                                                                                                          
|10.1        |  | Securities Purchase Agreement, dated September
      23, 2010, by and among the Company, Helvetic Capital Ventures AG and the
      accredited investor signatory thereto [incorporated by reference to
      Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
      September 28, 2010]                                             
|10.2        |  | Repurchase Agreement, dated
      September 23, 2010, by and between the Company and Helvetic Capital
      Ventures AG [incorporated by reference to Exhibit 10.2 to the Companys
      Current Report on Form 8-K filed on September 28, 2010]                                                                                                     
|10.3        |  | English Translation of Equity Transfer
      Agreement, dated May 18, 2010, by and between China Bingwu Forestry Group
      Limited and the shareholders of Qianxinan Aosen Forestry Company, Limited
      signatory thereto [incorporated by reference to Exhibit 10.1 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]
|10.4        |  | English Translation of Share
      Transfer Agreement, dated May 8, 2009, by and between Qianxinan Aosen
      Forestry Company, Limited and Guizhou Yinyan Wood Co., Ltd. [incorporated
      by reference to Exhibit 10.11 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                             
|10.5        |  | English Translation of Shareholder Investment
      Agreement, dated October 16, 2007, by and between Qianxinan Aosen Forestry
      Company, Limited and Guizhou Yinyan Wood Co., Ltd. [incorporated by
      reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                 
|10.6        |  | English Translation of Wood
      Purchase and Sales Contract, dated March 14, 2010, by and between
      Qianxinan Aosen                                                                                                                                                                                                                             
|            |  | Forestry Company, Limited and Yan Zhiming
      [incorporated by reference to Exhibit 10.14 to the Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                                                                                                                    

49

---

|10.7  |  | English Translation of Purchase and Sales Contract, dated
      November 16, 2009, between Qianxinan Aosen Forestry Company, Limited and
      Guizhou Shuanghe Industrial Trade Co., Ltd. [incorporated by reference to
      Exhibit 10.8 to the Companys Current Report on Form 8-K filed on November
      5, 2010]                                                             
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | English Translation of Purchase and Sales Contract, dated
      January 1, 2009, by and between Guizhou Yingye Forestry Ltd. and Qianxinan
      Aosen Forestry Company, Limited [incorporated by reference to Exhibit 10.5
      to the Companys Current Report on Form 8-K filed on November 5,
    2010]                                                                         
|10.9  |  | English Translation of Purchase and Sales Contract, dated
      January 1, 2009, by and between Chongqing Huyu Forestry Ltd. and Qianxinan
      Aosen Forestry Company, Limited [incorporated by reference to Exhibit 10.6
      to the Companys Current Report on Form 8-K filed on November 5,
    2010]                                                                         
|10.10 |  | English Translation of Purchase and Sales Contract, dated
      January 1, 2009, by and between Qianxinan Aosen Forestry Company, Limited
      and Guizhou Shuanghe Industrial Trade Co., Ltd. [incorporated by reference
      to Exhibit 10.7 to the Companys Current Report on Form 8-K filed on
      November 5, 2010]                                                        
|10.11 |  | English Translation of Exclusive Distribution Contract,
      dated September 10, 2010, by and between Qianxinan Silvan Flooring
      Company, Limited and Dang Zhongming [incorporated by reference to Exhibit
      10.19 to the Companys Current Report on Form 8-K filed on November 5,
      2010]                                                                            
|10.12 |  | English Translation of Exclusive Distribution Contract,
      dated September 5, 2010, by and between Qianxinan Silvan Flooring Company,
      Limited and Lin Hongbin [incorporated by reference to Exhibit 10.18 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                      
|10.13 |  | English Translation of Exclusive Distribution Contract,
      dated August 25, 2010, by and between Qianxinan Silvan Flooring Company,
      Limited and Zeng Tianming [incorporated by reference to Exhibit 10.17 to
      the Companys Current Report on Form 8-K filed on November 5,
  2010]                                                                                    
|10.14 |  | English Translation of Exclusive Distribution Contract,
      dated August 13, 2010, by and between Qianxinan Silvan Flooring Company,
      Limited and Sui Cheng [incorporated by reference to Exhibit 10.16 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                          
|10.15 |  | English Translation of Loan Contract, dated June 21,
      2010, by and between Bank of Chongqing, Guiyang Brach and Qianxinan Aosen
      Forestry Company, Limited [incorporated by reference to Exhibit 10.15 to
      the Companys Current Report on Form 8-K filed on November 5,
  2010]                                                                                      
|10.16 |  | English Translation of Loan Contract No. 72, dated March
      26, 2010, by and between Guizhou Xingyi Rural Cooperative Bank and
      Qianxinan Aosen Forestry Company, Limited [incorporated by reference to
      Exhibit 10.10 to the Companys Current Report on Form 8-K filed on
      November 5, 2010]                                                                     
|10.17 |  | English Translation of Loan Contract No. 108, dated June
      July 17, 2009, by and between Guizhou Xingyi Rural Cooperative Bank and
      Qianxinan Aosen Forestry Company, Limited [incorporated by reference to
      Exhibit 10.9 to the Companys Current Report on Form 8-K filed on November
      5, 2010]                                                                 
|10.18 |  | English Translation of Forest Right Certificate No.
      B520802335298, dated December 10, 2009, granted to Qianxinan Aosen
      Forestry Company, Limited and sealed by the Peoples Government of Liping
      County, Peoples Republic of China [incorporated by reference to Exhibit
      10.12 to the Companys Current Report on Form 8-K filed on November 5,
      2010] 
|10.19 |  | English Translation of Forest Right Certificate No.
      B520802556795, dated December 10, 2009, granted to Qianxinan Aosen
      Forestry Company, Limited, and sealed by the Peoples Government of Liping
      County, Peoples Republic of China [incorporated by reference to Exhibit
      10.13 to the Companys Current Report on Form 8-K filed on November 5,
      2010]
|10.20 |  | English Translation of Commodity House Sales Contract,
      Unit 1-2, dated August 25, 2006, by and between
Qianxinan Silvan Flooring Company, Limited and Guiyang
      New Century Real Estate Development Co., Ltd. [incorporated by reference
      to Exhibit 10.20 to the Companys Current Report on Form 8-K filed on
      November 5, 2010]                               

50

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|10.21  |  | English Translation of
      Commodity House Sales Contract, Unit 1-3, dated August 25, 2006, by and
      between Qianxinan Silvan Flooring Company, Limited and Guiyang New Century
      Real Estate Development Co., Ltd. [incorporated by reference to Exhibit
      10.21 to the Companys Current Report on Form 8-K filed on November 5,
      2010]
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22  |  | English Translation of Trademark Transfer
      Agreement, dated November 18, 2009, by and between Guizhou Yinyan Wood
      Co., Ltd. and Qianxinan Silvan Flooring Company, Limited [incorporated by
      reference to Exhibit 10.22 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                        
|10.23  |  | English Translation of Labor
      Contract, dated May 5, 2010, between Qianxinan Aosen Forestry Company,
      Limited and Yulu Bai [incorporated by reference to Exhibit 10.23 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                               
|10.24  |  | English Translation of Labor Contract, dated
      March 27, 2009, between Qianxinan Aosen Forestry Company, Limited and
      Jiyong He [incorporated by reference to Exhibit 10.26 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]                                                                                           
|10.25  |  | English Translation of Labor
      Contract, dated November 21, 2007, between Qianxinan Aosen Forestry
      Company, Limited and Fangping Peng [incorporated by reference to Exhibit
      10.24 to the Companys Current Report on Form 8-K filed on November 5,
      2010]                                                                              
|10.26  |  | English Translation of Labor Contract, dated
      May 5, 2010, between Qianxinan Aosen Forestry Company, Limited and
      Dongshen Tan [incorporated by reference to Exhibit 10.25 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]                                                                                           
|10.27* |  | Financial Advisory Agreement,
      dated February 2, 2010, by and among Qianxinan Aosen Forestry Company,
      Limited, Asia Regal Finance Capital Group Co., Ltd and Shenzhen Junwei
      Investment and Development Co., Ltd.                                                                                                                          
|10.28* |  | Letter of Engagement, dated December 7, 2010,
      by and between the Company and CCG Investor Relations Partners LLC.                                                                                                                                                                                                                                     
|21     |  | Subsidiaries of the Company
      [incorporated by reference to Exhibit 10.21 to the Companys Current
      Report on Form 8-K filed on November 5, 2010]                                                                                                                                                                                                  
|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                                                                                                                                                                                                                                              
|99.1   |  | Option Agreement, dated May 17, 2010, between Ren Ping Tu
      and Yulu Bai [incorporated by reference to Exhibit 99.1 to the Companys
      Amendment No. 1 to Current Report on Form 8-K/A filed on January 11, 2011]                                                                                                                                   

*Filed herewith

51

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Report on Form 10-K/A to be
signed on its behalf by the undersigned, thereto duly authorized individual.

Date: December 16, 2011

| | CHINA FORESTRY INDUSTRY GROUP,
      INC. | 
| | ----------------------------------------- | 
| |                                           | 
| | By: /s/ Yulu Bai                          | 
| | Yulu Bai                                  | 
| | Chief Executive Officer                   | 
| |                                           | 
| | By: /s/ Jiyong He                         | 
| | Jiyong He                                 | 
| | 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/
      Yulu Bai  |  | Chairman and Chief Executive Officer               | December 16, 2011
|Yulu Bai            |  | (Principal Executive Officer)                      |                  
|                    |  |                                                    |                  
|/s/
      Jiyong He |  | Chief Financial Officer                            | December 16, 2011
|Jiyong He           |  | (Principal Financial and Accounting
      Officer) |                  
|                    |  |                                                    |                  
|/s/
      Yudong Ji |  | Director                                           | December 16, 2011
|Yudong Ji           |  |                                                    |                  
|                    |  |                                                    |                  
|/s/
      Yi Zeng   |  | Director                                           | December 16, 2011
|Yi Zeng             |  |                                                    |                  

52

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CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 ANDDECEMBER 31, 2009







F-1

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                 | PAGE
|---------------------------------------------------------------- | ----
|                                                                 |     
|REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    | F-3 
|                                                                 |     
|CONSOLIDATED
      BALANCE SHEETS                                | F-4 
|                                                                 |     
|CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | F-5 
|                                                                 |     
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS EQUITY            | F-6 
|                                                                 |     
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS (RESTATED)           | F-7 
|                                                                 |     
|NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS                 | F-8 

F-2

---

|Madsen & Associates CPAs, Inc.                 
|-----------------------------------------------
|684 East Vine
      Street #3, Murray, UT 84107

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders China Forestry
Industry Group, Inc. and subsidiaries 
  (Formerly Phoenix Energy Resource Corporation)

We have audited the accompanying consolidated balance sheets of
China Forestry Industry Group, Inc. and subsidiaries (Formerly Phoenix Energy
Resource Corporation) (the Company) as of December 31, 2010 and December 31,
2009 and the consolidated statements of income and other comprehensive income,
stockholders equity and cash flows for each of the years in the two year period
ended December 31, 2010 and December 31, 2009. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with standards of the
Public Company Accounting Oversight Board (PCAOB). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used, significant estimates made by management and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

The Company has restated its consolidated statement of cash
flows for the year ended December 31, 2010 to correct errors in the consolidated
statement of cash flows. The effects of this restatement are disclosed in Note
26 to the consolidated financial statements.

In our opinion, these consolidated financial statements
referred to above present fairly, in all material aspects, the financial
position of the Company as of December 31, 2010 and 2009, and the consolidated
results of its operations and cash flows for each of the years in the two year
period ended December 31, 2010 and December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America.

s/Madsen & Associates CPAs, Inc. Madsen &
Associates CPAs, Inc.

Salt Lake City, UtahMarch 29, 2011, except for Note
26, to which the date is November 28, 2011

F-3

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2010 AND DECEMBER
31, 2009

|                                                                                                                                                                                                                                  |   | 2010       |  |   | 2009       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- |  | - | ---------- | 
|ASSETS                                                                                                                                                                                                                            |   |            |  |   |            | 
|                                                                                                                                                                                                                                  |   |            |  |   |            | 
|Current assets                                                                                                                                                                                                                    |   |            |  |   |            | 
|Cash and cash equivalents                                                                                                                                                                                                         | $ | 2,334,910  |  | $ | 1,471,729  | 
|Accounts receivable, net of allowance for doubtful
      accounts                                                                                                                                                                 |   | 5,423,123  |  |   | 2,017,244  | 
|Inventory                                                                                                                                                                                                                         |   | 6,949,679  |  |   | 10,790,285 | 
|Deposits and prepaid expenses                                                                                                                                                                                                     |   | 12,390,756 |  |   | 6,297,623  | 
|Other receivables                                                                                                                                                                                                                 |   | 777,236    |  |   | 689,898    | 
|Taxes recoverable                                                                                                                                                                                                                 |   | 2,452,407  |  |   | 192,304    | 
|Total current assets                                                                                                                                                                                                              |   | 30,328,111 |  |   | 21,459,083 | 
|Property and equipment                                                                                                                                                                                                            |   |            |  |   |            | 
|Property and equipment, net of
      accumulated depreciation                                                                                                                                                                     |   | 6,352,289  |  |   | 6,167,734  | 
|Land use rights, net of accumulated amortization                                                                                                                                                                                  |   | 6,666,591  |  |   | 795,829    | 
|Construction in progress                                                                                                                                                                                                          |   | 5,304,348  |  |   | 5,116,167  | 
|Total property and equipment                                                                                                                                                                                                      |   | 18,323,228 |  |   | 12,079,730 | 
|Total assets                                                                                                                                                                                                                      | $ | 48,651,339 |  | $ | 33,538,813 | 
|                                                                                                                                                                                                                                  |   |            |  |   |            | 
|LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                                                                                                                                                        |   |            |  |   |            | 
|                                                                                                                                                                                                                                  |   |            |  |   |            | 
|Current liabilities                                                                                                                                                                                                               |   |            |  |   |            | 
|Accounts payable                                                                                                                                                                                                                  | $ | 3,388,806  |  | $ | 9,497,858  | 
|Other payables and accrued expenses                                                                                                                                                                                               |   | 2,567,191  |  |   | 3,698,397  | 
|Taxes payable                                                                                                                                                                                                                     |   | 3,290,481  |  |   | 386,121    | 
|Customer deposits                                                                                                                                                                                                                 |   | 1,936,733  |  |   | 841,308    | 
|Short term debts                                                                                                                                                                                                                  |   | 4,535,830  |  |   | 718,830    | 
|                                                                                                                                                                                                                                  | $ | 15,719,041 |  | $ | 15,142,514 | 
|Long term liabilities                                                                                                                                                                                                             |   |            |  |   |            | 
|Long term debts                                                                                                                                                                                                                   |   | -          |  |   | 733,500    | 
|Total liabilities                                                                                                                                                                                                                 |   | 15,719,041 |  |   | 15,876,014 | 
|Commitments and contingencies                                                                                                                                                                                                     |   | -          |  |   | -          | 
|Stockholders' equity                                                                                                                                                                                                              |   |            |  |   |            | 
|Preferred
      stock: 5,000,000 shares authorized of
      $0.001         par value none
      issued and outstanding                                                                                                            | $ | -          |  | $ | -          | 
|Common stock: 100,000,000
      shares authorized of $0.001 par
      value         30,000,000 and
      20,500,000 shares issued and outstanding as
      of         December 31,
      2010 and December 31, 2009, respectively |   | 30,000     |  |   | 20,500     | 
|Additional paid in capital                                                                                                                                                                                                        |   | 17,988,805 |  |   | 13,048,135 | 
|Retained earnings                                                                                                                                                                                                                 |   | 12,622,369 |  |   | 3,330,877  | 
|Accumulated other comprehensive
      income                                                                                                                                                                                      |   | 2,291,124  |  |   | 1,263,287  | 
|Total stockholders' equity                                                                                                                                                                                                        |   | 32,932,298 |  |   | 17,662,799 | 
|Total liabilities and stockholders'
      equity                                                                                                                                                                                  | $ | 48,651,339 |  | $ | 33,538,813 | 

See accompanying notes of these consolidated financial
statements F-4

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

|                                                      |   | 2010       |   |   | 2009       |  
|----------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                      |   |            |   |   |            |  
|Revenues                                              | $ | 37,042,160 |   | $ | 13,285,949 |  
|                                                      |   |            |   |   |            |  
|Cost of goods sold                                    |   | 25,296,696 |   |   | 9,996,622  |  
|                                                      |   |            |   |   |            |  
|Gross profit                                          |   | 11,745,464 |   |   | 3,289,327  |  
|                                                      |   |            |   |   |            |  
|Selling and marketing expenses                        |   | 252,042    |   |   | 90,273     |  
|                                                      |   |            |   |   |            |  
|General and administrative expenses                   |   | 1,446,629  |   |   | 612,054    |  
|                                                      |   |            |   |   |            |  
|Net income from operations                            |   | 10,046,793 |   |   | 2,587,000  |  
|                                                      |   |            |   |   |            |  
|Other income (expenses)                               |   |            |   |   |            |  
|                                                      |   |            |   |   |            |  
|Other income                                          |   | 103,411    |   |   | 30,440     |  
|                                                      |   |            |   |   |            |  
|Government grant                                      |   | 2,110,792  |   |   | 169,546    |  
|                                                      |   |            |   |   |            |  
|Interest expense                                      |   | (289,408   | ) |   | (162,860   | )
|                                                      |   |            |   |   |            |  
|Total other income (expenses)                         |   | 1,924,795  |   |   | 37,126     |  
|                                                      |   |            |   |   |            |  
|Income before provision for income
      taxes        |   | 11,971,588 |   |   | 2,624,126  |  
|                                                      |   |            |   |   |            |  
|Provision for income taxes                            |   | 2,680,096  |   |   | 378,095    |  
|                                                      |   |            |   |   |            |  
|Net income                                            |   | 9,291,492  |   |   | 2,246,031  |  
|                                                      |   |            |   |   |            |  
|Other comprehensive income                            |   |            |   |   |            |  
|                                                      |   |            |   |   |            |  
|Foreign currency
      translation gain               |   | 1,027,837  |   |   | 1,417      |  
|                                                      |   |            |   |   |            |  
|Comprehensive income                                  | $ | 10,319,329 |   | $ | 2,247,448  |  
|                                                      |   |            |   |   |            |  
|Stock dividend                                        | $ | -          |   | $ | 1,786,190  |  
|                                                      |   |            |   |   |            |  
|Earnings per share:                                   |   |            |   |   |            |  
|                                                      |   |            |   |   |            |  
|Basic                                                 | $ | 0.42       |   | $ | 0.11       |  
|                                                      |   |            |   |   |            |  
|Diluted                                               | $ | 0.42       |   | $ | 0.11       |  
|                                                      |   |            |   |   |            |  
|Weighted average numbers of outstanding
      shares: |   |            |   |   |            |  
|                                                      |   |            |   |   |            |  
|Basic                                                 |   | 22,083,333 |   |   | 20,500,000 |  
|                                                      |   |            |   |   |            |  
|Diluted                                               |   | 22,085,833 |   |   | 20,500,000 |  

See accompanying notes of these consolidated financial
statements F-5

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE
YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   | Accumulated     |  |   |            |   |   |            |  
|------------------------------------------------------------------------------ |  | ------------------ |  | - | ---------- |  | - | --------------- | - | - | ------------- | - | - | --------------- |  | - | ---------- | - | - | ---------- | -
|                                                                               |  | Common
      stock |  |   |            |  |   |                 |   |   | other         |   |   |                 |  |   |            |  
|                                                                               |  | Par value : $0.001 |  |   | Additional |  |   | Retained        |   |   | comprehensive |   |   | Non-controlling |  |   |            |  
|                                                                               |  | Shares             |  |   | Amount     |  |   | paid in capital |   |   | earnings      |   |   | income          |  |   | interest   |   |   | Total      |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Balance as of January 1, 2009                                                  |  | 20,500,000         |  | $ | 20,500     |  | $ | 10,773,375      |   | $ | 2,871,036     |   | $ | 1,261,870       |  | $ | 1,320,300  |   | $ | 16,247,081 |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Net income for the year                                                        |  | -                  |  |   | -          |  |   | -               |   |   | 2,246,031     |   |   | -               |  |   | -          |   |   | 2,246,031  |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Additional paid in capital contribution from
      a stockholder of QAF        |  | -                  |  |   | -          |  |   | 29,340          |   |   | -             |   |   | -               |  |   | -          |   |   | 29,340     |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Issue of common stock for cash by QAF                                          |  | -                  |  |   | -          |  |   | 4,250,970       |   |   | -             |   |   | -               |  |   | -          |   |   | 4,250,970  |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Stock dividend distributed by QAF                                              |  | -                  |  |   | -          |  |   | 1,786,190       |   |   | (1,786,190    | ) |   | -               |  |   | -          |   |   | -          |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Issue of common stock                                                          |  | -                  |  |   | -          |  |   | (3,791,740      | ) |   | -             |   |   | -               |  |   | -          |   |   | (3,791,740 | )
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Non-controlling interest redeemed                                              |  | -                  |  |   | -          |  |   | -               |   |   | -             |   |   | -               |  |   | (1,320,300 | ) |   | (1,320,300 | )
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Foreign currency translation gain                                              |  | -                  |  |   | -          |  |   | -               |   |   | -             |   |   | 1,417           |  |   | -          |   |   | 1,417      |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Balance as of December 31, 2009                                                |  | 20,500,000         |  |   | 20,500     |  |   | 13,048,135      |   |   | 3,330,877     |   |   | 1,263,287       |  |   | -          |   |   | 17,662,799 |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Issue of common stock for settlement of convertible
      notes of CBF         |  | 4,000,000          |  |   | 4,000      |  |   | 396,000         |   |   | -             |   |   | -               |  |   | -          |   |   | 400,000    |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Gain on extinguishment of debt relatd to reverse
      acquisition             |  | -                  |  |   | -          |  |   | 4,400,000       |   |   | -             |   |   | -               |  |   | -          |   |   | 4,400,000  |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Common stock issued for services rendered related
      to reverse acquisition |  | 3,309,956          |  |   | 3,310      |  |   | 327,690         |   |   | -             |   |   | -               |  |   | -          |   |   | 331,000    |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Stock offering costs - reverse acquisition                                     |  | -                  |  |   | -          |  |   | (331,000        | ) |   | -             |   |   | -               |  |   | -          |   |   | (331,000   | )
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Common stock issued for services rendered                                      |  | 100,000            |  |   | 100        |  |   | 15,070          |   |   | -             |   |   | -               |  |   | -          |   |   | 15,170     |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Recapitalization - reverse merger acquisition
      of CNFI                    |  | 2,090,044          |  |   | 2,090      |  |   | (2,090          | ) |   | -             |   |   | -               |  |   | -          |   |   | -          |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Issuance of warrant                                                            |  | -                  |  |   | -          |  |   | 135,000         |   |   | -             |   |   | -               |  |   | -          |   |   | 135,000    |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Net income for the year                                                        |  | -                  |  |   | -          |  |   | -               |   |   | 9,291,492     |   |   | -               |  |   | -          |   |   | 9,291,492  |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Foreign currency translation gain                                              |  | -                  |  |   | -          |  |   | -               |   |   | -             |   |   | 1,027,837       |  |   | -          |   |   | 1,027,837  |  
|                                                                               |  |                    |  |   |            |  |   |                 |   |   |               |   |   |                 |  |   |            |   |   |            |  
|Balance as of December 31, 2010                                                |  | 30,000,000         |  | $ | 30,000     |  | $ | 17,988,805      |   | $ | 12,622,369    |   | $ | 2,291,124       |  | $ | -          |   | $ | 32,932,298 |  

See accompanying notes of these consolidated financial
statements F-6

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) FOR THE
YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

|                                                                                       |   | 2010       |   |   | 2009        |  
|-------------------------------------------------------------------------------------- | - | ---------- | - | - | ----------- | -
|Cash flows from operating activities                                                   |   |            |   |   |             |  
|Net income for
      the year                                                          | $ | 9,291,492  |   | $ | 2,246,031   |  
|Adjustments to reconcile net income to
      net cash provided by operating activites: |   |            |   |   |             |  
|Depreciation                                                                           |   | 284,335    |   |   | 242,320     |  
|Amortization                                                                           |   | 218,802    |   |   | 13,408      |  
|Stock based compensation                                                               |   | 150,170    |   |   | -           |  
|Changes in operating assets and
      liabilities:                                     |   |            |   |   |             |  
|Decrease (increase) in inventory                                                       |   | 3,840,606  |   |   | (4,528,854  | )
|(Increase)
      decrease in deposits and prepaid expenses                             |   | (4,386,052 | ) |   | 5,971,640   |  
|Increase in accounts receivable                                                        |   | (3,405,879 | ) |   | (1,508,786  | )
|(Increase)
      decrease in other receivables                                         |   | (87,338    | ) |   | 12,775,289  |  
|Increase in taxes recoverable                                                          |   | (2,260,103 | ) |   | (90,236     | )
|Increase in taxes
      payable                                                        |   | 2,904,360  |   |   | 376,545     |  
|(Decrease) increase in accounts payable                                                |   | (6,109,052 | ) |   | 3,017,540   |  
|Increase
      (decrease) in customer deposits                                         |   | 1,095,425  |   |   | (16,655,142 | )
|(Decrease) increase in other payables and accrued expenses                             |   | (2,146,612 | ) |   | 83,053      |  
|Net cash (used in) provided by operating
      activities                              |   | (609,846   | ) |   | 1,942,808   |  
|Cash flows from investing
      activities                                             |   |            |   |   |             |  
|Purchase of
      property and equipment                                               |   | (265,901   | ) |   | (1,367,491  | )
|Payment of construction in progress                                                    |   | (13,805    | ) |   | (1,860,826  | )
|(Increase)
      decrease in prepayment for property and equipment                     |   | (1,707,081 | ) |   | 1,510,298   |  
|Net cash used in investing
      activities                                            |   | (1,986,787 | ) |   | (1,718,019  | )
|Cash flows from financing activities                                                   |   |            |   |   |             |  
|Proceeds from issuance of common stock                                                 |   | -          |   |   | 4,250,970   |  
|Proceeds from
      issuance of convertible notes                                      |   | 2,835,907  |   |   | -           |  
|Capital contribution from stockholders                                                 |   | -          |   |   | 29,340      |  
|Redemption of
      non-controlling interest                                           |   | -          |   |   | (1,320,300  | )
|Repayment of short term and long term debt                                             |   | (743,330   | ) |   | (1,467,000  | )
|Proceeds from
      short term and long term debt                                      |   | 3,777,330  |   |   | 733,500     |  
|Repayment of due to related party                                                      |   | (3,480,544 | ) |   | (1,240,413  | )
|Net cash provided by financing activities                                              |   | 2,389,363  |   |   | 986,097     |  
|Effects on exchange rate
      changes on cash                                         |   | 1,070,451  |   |   | 813         |  
|Increase in cash and cash equivalents                                                  |   | 863,181    |   |   | 1,211,699   |  
|Cash and cash equivalents,
      beginning of year                                     |   | 1,471,729  |   |   | 260,030     |  
|Cash and cash equivalents, end of year                                                 | $ | 2,334,910  |   | $ | 1,471,729   |  
|                                                                                       |   |            |   |   | 2 334 910   |  
|Supplementary disclosures of cash flow
      information:                              |   |            |   |   |             |  
|Cash paid
      for interest                                                           | $ | 289,408    |   | $ | 162,860     |  
|Cash paid for income
      taxes                                                       | $ | 2,058,251  |   | $ | 378,095     |  
|Non-cash transactions:                                                                 |   |            |   |   |             |  
|Distribution of stock
      dividend                                                   | $ | -          |   | $ | 1,786,190   |  
|Issue of
      common stock from additional paid in capital                            | $ | -          |   | $ | 3,791,740   |  
|Common stock issued for
      payment of notes payable                                 | $ | 400,000    |   | $ | -           |  
|Common
      stock issued for stock offering costs                                     | $ | 331,000    |   | $ | -           |  
|Land use rights
      transferred from related party                                   | $ | 5,892,000  |   | $ | -           |  
|Proceeds
      from issuance of convertible notes received by related party            | $ | 1,964,093  |   | $ | -           |  

See accompanying notes of these consolidated financial
statements F-7

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|1. | BUSINESS ORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | China Forestry Industry Group, Inc. (the Company)
      (CNFI) (formerly known as Exotacar, Inc. and Phoenix Energy Resource
      Corporation (PNXE)) was incorporated on June 3, 2005 in the State of
      Nevada. On June 25, 2008, the Company changed its business focus from the
      development of online exotic car sales and entered into the oil and
      natural gas industry towards indentifying and pursuing options regarding
      the development of energy resources, and changed its name from Exotacar,
      Inc. to Phoenix Energy Resource Corporation. From June 25, 2008 through to
      the date of the reverse acquisition, the Company was a designated shell
      company with minimal operations. On January 7, 2011, the Company changed
      its name from Phoenix Energy Resource Corporation to China Forestry
      Industry Group, Inc. to more accurately reflect the new business
      operations.                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On November 1, 2010, the Company completed a reverse
      acquisition transaction pursuant to a share exchange agreement among the
      Company, China Bingwu Forestry Group Limited (CBF) and CBFs sole
      stockholder, Ms. RenPing Tu, whereby the Company acquired 100% of the
      issued and outstanding capital stock of CBF in exchange for 20,500,000
      shares of the Companys stock, which constituted 68.33% of the Companys
      issued and outstanding capital stock on a fully-diluted basis as of and
      immediately after the consummation of the reverse acquisition. As a result
      of the acquisition of CBF, the Company now owns all of the issued and
      outstanding capital stock of CBF, which in turn owns Qianxinan Aosen
      Forestry Co., Limited (QAF) and Qianxinan Silvan Touch Flooring Co.,
      Limited (QSTF). For accounting purposes, the share exchange transaction
      with CBF was treated as a reverse acquisition and recapitalization of
      CNFI, with CBF as the acquirer and CNFI as the acquired party. Upon
      completion of the exchange, CBF, QAF and QSTF became wholly owned
      subsidiaries of CNFI.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | China Bingwu Forestry Group Limited (CBF) was
      incorporated under the Companies laws of the Hong Kong Special
      Administrative Region of the Peoples Republic of China (HK) on April 9,
      2010. It was principally established to serve as an investment holding
      company and its operations are carried out in Hong Kong.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On May 18, 2010, CBF entered into an Equity Ownership
      Transfer Agreement (the Transfer Agreement) with the existing
      stockholders of Qianxinan Aosen Forestry Co., Limited (QAF), namely Mr.
      YuLu Bai, to acquire 100% equity interest of QAF for $2,488,471. This
      business combination was accounted for as entities under common control
      because the majority shareholders of CBF and QAF are the same
    people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | QAF is a private corporation, incorporated under the laws
      of the Peoples Republic of China (PRC) on November 22, 2004. QAFs
      principal activities are manufacturing and wholesaling of fiber boards,
      wood flooring, carpentry boards, wood products, furniture, and
    timber.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On October 22, 2007, QAF formed Qianxinan Silvan Touch
      Flooring Co., Limited (QSTF) of which QAF owned a 55% equity interest.
      On May 8, 2009, QAF acquired the remaining 45% equity interest in QSTF
      from the existing stockholder and QSTF became 100% wholly owned by QAF.
      QSTFs principal activities are manufacturing and wholesaling of wood
      flooring, furniture and decorations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | As a result of the reverse acquisition of CBF, the
      Company entered into a new business. Through its Chinese subsidiaries, the
      Company is now engaged in the business of manufacturing and wholesaling of
      fiber boards, wood flooring, carpentry boards, wood products, furniture,
      timber and decorations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company is headquartered in PRC, and the principal
      location of operation of the Company is at Hexing Village, Dingxiao
      Economic Development Zone, Xingyi City, Qianxinan, Guizhou Province, the
      Peoples Republic of China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 2.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-8

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.2                                                         
|   |                                                             
|   |                                                             

Name of
    Place of
    Date of
    Percentagesubsidiary
    incorporation
    incorporation
    of interest
    Principal activityChina Bingwu Forestry Group Limited
      Hong Kong Special Administrative Region, PRC
      April 9, 2010
      100% directly
      Investment holdingQianxinan Aosen Forestry Co., Limited
      People's Republic of China
      November 22, 2004
      100% directly
      Manufacturing and wholesaling of fiber boards,
        wood flooring, carpentry boards, wood products, furniture, and timberQianxinan Silvan Touch Flooring Co., Limited
      People's Republic of China
      October 22, 2007
      100% directly
      Manufacturing and wholesaling of wood flooring,
        furniture and decorations


| | 2.3 | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The consolidated financial statements are prepared in
      accordance with generally accepted accounting principles in the United
      States of America ("US GAAP").                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 2.4 | BASIS OF CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The consolidated financial statements include the
      financial statements of CNFI, CBF, QAF and QSTF. In the opinion of
      management, the accompanying balance sheets, and statements of income, and
      cash flows and include all adjustments, consisting only of normal
      recurring items, considered necessary to give a fair presentation of
      operating results for the periods presented. All material inter-company
      transactions and balances have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | CNFI, CBF, QAF and QSTF are hereafter referred to as
      (the Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | On November 1, 2010, the Company completed a reverse
      acquisition transaction with the existing stockholder of CBF and acquired
      100% equity interest of CBF in exchange for 20,500,000 shares of the
      Companys company stock, which constituted 68.33% of the Companys issued
      and outstanding capital stock on a fully- diluted basis as of and
      immediately after the consummation of the reverse acquisition. As a result
      of the acquisition of CBF, the Company now owns all of the issued and
      outstanding capital stock of CBF, which in turn owns Qianxinan Aosen
      Forestry Co., Limited (QAF) and Qianxinan Silvan Touch Flooring Co.,
      Limited (QSTF). For accounting purposes, the share exchange transaction
      with CBF was treated as a reverse acquisition and recapitalization of
      CNFI, with CBF as the acquirer and CNFI as the acquired party. Upon
      completion of the exchange, CBF, QAF and QSTF became wholly owned
      subsidiaries of CNFI. Accordingly the Companys financial statements have
      been prepared on a consolidated basis for the periods presented and the
      consolidated balance sheets, consolidated statements of income and
      comprehensive income, stockholders equity and cash flows were presented
      as if the recapitalization had occurred at the beginning of the earliest
      period presented.

F-9

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.4                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.5                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.6                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.7                                                         
|   |                                                             
|   |                                                             

F-10

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.8                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.9                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.10                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.11                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.12                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

F-11

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.13                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.14                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.15                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.16                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

| | Assets Classifications         | Estimated useful life
| | ------------------------------ | ---------------------
| |                                |                      
| | Plant and buildings            | 30 years             
| |                                |                      
| | Machinery and equipment        | 3 to 10 years        
| |                                |                      
| | Motor vehicles                 | 5 to 10 years        
| |                                |                      
| | Office equipment and furniture | 3 to 5 years         

An item of property and equipment is
removed from the accounts upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising
on disposal of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the consolidated
statements of income in the period the item is disposed. Expenditures for
maintenance and repairs are charged to expense as incurred, whereas major
betterments are capitalized as additions to property and equipment. The Company
reviews its property and equipment whenever events or changes in circumstances
indicate that the carrying value of certain assets might not be recoverable. In
these instances, the Company recognizes an impairment loss when it is probable
that the estimated cash flows are less than the carrying value of the asset. To
date, no such impairment losses have been recorded.

F-12

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------

| | **2.17** | **CONSTRUCTION IN PROGRESS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |          | Construction in progress represents the direct cost of
      construction and cost of plant and machinery installed as well as
      acquisition cost and design fees incurred. Capitalization of these costs
      ceases and the construction in progress is transferred to property and
      equipment when substantially all the activities necessary to prepare the
      assets for their intended use are completed. No depreciation is provided
      until construction in progress is completed and the asset is ready for its
      intended use.                                                                                                                                                                                                                                                                                                               
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2.18     | LAND USE RIGHTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |          | Land use rights represent acquisition of land use rights
      of agriculture land from farmers and is amortized on the straight line
      basis over their respective lease periods. The lease period of agriculture
      land ranges from 30 years to 60 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2.19     | IMPAIRMENT OF LONG LIVED ASSETS AND INTANGIBLE
      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |          | In accordance with ASC 360, Property, Plant and
      Equipment, long-lived assets to be held and used are analyzed for
      impairment whenever events or changes in circumstances indicate that the
      related carrying amounts may not be recoverable. The Company reviews the
      carrying amount of its long-lived assets, including intangibles, for
      impairment, each reporting period. An asset is considered impaired when
      estimated future cash flows are less than the carrying amount of the
      asset. In the event the carrying amount of such asset is considered not
      recoverable, the asset is adjusted to its fair value. Fair value is
      generally determined based on discounted future cash flow. As of December
      31, 2010 and December 31, 2009, the Company determined no impairment
      charges were necessary.

| | 2.20 | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The Company accounts for income taxes under the
      provisions of ASC 740 "Accounting for Income Taxes". Under ASC 740,
      deferred tax assets and liabilities are determined based on the difference
      between the financial statement carrying amounts and the tax bases of
      assets and liabilities using enacted tax rates in effect in the years in
      which the differences are expected to reverse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The provision for income tax is based on the results for
      the year as adjusted for items, which are non-assessable or disallowed. It
      is calculated using tax rates that have been enacted or substantively
      enacted at the balance sheet date. Deferred tax is accounted for using the
      balance sheet liability method in respect of temporary differences arising
      from differences between the carrying amount of assets and liabilities in
      the financial statements and the corresponding tax basis used in the
      computation of assessable tax profit. In principle, deferred tax
      liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probable that
      taxable profit will be available against which deductible temporary
      differences can be utilized.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Deferred income taxes are calculated at the tax rates
      that are expected to apply to the period when the asset is realized or the
      liability is settled. Deferred tax is charged or credited in the income
      statement, except when it related to items credited or charged directly to
      equity, in which case the deferred tax is also dealt with in equity.
      Deferred tax assets and liabilities are offset when they relate to income
      taxes levied by the same taxation authority and the Company intends to
      settle its current tax assets and liabilities on a net basis.                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | ASC 740 also prescribes a more-likely-than-not threshold
      for financial statement recognition and measurement of a tax position
      taken, or expected to be taken, in a tax return. ASC 740 also provides
      guidance related to, among other things, classification, accounting for
      interest and penalties associated with tax positions, and disclosure
      requirements. Any interest and penalties accrued related to unrecognized
      tax benefits will be recorded in tax expense.                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2.21 | TRADE AND OTHER PAYABLES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Trade payables and other payables are carried at cost and
      represent liabilities for goods and services provided to the Company prior
      to the end of the fiscal year that are unpaid and arise when the Company
      becomes obliged to make future payments in respect of the purchase of
      these goods and services. Trade payables are non-interest bearing and are
      normally settled on 7 to 60 day terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-13

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.22                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.23                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.24                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.25                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

F-14

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.25                                                        
|   |                                                             
|   |                                                             

| |            |  | 2010   |  |  | 2009   | 
| | ---------- |  | ------ |  |  | ------ | 
| |            |  |        |  |  |        | 
| | Customer A |  | 47.95% |  |  | 10.96% | 
| | Customer B |  | 25.75% |  |  | 6.69%  | 
| | Customer C |  | 4.02%  |  |  | 63.27% | 
| | Customer D |  | 1.68%  |  |  | -      | 
| | Customer E |  | 1.34%  |  |  | 1.51%  | 
| | Customer F |  | -      |  |  | 5.13%  | 
| |            |  | 80.74% |  |  | 87.56% | 

The company had 5 major customers
whose accounts receivable balance individually represented of the Companys
total accounts receivable as follows:

| |            |  | 2010   |  |  | 2009   | 
| | ---------- |  | ------ |  |  | ------ | 
| |            |  |        |  |  |        | 
| | Customer A |  | 22.50% |  |  | 9.60%  | 
| | Customer B |  | 21.67% |  |  | 39.51% | 
| | Customer C |  | 7.39%  |  |  | -      | 
| | Customer D |  | 1.54%  |  |  | -      | 
| | Customer E |  | 1.36%  |  |  | -      | 
| | Customer F |  | -      |  |  | 31.93% | 
| | Customer G |  | -      |  |  | 17.06% | 
| | Customer H |  | -      |  |  | 0.85%  | 
| |            |  | 54.46% |  |  | 98.95% | 

| | 2.26 | ACCUMULATED OTHER COMPREHENSIVE INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | ASC Topic 220 Comprehensive Incomeestablishes
      standards for reporting and displaying comprehensive income and its
      components in financial statements. Comprehensive income is defined as the
      change in stockholders equity of a business enterprise during a period
      from transactions and other events and circumstances from non-owner
      sources. The comprehensive income for all periods presented includes both
      the reported net income and net change in cumulative translation
      adjustments.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2.27 | RETIREMENT BENEFIT COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | PRC state managed retirement benefit programs are defined
      contribution plans and the payments to the plans are charged as expenses
      when employees have rendered service entitling them to the
      contribution.                                                                                                                                                                                                                                                                                                               

F-15

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.28                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.29                                                        
|   |                                                             
|   |                                                             

| | Level 1 | Quoted market prices available in active markets for
      identical assets or liabilities as of the reporting date.                                                                                    
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |         |                                                                                                                                                                                                         
| | Level 2 | Pricing inputs other than quoted prices in active markets
      included in Level 1, which are either directly or indirectly observable as
      of the reporting date.                                 
| |         |                                                                                                                                                                                                         
| | Level 3 | Pricing inputs that are generally observable inputs and
      not corroborated by market data.                                                                                                          
| |         |                                                                                                                                                                                                         
| |         | The carrying amounts of the Companys financial assets
      and liabilities, such as cash and accrued expenses, approximate their fair
      values because of the short maturity of these instruments.

| |      | The Company does not have any assets or liabilities
      measured at fair value on a recurring or a non-recurring basis,
      consequently, the Company did not have any fair value adjustments for
      assets and liabilities measured at fair value as of December 31, 2010 or
      December 31, 2009, nor gains or losses are reported in the statements of
      income and other comprehensive income that are attributable to the change
      in unrealized gains or losses relating to those assets and liabilities
      still held at the reporting date for the years ended December 31, 2010 and
      December 31, 2009.                                                                                                     
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 2.30 | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | In January 2010, FASB issued ASU No. 2010-01 Accounting
      for Distributions to Shareholders with Components of Stock and Cash. The
      amendments in this Update clarify that the stock portion of a distribution
      to shareholders that allows them to elect to receive cash or stock with a
      potential limitation on the total amount of cash that all shareholders can
      elect to receive in the aggregate is considered a share issuance that is
      reflected in EPS prospectively and is not a stock dividend for purposes of
      applying Topics 505 and 260 (Equity and Earnings Per Share). The
      amendments in this update are effective for interim and annual periods
      ending on or after December.

F-16

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------

| | 2.30 | RECENT ACCOUNTING PRONOUNCEMENTS
  (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | In January 2010, FASB issued ASU No. 2010-02 regarding
      accounting and reporting for decreases in ownership of a subsidiary. Under
      this guidance, an entity is required to deconsolidate a subsidiary when
      the entity ceases to have a controlling financial interest in the
      subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a
      gain or loss on the transaction and measures any retained investment in
      the subsidiary at fair value. In contrast, an entity is required to
      account for a decrease in its ownership interest of a subsidiary that does
      not result in a change of control of the subsidiary as an equity
      transaction. This ASU clarifies the scope of the decrease in ownership
      provisions, and expands the disclosures about the deconsolidation of a
      subsidiary or de-recognition of a group of assets. This ASU is effective
      for beginning in the first interim or annual reporting period ending on or
      after December 31, 2009. The Company does not expect the adoption of this
      ASU to have a material impact on its consolidated financial statements In
      January 2010, FASB issued ASU No. 2010-02  Accounting and Reporting for
      Decreases in Ownership of a Subsidiary  a Scope Clarification. The
      amendments in this Update affect accounting and reporting by an entity
      that experiences a decrease in ownership in a subsidiary that is a
      business or nonprofit activity. The amendments also affect accounting and
      reporting by an entity that exchanges a group of assets that constitutes a
      business or nonprofit activity for an equity interest in another entity.
      The amendments in this update are effective beginning in the period that
      an entity adopts SFAS No. 160, Non- controlling Interests in Consolidated
      Financial Statements  An Amendment of ARB No. 51. If an entity has
      previously adopted SFAS No. 160 as of the date the amendments in this
      update are included in the Accounting Standards Codification, the
      amendments in this update are effective beginning in the first interim or
      annual reporting period ending on or after December 15, 2009. The
      amendments in this update should be applied retrospectively to the first
      period that an entity adopted SFAS No. 160. The Company adopted this
      standard and has determined the standard does not have material effect on
      the Companys consolidated financial statements.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | In January 2010, FASB issued ASU No. 2010-06  Improving
      Disclosures about Fair Value Measurements. This update provides amendments
      to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers
      in and out of Levels 1 and 2. A reporting entity should disclose
      separately the amounts of significant transfers in and out of Level 1 and
      Level 2 fair value measurements and describe the reasons for the
      transfers. 2) Activity in Level 3 fair value measurements. In the
      reconciliation for fair value measurements using significant unobservable
      inputs (Level 3), a reporting entity should present separately information
      about purchases, sales, issuances, and settlements (that is, on a gross
      basis rather than as one net number). This update provides amendments to
      Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of
      disaggregation. A reporting entity should provide fair value measurement
      disclosures for each class of assets and liabilities. A class is often a
      subset of assets or liabilities within a line item in the statement of
      financial position. A reporting entity needs to use judgment in
      determining the appropriate classes of assets and liabilities. 2)
      Disclosures about inputs and valuation techniques. A reporting entity
      should provide disclosures about the valuation techniques and inputs used
      to measure fair value for both recurring and nonrecurring fair value
      measurements. Those disclosures are required for fair value measurements
      that fall in either Level 2 or Level 3.The new disclosures and
      clarifications of existing disclosures are effective for interim and
      annual reporting periods beginning after December 15, 2009, except for the
      disclosures about purchases, sales, issuances, and settlements in the roll
      forward of activity in Level 3 fair value measurements. Those disclosures
      are effective for fiscal years beginning after December 15, 2010, and for
      interim periods within those fiscal years. The Company is currently
      evaluating the impact of this ASU, however, the Company does not expect
      the adoption of this ASU to have a material impact on its consolidated
      financial statements.                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | In February 2010, the FASB issued Accounting Standards
      Update 2010-09, Subsequent Events (Topic 855): Amendments to Certain
      Recognition and Disclosure Requirements, or ASU 2010-09. ASU 2010-09
      primarily rescinds the requirement that, for listed companies, financial
      statements clearly disclose the date through which subsequent events have
      been evaluated. Subsequent events must still be evaluated through the date
      of financial statement issuance; however, the disclosure requirement has
      been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was
      effective immediately upon issuance and was adopted in February
    2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-17

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.30                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

F-18

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIE(FORMERLY
PHOENIX ENERGY RESOURCE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

|3. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company is incorporated in the State of Nevada in the
      U.S. and is subject to a gradual U.S. federal corporate income tax of 15%
      to 34%. The State of Nevada does not impose any corporate state income
      tax.                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | No Hong Kong profits tax has been provided in the
      financial statements, as the Company did not have any assessable profits
      for the years ended December 31, 2010 and December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Beginning January 1, 2008, the new Enterprise Income Tax
      (EIT) law replaced the existing laws for Domestic Enterprises (DEs)
      and Foreign Invested Enterprises (FIEs). The new standard EIT rate of
      25% replaced the 33% rate currently applicable to both DEs and FIEs. The
      Company is currently evaluating the impact that the new EIT will have on
      its financial condition. Beginning January 1, 2008, China unified the
      corporate income tax rule on foreign invested enterprises and domestic
      enterprises. The unified corporate income tax rate is 25%.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Under Guizhou Province preferential tax policy, QAF and
      QSTF are entitled to certain tax exemptions and reductions available to
      all companies in Guizhou Province, the Peoples Republic of
  China.                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Under these tax holidays, QAF is entitled to exemption
      from EIT for 3 years and reduced tax rates for 2 years after that,
      effective as of 2006 and 2009, respectively. Under Chinese tax law,
      enterprise income tax is charged and collected first and refunded
      later.                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Therefore, QAF made income tax payments for fiscal years
      2006, 2007 and 2008, and was refunded 2006, 2007 and 2008 income tax
      payments. Provisions for income tax were made at 25% on yearly reported
      profits less the amounts of income tax refunded for the fiscal years 2010
      and 2009.                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Further, QSTF incurred income tax expenses during fiscal
      years 2010 and 2009, but QSTF was entitled to a claim for refund of these
      payments. Provision for income tax is made at EIT rate of 25% on yearly
      reported profits less the amounts of income tax refunded for the fiscal
      years 2010 and 2009.                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The following table reconciles the U.S. statutory rates
      to the Companys effective tax rate for the years ended December 31, 2010
      and December 31, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                           |  | 2010   |   |  | 2009   |  
| | ----------------------------------------- |  | ------ | - |  | ------ | -
| | U.S. statutory rate                       |  | 34%    |   |  | 34%    |  
| | Foreign income not recognized in USA      |  | (34%   | ) |  | (34%   | )
| | China Enterprise income tax
      rate    |  | 25%    |   |  | 25%    |  
| | China Enterprise income tax concession    |  | (2.6%  | ) |  | (10.6% | )
| | Hong Kong profits tax rate                |  | 16.5%  |   |  | 16.5%  |  
| | Offshore subsidiary income not recognized |  | (16.5% | ) |  | (16.5% | )
| |                                           |  | 22.4%  |   |  | 14.4%  |  

Provision for income taxes is as
follows:

| |                                   |   | 2010      |  |   | 2009    | 
| | --------------------------------- | - | --------- |  | - | ------- | 
| | Income tax                        |   |           |  |   |         | 
| | CNFI - U.S. corporate tax         | $ | -         |  | $ | -       | 
| | CBF - Hong Kong profits
      tax |   | -         |  |   | -       | 
| | QAF - China EIT                   |   | 1,033,602 |  |   | 258,534 | 
| | QSTF - China EIT                  |   | 1,646,494 |  |   | 119,561 | 
| | Deferred tax                      |   | -         |  |   | -       | 
| |                                   | $ | 2,680,096 |  | $ | 378,095 | 

F-19

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|4. | STOCK DIVIDEND PAID                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                              
|   | Prior to reverse merger, QAF, the Companys subsidiary
      distributed stock dividend to common stockholders of QAF amounting to $nil
      and $1,786,190 for the years ended December 31, 2010 and December 31,
      2009, respectively.

| |                     |   | 2010 |  |   | 2009      | 
| | ------------------- | - | ---- |  | - | --------- | 
| | Stock dividend paid | $ | -    |  | $ | 1,786,190 | 

|5. | ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company has performed an analysis on all of its
      accounts receivable and determined that all amounts are probable of
      collection within one year. As such, all trade receivables are reflected
      as a current asset. Allowance for doubtful accounts as of December 31,
      2010 and December 31, 2009 are $27,252 and $nil, respectively. Bad debts
      written off for the years ended December 31, 2010 and December 31, 2009
      are $nil.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Aging of accounts receivable is as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                    |   | 2010      |   |   | 2009      | 
| | ---------------------------------- | - | --------- | - | - | --------- | 
| |                                    |   |           |   |   |           | 
| | within 3 months                    | $ | 2,430,367 |   | $ | 1,994,189 | 
| | over 3 months but within 6 months  |   | 2,516,207 |   |   | 22,468    | 
| | over 6 months but within 12 months |   | 503,801   |   |   | -         | 
| | over 1 year                        |   | -         |   |   | 587       | 
| |                                    |   | 5,450,375 |   |   | 2,017,244 | 
| | Allowance for doubtful accounts    |   | (27,252   | ) |   | -         | 
| |                                    | $ | 5,423,123 |   | $ | 2,017,244 | 

|6. | INVENTORY                                                                                              
|-- | -------------------------------------------------------------------------------------------------------
|   |                                                                                                        
|   | Inventory consists primarily of raw materials, finished
      goods, packing materials and consumables.

|                                 |   | 2010      |  |   | 2009       | 
|-------------------------------- | - | --------- |  | - | ---------- | 
|Raw materials                    | $ | 6,297,151 |  | $ | 9,196,520  | 
|Finished goods                   |   | 556,148   |  |   | 520,810    | 
|Packing materials and consumable |   | 96,380    |  |   | 1,072,955  | 
|                                 | $ | 6,949,679 |  | $ | 10,790,285 | 

The Company provides for inventory
losses based on obsolescence and levels in excess of forecasted demand. In these
cases, inventory is reduced to estimated realizable value based on historical
usage and expected demand.

F-20

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|7. | DEPOSITS AND PREPAID
EXPENSES
|-- | -----------------------------

| |                                        |   | 2010       |  |   | 2009      | 
| | -------------------------------------- | - | ---------- |  | - | --------- | 
| | Deposits for                           |   |            |  |   |           | 
| | Coal                                   | $ | -          |  | $ | 22,058    | 
| | Raw materials and goods
      supplies |   | 9,424,358  |  |   | 6,032,190 | 
| | Equipment                              |   | 1,763,382  |  |   | 76,137    | 
| | Construction in
      progress         |   | 69,714     |  |   | 49,878    | 
| | Electricity                            |   | 113,860    |  |   | -         | 
| | Transportation                         |   | 129,861    |  |   | -         | 
| | Others                                 |   | 116,247    |  |   | 117,360   | 
| | Prepayments for services               |   | 773,334    |  |   | -         | 
| |                                        | $ | 12,390,756 |  | $ | 6,297,623 | 

|   | Trade deposits are paid to suppliers of raw materials and
      goods supplies, equipment, construction in progress, electricity and
      transportation as deposits for inventory purchases and provision for
      services. The inventory is normally delivered within one to two months
      after the payments have been made. Prepayments for services are paid for
      financial advisory services and services in connection with the listing of
      the Company.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|8. | OTHER RECEIVABLES                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                   |   | 2010    |  |   | 2009    | 
| | --------------------------------- | - | ------- |  | - | ------- | 
| | Guarantee deposits                | $ | 682,711 |  | $ | 660,209 | 
| | Due from employees                |   | 73,066  |  |   | 12,039  | 
| | Design fee receivable             |   | 9,665   |  |   | 9,346   | 
| | Special fee for safety facilities |   | -       |  |   | 7,335   | 
| | Others                            |   | 11,794  |  |   | 969     | 
| |                                   | $ | 777,236 |  | $ | 689,898 | 

|   | Guarantee deposits are provided to financial institutions
      in return for issuance of a corporate guarantee to financiers. Due from
      employees are the amounts advanced for business transactions on behalf of
      the Company and will be reconciled on the completion of business
      transactions.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                   
|9. | TAXES RECOVERABLE                                                                                                                                                                                                                                                                                                 

| |       |   | 2010      |  |   | 2009    | 
| | ----- | - | --------- |  | - | ------- | 
| |       |   |           |  |   |         | 
| | VAT   | $ | 2,452,407 |  | $ | 191,414 | 
| | Other |   | -         |  |   | 890     | 
| |       | $ | 2,452,407 |  | $ | 192,304 | 

F-21

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|10. | PROPERTY AND EQUIPMENT
|--- | ----------------------

| |                                |   | 2010      |   |   | 2009      |  
| | ------------------------------ | - | --------- | - | - | --------- | -
| | Buildings                      | $ | 2,975,099 |   | $ | 2,877,040 |  
| | Plant and equipment            |   | 3,968,175 |   |   | 3,656,331 |  
| | Motor vehicles                 |   | 134,536   |   |   | 130,101   |  
| | Office equipment               |   | 99,436    |   |   | 51,102    |  
| | Furniture and fixtures         |   | 46,212    |   |   | 13,662    |  
| |                                |   | 7,223,458 |   |   | 6,728,236 |  
| | Less: Accumulated depreciation |   | (871,169  | ) |   | (560,502  | )
| | Net book value                 | $ | 6,352,289 |   | $ | 6,167,734 |  

|    | Depreciation expense was $284,335 and $242,320 for the
      years ended December 31, 2010 and December 31, 2009, respectively and
      included in general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|11. | LAND USE RIGHTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Private ownership of land is not permitted in the PRC.
      Instead, the Company has leased three lots of land. The cost of the first
      and second lots land use rights acquired in 2007 was $819,810 and these
      lots were located at Hexing Village, Dingxiao Economic Development Zone,
      Xingyi City, Qianxinan, Guizhou Province, the Peoples Republic of China.
      The cost of the third lot of land use rights acquired in 2010 was
      $5,892,000 and was located at Liping Country, Qiandongnan, Guizhou
      Province, the Peoples Republic of China.

| |                                |   | 2010      |   |   | 2009    |  
| | ------------------------------ | - | --------- | - | - | ------- | -
| |                                |   |           |   |   |         |  
| | Cost                           | $ | 6,915,752 |   | $ | 819,810 |  
| | Less: Accumulated amortization |   | (249,161  | ) |   | (23,981 | )
| | Net book value                 | $ | 6,666,591 |   | $ | 795,829 |  

|    | Land use rights are amortized on the straight line basis
      over their respective lease periods. The lease period of agriculture land
      is 30 years. Amortization of land use rights was $218,802 and $13,408 for
      the years ended December 31, 2010 and December 31, 2009, respectively and
      included in general and administrative expenses..
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                 
|12. | CONSTRUCTION IN
PROGRESS                                                                                                                                                                                                                                                                                                                                        

| |                                    |   | 2010      |  |   | 2009      | 
| | ---------------------------------- | - | --------- |  | - | --------- | 
| |                                    |   |           |  |   |           | 
| | Wooden fiber manufacturing factory | $ | 5,251,065 |  | $ | 5,066,737 | 
| | Wooden floor manufacturing factory |   | 53,283    |  |   | 49,430    | 
| |                                    | $ | 5,304,348 |  | $ | 5,116,167 | 

|13. | CUSTOMER DEPOSITS                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Customer deposits represent amounts advanced by customers
      for orders of product. The products normally are shipped within three
      months after receipt of the advance payment and the related sale is
      recognized in accordance with the Companys revenue recognition policy. As
      of December 31, 2010 and December 31, 2009, customer deposits amounted to
      $1,936,733 and $841,308, respectively.

F-22

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|14. | OTHER PAYABLES AND ACCRUED
  EXPENSES
|--- | -------------------------------------

2010
    
    
    2009Due to related parties
    $
    1,527,080
    
    $
    511,674Due to former stockholders
    
    -
    
    
    2,487,210Due to third parties
    
    775,187
    
    
    598,976Due to employees
    
    151,700
    
    
    134Accrued wages
    
    113,224
    
    
    100,403$
    2,567,191
    
    $
    3,698,397


|    | Due to related parties, former stockholders, third
      parties and employees are unsecured, interest free and without a fixed
      term of repayment and are for specific business purposes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                
|15. | TAXES PAYABLE                                                                                                                                                                                  

2010
    
    
    2009VAT
    $
    730,056
    
    $
    7,184Enterprise income tax
    
    2,501,229
    
    
    378,327City maintenance and construction levies
    
    31,925
    
    
    -Stamp duty
    
    1,731
    
    
    610Education levies
    
    25,540
    
    
    -$
    3,290,481
    
    $
    386,121


F-23

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|16. | SHORT TERM AND LONG TERM DEBTS                                                                                                                                                                                                                                                                                                                           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | There are no provisions in the Companys bank borrowings
      that would accelerate repayment of debt as a result of a change in credit
      ratings or a material adverse change in the Companys business. Under
      certain agreements, the Company has the option to retire debt prior to
      maturity, either at par or at a premium over
par.

| | (a) | Short term debt
| | --- | ---------------

| |                                    |                                         |  | Interest |  |   |           |  |   |         | 
| | ---------------------------------- | --------------------------------------- |  | -------- |  | - | --------- |  | - | ------- | 
| | Name of bank                       | Term                                    |  | rate     |  |   | 2010      |  |   | 2009    | 
| |                                    |                                         |  |          |  |   |           |  |   |         | 
| | Xingyi City Rural Cooperative Bank | January 3, 2008 - January 2,
      2010 |  | 8.40%    |  | $ | -         |  | $ | 718,830 | 
| | Xingyi City Rural Cooperative Bank | March 26, 2010 - March 25, 2011         |  | 7.965%   |  |   | 743,330   |  |   | -       | 
| | Bank of Chongqing                  | June 21, 2010 - June 20, 2011           |  | 5.31%    |  |   | 3,034,000 |  |   | -       | 
| | Xingyi City Rural Cooperative Bank | July 17, 2009 - July 16, 2011           |  | 8.10%    |  |   | 758,500   |  |   | -       | 
| |                                    |                                         |  |          |  | $ | 4,535,830 |  | $ | 718,830 | 

| | (b) | Long term debt
| | --- | --------------

| |                                    |                               |  | Interest |  |   |      |  |   |         | 
| | ---------------------------------- | ----------------------------- |  | -------- |  | - | ---- |  | - | ------- | 
| | Name of bank                       | Term                          |  | rate     |  |   | 2010 |  |   | 2009    | 
| |                                    |                               |  |          |  |   |      |  |   |         | 
| | Xingyi City Rural Cooperative Bank | July 17, 2009 - July 16, 2011 |  | 8.10%    |  | $ | -    |  | $ | 733,500 | 

|    | All the above short term and long term debts are
      corporate guaranteed by third parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|17. | STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company has authorized preferred stock of 5,000,000
      shares with a par value of $0.001. As of December 31, 2010 and December
      31, 2009, the Company has none issued and outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On November 1, 2010, the Company issued 20,500,000 shares
      of common stock to the sole shareholder of CBF for all of the issued and
      outstanding shares of CBF. This transaction has been accounted for as a
      reverse merger or a recapitalization of CBF with the common stock of the
      public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | As a result of the reverse merger, the equity account of
      the Company, prior to the share exchange date, has been retroactively
      restated so that the ending outstanding share balance as of the share
      exchange date is equal to the number of post share-exchange
  shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | CBF issued two non-interest bearing convertible notes on
      July 23, 2010 and September 7, 2010 in the aggregate principal amount of
      $4,800,000 in connection with the reverse acquisition and recapitalization
      of the Company. On November 1, 2010, the Company issued 4,000,000 shares
      of common stock as payment in full for these two notes. The issuance of
      these shares of stock resulted in a gain on the extinguishment of debt as
      the 4,000,000 shares were valued at $0.10 per share as at the date of
      settlement. Since these notes were entered into as part of the
      recapitalization of the Company, the gain has been reported as an addition
      to paid in capital and not recognized as income in the current
  year.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On November 1, 2010, the Company issued a total of
      3,309,956 shares of common stock valued at $0.10 per share for $331,000 to
      an investment capital firm in connection with the reverse merger
      transaction. This amount has been classified by the Company as stock
      offering costs in connection with the recapitalization of the Company and
      recorded as a reduction of paid in capital and has not been recognized as
      an expense in the current year.                                                                                                                                                                                                                                                                                         

F-24

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|17. | STOCKHOLDERS EQUITY (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On November 1, 2010, the Company issued 100,000 shares of
      common stock at a value of $0.15 per share for $15,170 for services
      rendered to the Company. The Company recognized $15,170 of stock based
      compensation as this was the dollar amount of the service rendered to the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company has authorized common stock of 100,000,000
      shares with a par value of $0.001. As of December 31, 2010, the Company
      has 30,000,000 shares of common stock issued and outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|18. | STOCK OPTIONS AND WARRANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company accounts for its stock options and warrants
      in accordance with ASC Topic 718, Compensation  Stock Compensation and
      ASC Topic 505-50 Equity  Based Payments to Non-Employees which were
      adopted by the Company on December 15, 2010. The Company issued a warrant
      to a third party for the purchase of 60,000 shares of the Companys common
      stock at an exercise price of $4.00 per share. The warrant expires on
      December 15, 2015.                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company determines the estimated fair value of
      share-based awards using the Black-Scholes option-pricing model. The
      Black-Scholes model is affected by the Companys stock price as well as by
      assumptions regarding certain complex and subjective variables. These
      variables include, but are not limited to; the Companys expected stock
      price volatility over the term of the awards and the actual and projected
      option exercise behaviors. The Company used a 3% risk free interest rate
      and expected volatility of 125% when valuing these warrants. The Company
      calculated a stock based compensation of $135,000 and recognized $135,000
      in stock based compensation expense for the year ended December 31,
      2010.

| |                                           | Number of
    shares |                |                  
| | ----------------------------------------- | -------------------- | -------------- | -----------------
| |                                           | entitled to purchase | Exercise Price | Expiration date  
| | Issued December 15, 2010                  | 60,000               | $4.00          | December 15, 2015
| |                                           |                      |                |                  
| | Balance as of December 31,
      2010     | 60,000               | $4.00          |                  
| | Warrants exercised                        | -                    | 4.00           |                  
| | Warrants expired                          | -                    | 4.00           |                  
| | Total outstanding as of December 31, 2010 | 60,000               | $4.00          | December 15, 2015

Utilizing the Black Scholes
option-pricing model, the share based compensation expense for the years ended
December 31, 2010 and December 31, 2009; the amounts were $135,000 and $nil,
respectively.

On May 17, 2010, Ms. RenPing Tu, the
owner of approximately 68.33% of the Companys issued and outstanding common
stock, entered into an agreement with Mr. YuLu Bai, the Companys Chairman and
Chief Executive Officer and an original shareholder of QAF, pursuant which Mr.
Bai was granted an option to acquire 20,500,000 shares of the Companys common
stock currently owned by Ms. Tu for an aggregate exercise price of $2,500,000.
Mr. Bai may exercise this option, in whole but not in part, during the period
commencing on the 365th day following of the date of the option
agreement and ending on the second anniversary of the date thereof contemplated
by the Share Exchange Agreement. As of December 31, 2010, Mr. Bai had not
exercised his option to acquire 20,500,000 shares of the Companys common stock.

F-25

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND
SUBSIDIARIES(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|19. | STOCK BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On November 1, 2010, the Company issued 3,309,956 shares
      of common stock to certain company who provided services for the benefit
      of the Company and/or its subsidiaries in connection with the reverse
      acquisition and recapitalization of the Company. The fair value of the
      common stock issued is determined using the fair value of the Companys
      common stock on the grant date at $0.10 per share. The Company calculated
      stock based compensation of $331,000 and recorded this amount as stock
      offering costs in connection with the recapitalization of the Company and
      have recorded this amount as a reduction of paid in capital.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On November 1, 2010, the Company issued 100,000 shares of
      common stock to certain individual who provided services for the benefit
      of the Company. The fair value of the common stock issued is determined
      using the fair value of the Companys common stock on the grant date at
      $0.15 per share. The Company calculated stock based compensation of
      $15,170 and recognized this amount as stock based compensation for the
      year ended December 31, 2010.                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|20. | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Total lease expense for the years ended December 31, 2010
      and December 31, 2009 were $nil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The future minimum lease payments as of December 31, 2010
      and December 31, 2009 were $nil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Purchase of Property for a total consideration of
      $9,537,975                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On August 25, 2006, the Company signed a contract for
      property under construction, totaling $9,537,975 (RMB62,665,450). During
      the years ended December 31, 2010 and December 31, 2009 and as of December
      31, 2010 and December 31, 2009, the amount had not been paid by the
      Company. The amount will be paid by the end of 2011.                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | From time to time and in the ordinary course of business,
      the Company may be subject to various claims, charges, and litigation. As
      of December 31, 2010 and December 31, 2009, the Company did not have any
      pending claims, charges, or litigation that it would have a material
      adverse effect on its consolidated balance sheets, consolidated statements
      of income and comprehensive income or cash flows.                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|21. | OBLIGATIONS UNDER MATERIAL CONTRACTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-26

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|22. | PRODUCT LINE INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company sells wooden fiber sheets and wooden floors
      which are used by customers in various industries. The production process,
      class of customer, selling practice and distribution process are the same
      for all wooden fiber sheets and wooden floors. The Companys chief
      operating decision-makers (i.e. chief executive officer and his direct
      reports) review financial information presented on a consolidated basis,
      accompanied by disaggregated information about revenues by product lines
      for purposes of allocating resources and evaluating financial performance.
      There are no segment managers who are held accountable for operations,
      operating results and plans for levels or components below the
      consolidated unit level. The Company considers itself to be operating
      within one reportable segment. The Company does not have long-lived assets
      located in foreign countries. The Company's net revenue from external
      customers by main product lines is as follows:

| |                    |   | 2010       |  |   | 2009       | 
| | ------------------ | - | ---------- |  | - | ---------- | 
| |                    |   |            |  |   |            | 
| | Domestic sales     |   |            |  |   |            | 
| | Wooden fiber sheet | $ | 11,325,359 |  | $ | 11,493,374 | 
| | Wooden floor       |   | 25,716,801 |  |   | 1,792,575  | 
| |                    | $ | 37,042,160 |  | $ | 13,285,949 | 

|23. | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | As prescribed in ASC Topic 260 Earning per Share, Basic
      Earnings per Share (EPS) is computed by dividing net income available to
      common stockholders by the weighted average number of common stock shares
      outstanding during the year. Diluted EPS is computed by dividing net
      income available to common stockholders by the weighted- average number of
      common stock shares outstanding during the year plus potential dilutive
      instruments such as stock options and warrants. The effect of stock
      options on diluted EPS is determined through the application of the
      treasury stock method, whereby proceeds received by the Company based on
      assumed exercises are hypothetically used to repurchase the Companys
      common stock at the average market price during the period.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | For the years ended December 31, 2010 and December 31,
      2009, basic and diluted earnings per share amount to $0.42 and $0.11,
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|24. | RELATED PARTIES TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | For the years ended December 31, 2010 and 2009, there was
      cash and non-cash compensation of $64,700 and $64,700 awarded to, earned
      by, or paid to any of the Companys executive officers or directors. In
      addition to the transactions and balances as disclosed elsewhere in these
      consolidated financial statements, the Company had the following
      significant related party transactions:-                                                                                                                                                                                                                                                                                                                                                                                                                         

| | Name of related party                                                    | Nature of transactions                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mr. YuLu Bai, Chief Executive Officer                                    | Included in other payables and
      accrued expenses, due to Mr. YuLu Bai are $1,527,080 and $511,674 as of
      December 31, 2010 and December 31, 2009, respectively. The amounts are
      unsecured, interest free and have no fixed term of repayment.
| |                                                                          |                                                                                                                                                                                                                                                              
| |                                                                          | Mr. YuLu Bai transferred a lot of
      land use rights to the Company at RMB40 million (approximately, $6
      million) during the year ended December 31, 2010.                                                                                           
| |                                                                          |                                                                                                                                                                                                                                                              
| | Guizhou Silvan Touch Wooden Co., Limited controlled
      by Mr.YuLu Bai | The Company sold wooden fiber
      sheets of $1,755,397 and $9,835,471 to Guizhou Silvan Touch Wooden Co.,
      Limited for the period from January 1, 2010 to May 28, 2010 and for the
      year ended December 31, 2009, respectively.                  
| |                                                                          |                                                                                                                                                                                                                                                              
| |                                                                          | The Company purchased raw
      materials of $135,596 and $nil from Guizhou Silvan Touch Wooden Co.
      Limited for the period from January 1, 2010 to May 28, 2010 and for the
      year ended December 31, 2009, respectively.                          
| |                                                                          |                                                                                                                                                                                                                                                              
| |                                                                          | Mr. YuLu Bai ceased his
      controlling interest on May 28, 2010.                                                                                                                                                                                          

F-27

---

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES
(FORMERLY PHOENIX ENERGY RESOURCE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|25. | SUBSEQUENT EVENTS                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                        
|    | The Company settled the amount due to Mr. YuLu Bai of
      $1,527,080 on March 23, 2011.                                                              
|    |                                                                                                                                                        
|26. | RESTATEMENT                                                                                                                                            
|    |                                                                                                                                                        
|    | The consolidated statement of cash flows for the year
      ended December 31, 2010 has been restated to correct the following
      accounting errors:

| | (i)  | a lot of land use rights was transferred from Mr. YuLu
      Bai to the Company during the year; and       
| | ---- | -----------------------------------------------------------------------------------------------------------
| | (ii) | part of the proceeds from issuance of convertible notes
      was received by Mr. YuLu Bai during the year.

The restatements were:

| |  | To present deposits paid for property and equipment from
      Cash Flows from Operating Activities to Cash Flows from Investing
      Activities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                   
| |  | To present amount paid to Mr. YuLu Bai from Cash Flows
      from Operating Activities to Cash Flows from Financing Activities.                   

The effect of the restatement on
specific line items in the consolidated statement of cash flows for the year
ended December 31, 2010 was:

| | Consolidated statement of cash flows                                        |  |   | As
      Reported |   |   | As
      Restated |  
| | --------------------------------------------------------------------------- |  | - | ----------------- | - | - | ----------------- | -
| | Increase in deposits and prepaid expenses                                   |  |   | ($ 6,093,133      | ) |   | ($ 4,386,052      | )
| | Decrease in other
      payables and accrued expenses                       |  |   | (1,131,206        | ) |   | (2,146,612        | )
| | Net cash used in operating
      activities                                 |  |   | (1,301,521        | ) |   | (609,846          | )
| |                                                                             |  |   |                   |   |   |                   |  
| | Purchase of land use rights                                                 |  |   | (5,892,000        | ) |   | -                 |  
| | Increase in
      prepayment for property and equipment                     |  |   | -                 |   |   | (1,707,081        | )
| | Net cash used in investing
      activities                                 |  |   | (6,171,706        | ) |   | (1,986,787        | )
| |                                                                             |  |   |                   |   |   |                   |  
| | Proceeds from issuance of convertible notes                                 |  |   | 4,800,000         |   |   | 2,835,907         |  
| | Repayment of due
      to related party                                     |  |   | -                 |   |   | (3,480,544        | )
| | Net cash provided by
      financing activities                             |  |   | 7,834,000         |   |   | 2,389,363         |  
| |                                                                             |  |   |                   |   |   |                   |  
| | Effects on exchange rate
      changes on cash                              |  | $ | 502,408           |   | $ | 1,070,451         |  
| |                                                                             |  |   |                   |   |   |                   |  
| | Non-cash transactions:                                                      |  |   |                   |   |   |                   |  
| | Land use rights
      transferred from related party                        |  | $ | -                 |   | $ | 5,892,000         |  
| | Proceeds
      from issuance of convertible notes received by related party |  | $ | -                 |   | $ | 1,964,093         |  

F-28

---

EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                                                       
|2.1         |  | Share Exchange Agreement, dated
      November 1, 2010, among the Company, China Bingwu Forestry Group Limited
      and its sole shareholder [incorporated by reference to Exhibit 2.1 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]                                                                                  
|3.1         |  | Amended and Restated Articles of Incorporation
      of the Company [incorporated by reference to Exhibit 3.1 to the Companys
      Current Report on Form 8-K filed on January 13, 2011]                                                                                                                                                            
|3.2         |  | Amended and Restated Bylaws of
      the Company [incorporated by reference to Exhibit 3.1 to the Companys
      Current Report on Form 8-K filed on December 9, 2010]                                                                                                                                                                               
|4.1         |  | Convertible Note, dated July 23, 2010, payable
      to Horoy International Holdings Limited [incorporated by reference to
      Exhibit 4.1 to the Companys Current Report on Form 8-K filed on November
      5, 2010]                                                                                                                             
|4.2         |  | Convertible Note, dated
      September 7, 2010, payable to Goldenbridge Investment Holdings Limited
      [incorporated by reference to Exhibit 4.2 to the Companys Current Report
      on Form 8-K filed on November 5, 2010]                                                                                                                     
|4.3         |  | Note Cancellation Agreement, dated September 9,
      2010, among the Company and the holders of certain notes payable signatory
      thereto [incorporated by reference to Exhibit 4.3 to the Companys Current
      Report on Form 8-K filed on November 5, 2010]                                                                                 
|4.4*        |  | Common Stock Purchase Warrant,
      dated December 15, 2010, issued to CCG Investor Relations Partners LLC.                                                                                                                                                                                                                                          
|10.1        |  | Securities Purchase Agreement, dated September 23, 2010,
      by and among the Company, Helvetic Capital Ventures AG and the accredited
      investor signatory thereto [incorporated by reference to Exhibit 10.1 to
      the Companys Current Report on Form 8-K filed on September 28, 2010]                                                   
|10.2        |  | Repurchase Agreement, dated
      September 23, 2010, by and between the Company and Helvetic Capital
      Ventures AG [incorporated by reference to Exhibit 10.2 to the Companys
      Current Report on Form 8-K filed on September 28, 2010]                                                                                                     
|10.3        |  | English Translation of Equity Transfer
      Agreement, dated May 18, 2010, by and between China Bingwu Forestry Group
      Limited and the shareholders of Qianxinan Aosen Forestry Company, Limited
      signatory thereto [incorporated by reference to Exhibit 10.1 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]
|10.4        |  | English Translation of Share
      Transfer Agreement, dated May 8, 2009, by and between Qianxinan Aosen
      Forestry Company, Limited and Guizhou Yinyan Wood Co., Ltd. [incorporated
      by reference to Exhibit 10.11 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                             
|10.5        |  | English Translation of Shareholder Investment
      Agreement, dated October 16, 2007, by and between Qianxinan Aosen Forestry
      Company, Limited and Guizhou Yinyan Wood Co., Ltd. [incorporated by
      reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                 
|10.6        |  | English Translation of Wood
      Purchase and Sales Contract, dated March 14, 2010, by and between
      Qianxinan Aosen Forestry Company, Limited and Yan Zhiming [incorporated by
      reference to Exhibit 10.14 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                                    
|10.7        |  | English Translation of Purchase and Sales
      Contract, dated November 16, 2009, between Qianxinan Aosen Forestry
      Company, Limited and Guizhou Shuanghe Industrial Trade Co., Ltd.
      [incorporated by reference to Exhibit 10.8 to the Companys Current Report
      on Form 8-K filed on November 5, 2010]                              
|10.8        |  | English Translation of Purchase
      and Sales Contract, dated January 1, 2009, by and between Guizhou Yingye
      Forestry Ltd. and Qianxinan Aosen Forestry Company, Limited [incorporated
      by reference to Exhibit 10.5 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                        
|10.9        |  | English Translation of Purchase and Sales
      Contract, dated January 1, 2009, by and between Chongqing Huyu Forestry Ltd. and Qianxinan Aosen Forestry Company,
      Limited [incorporated by reference to Exhibit 10.6 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]                                              

53

---

|10.10 |  | English Translation of Purchase and Sales
      Contract, dated January 1, 2009, by and between Qianxinan Aosen Forestry
      Company, Limited and Guizhou Shuanghe Industrial Trade Co., Ltd.
      [incorporated by reference to Exhibit 10.7 to the Companys Current Report
      on Form 8-K filed on November 5, 2010]                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | English Translation of Exclusive Distribution
      Contract, dated September 10, 2010, by and between Qianxinan Silvan
      Flooring Company, Limited and Dang Zhongming [incorporated by reference to
      Exhibit 10.19 to the Companys Current Report on Form 8-K filed on
      November 5, 2010]                                                                            
|10.12 |  | English Translation of
      Exclusive Distribution Contract, dated September 5, 2010, by and between
      Qianxinan Silvan Flooring Company, Limited and Lin Hongbin [incorporated
      by reference to Exhibit 10.18 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                                                                
|10.13 |  | English Translation of Exclusive Distribution
      Contract, dated August 25, 2010, by and between Qianxinan Silvan Flooring
      Company, Limited and Zeng Tianming [incorporated by reference to Exhibit
      10.17 to the Companys Current Report on Form 8-K filed on November 5,
      2010]                                                                                
|10.14 |  | English Translation of
      Exclusive Distribution Contract, dated August 13, 2010, by and between
      Qianxinan Silvan Flooring Company, Limited and Sui Cheng [incorporated by
      reference to Exhibit 10.16 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                                                                    
|10.15 |  | English Translation of Loan Contract, dated
      June 21, 2010, by and between Bank of Chongqing, Guiyang Brach and
      Qianxinan Aosen Forestry Company, Limited [incorporated by reference to
      Exhibit 10.15 to the Companys Current Report on Form 8-K filed on
      November 5, 2010]                                                                                  
|10.16 |  | English Translation of Loan
      Contract No. 72, dated March 26, 2010, by and between Guizhou Xingyi Rural
      Cooperative Bank and Qianxinan Aosen Forestry Company, Limited
      [incorporated by reference to Exhibit 10.10 to the Companys Current
      Report on Form 8-K filed on November 5, 2010]                                                                     
|10.17 |  | English Translation of Loan Contract No. 108,
      dated June July 17, 2009, by and between Guizhou Xingyi Rural Cooperative
      Bank and Qianxinan Aosen Forestry Company, Limited [incorporated by
      reference to Exhibit 10.9 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                                                 
|10.18 |  | English Translation of Forest
      Right Certificate No. B520802335298, dated December 10, 2009, granted to
      Qianxinan Aosen Forestry Company, Limited and sealed by the Peoples
      Government of Liping County, Peoples Republic of China [incorporated by
      reference to Exhibit 10.12 to the Companys Current Report on Form 8-K
      filed on November 5, 2010] 
|10.19 |  | English Translation of Forest Right Certificate
      No. B520802556795, dated December 10, 2009, granted to Qianxinan Aosen
      Forestry Company, Limited, and sealed by the Peoples Government of Liping
      County, Peoples Republic of China [incorporated by reference to Exhibit
      10.13 to the Companys Current Report on Form 8-K filed on November 5,
      2010]
|10.20 |  | English Translation of
      Commodity House Sales Contract, Unit 1-2, dated August 25, 2006, by and
      between Qianxinan Silvan Flooring Company, Limited and Guiyang New Century
      Real Estate Development Co., Ltd. [incorporated by reference to Exhibit
      10.20 to the Companys Current Report on Form 8-K filed on November 5,
      2010]                         
|10.21 |  | English Translation of Commodity House Sales
      Contract, Unit 1-3, dated August 25, 2006, by and between Qianxinan Silvan
      Flooring Company, Limited and Guiyang New Century Real Estate Development
      Co., Ltd. [incorporated by reference to Exhibit 10.21 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]                               
|10.22 |  | English Translation of
      Trademark Transfer Agreement, dated November 18, 2009, by and between
      Guizhou Yinyan Wood Co., Ltd. and Qianxinan Silvan Flooring Company,
      Limited [incorporated by reference to Exhibit 10.22 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]                                                                 

54

---

|10.23  |  | English Translation of Labor Contract, dated
      May 5, 2010, between Qianxinan Aosen Forestry Company, Limited and Yulu
      Bai [incorporated by reference to Exhibit 10.23 to the Companys Current
      Report on Form 8-K filed on November 5, 2010]           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24  |  | English Translation of Labor
      Contract, dated March 27, 2009, between Qianxinan Aosen Forestry Company,
      Limited and Jiyong He [incorporated by reference to Exhibit 10.26 to the
      Companys Current Report on Form 8-K filed on November 5, 2010]       
|10.25  |  | English Translation of Labor Contract, dated
      November 21, 2007, between Qianxinan Aosen Forestry Company, Limited and
      Fangping Peng [incorporated by reference to Exhibit 10.24 to the Companys
      Current Report on Form 8-K filed on November 5, 2010]
|10.26  |  | English Translation of Labor
      Contract, dated May 5, 2010, between Qianxinan Aosen Forestry Company,
      Limited and Dongshen Tan [incorporated by reference to Exhibit 10.25 to
      the Companys Current Report on Form 8-K filed on November 5, 2010]       
|10.27* |  | Financial Advisory Agreement, dated February 2,
      2010, by and among Qianxinan Aosen Forestry Company, Limited, Asia Regal
      Finance Capital Group Co., Ltd and Shenzhen Junwei Investment and
      Development Co., Ltd.                                      
|10.28* |  | Letter of Engagement, dated
      December 7, 2010, by and between the Company and CCG Investor Relations
      Partners LLC.                                                                                                                                           
|21     |  | Subsidiaries of the Company [incorporated by
      reference to Exhibit 10.21 to the Companys Current Report on Form 8-K
      filed on November 5, 2010]                                                                                                              
|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                                                                                                                                                                
|99.1   |  | Option Agreement, dated May 17,
      2010, between Ren Ping Tu and Yulu Bai [incorporated by reference to
      Exhibit 99.1 to the Companys Amendment No. 1 to Current Report on Form
      8-K/A filed on January 11, 2011]                                         

*Filed herewith

55

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