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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended: December 31, 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

CHINA FORESTRY INDUSTRY GROUP, INC.------------------------------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter)

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

Jun Yue Hua Ting, Building A  
3rd Floor, Unit -1
 #58 Xin Hua Road  
Guiyang, Guizhou 550002 
People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 ]

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 [   ]

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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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|CHINA FORESTRY INDUSTRY GROUP,
      INC.        
|-------------------------------------------------
|                                                 
|Annual Report on Form
      10-K                 
|For the Fiscal Year Ended December 31,
      2010
|                                                 
|TABLE OF CONTENTS                                
|                                                 
|PART I                                           
|Item 1.                                          
|Item 1A.                                         
|Item 1B.                                         
|Item 2.                                          
|Item 3.                                          
|Item 4.                                          
|PART II                                          
|Item 5.                                          
|                                                 
|Item 6.                                          
|Item 7.                                          
|Item 7A.                                         
|Item 8.                                          
|Item 9.                                          
|Item 9A.                                         
|Item 9B.                                         
|PART III                                         
|Item 10.                                         
|Item 11.                                         
|Item 12.                                         
|Item 13.                                         
|Item 14.                                         
|PART IV                                          
|Item 15.                                         

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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.

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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.

The primary raw material used in our products is wood, which we currently procure from third party suppliers. After September 2012, we expect that in 2012 we will be able to procure 20% of our wood from our 2,250 hectares (approximately, 22.5 km2)
of eucalyptus 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, eight affiliate stores, and approximately several hundred specialty retail flooring stores, concentrated mostly in southwestern China. 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, 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.

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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. Bingwu Forestry was incorporated in Hong Kong as a private limited company on April 9, 2010. 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 manufacture and sale of fiber boards. Silvan Flooring was established in the PRC on October 22, 2007, for the purpose of engaging in the manufacture and sale of
wood flooring, furniture and decorations. Bingwu Forestry acquired Aosen Forestry pursuant to an equity transfer agreement on May 18, 2010, for a purchase price of $2,488,471.

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 became Aosen Forestrys wholly-owned
subsidiary. GST no longer holds any equity interest in Silvan Flooring, however, GST and its affiliates still hold the leases to our affiliated stores. On May 28, 2010, Mr. Bai sold his entire ownership interest in GST and no longer holds any equity
interest in GST.

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.

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.

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.

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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.

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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 affiliate retail 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.

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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. Commencing in September 2011, we expect to utilize raw materials from our 2,250 hectares (approximately, 22.5 km2) of eucalyptus forest for which we hold land use
rights. See Properties below for a description of our land use rights. We have not yet utilized raw materials from this forestry land in our operations because they have not yet reached maturity for harvesting. We expect to harvest
materials from this land by September, 2012. As of December 31, 2010, procurements of wood and wood byproducts accounted for 67.9% of our raw material supply. We procure most
of our production chemicals, such as paraffin, formaldehyde and accelerant, from
Guizhou Shuanghe Industrial & Trading Co., Ltd.

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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 affiliate
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 
|1.                                                                                      | Guizhou Shuanghe
      Industrial & Trading Co., Ltd | Guizhou
|2.                                                                                      | Kunming Hing Hong Building Materials
      Co., Ltd  | Kunming
|3.                                                                                      | GST                                                  | Guizhou
|Total                                                                                   |                                                      |        

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 affiliate 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.

We believe that having our own regenerative source of raw
materials by late 2012 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 in 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.

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We have entered into joint management agreements with local farmers to look after and maintain our forest land, in exchange for funding, technological guidance, young trees, fertilizers, our sale of produce from the land to third parties, and a pro
rata share of such sales revenue. Sales revenues from this arrangement is usually apportioned on an 80:20 basis, with the Company receiving 80% and the local farmer receiving 20%.

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 affiliate 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. 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.

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:

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|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                

* 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.

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.

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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. 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:

|Permit/Certification                                                                                                | Issuing Authority                                      | Subsidiary that           | Effective Date     | Expiration/Term                            
|------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------- | ------------------ | -------------------------------------------
|                                                                                                                    |                                                        | maintain the              |                    |                                            
|                                                                                                                    |                                                        | **license/certification** |                    |                                            
|National Industrial                                                                                                 | PRC State                                              | Aosen Forestry            | September 29, 2007 | Expires on September                       
|Product Production                                                                                                  | Administration for                                     |                           |                    | 28, 2012                                   
|Permit                                                                                                              | Quality Supervision                                    |                           |                    |                                            
|                                                                                                                    | and Inspection and                                     |                           |                    | Expires on September                       
|                                                                                                                    | Quarantine                                             | Silvan Flooring           | September 8, 2010  | 7, 2015                                    
|Quality 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                    

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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           | Effective Date  | Expiration/Term                                  
|-------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------- | --------------- | -------------------------------------------------
|                                                               |                                                                                                                      | maintain the              |                 |                                                  
|                                                               |                                                                                                                      | **license/certification** |                 |                                                  
|Environment 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, 2013                                     
|Radiation 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).

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).

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.

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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 non-resident 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.

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.

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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 and are not transferable to us in the form of loans, advances, or cash dividends.

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.

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.

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As we stated 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, the PRC regulatory authorities may take the view that Mr. Bais acquisition of our equity interest and the reverse acquisition of Bingwu Forestry are part of an overall
series of arrangements which constitute 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.
In the opinion of our PRC counsel, these transactions do not constitute a Round-trip Investment, however, if the PRC regulatory authorities take the opposite view, they could invalidate our acquisition and ownership of our Chinese subsidiaries.
Additionally, the PRC regulatory authorities may take the view that Mr. Bais acquisition constitutes a transaction which requires the prior approval of the China Securities Regulatory Commission, or CSRC, before MOFCOM approval is obtained. If
this takes place, we would seek to take remedial action and find a way to re-establish control over the business operations of our Chinese subsidiaries. One way to re-establish control would be through a series of contractual arrangements rather
than an outright purchase of our Chinese subsidiaries. If we had to re-establish control through contractual arrangements, we would first transfer back our equity interests in Aosen Forestry from Bingwu Forestry to the prior shareholders of Aosen
Forestry. After that, we would set up a new wholly-owned foreign enterprise, or the WOFE, in the PRC and re-establish control over Aosen Forestry through a series of contractual agreements among the WOFE and the shareholders of Aosen Forestry, such
as an exclusive technical consulting service agreement, an operating agreement, an equity pledge agreement and an equity purchase agreement. Through these agreements, we expect that we would re-establish substantial control over Aosen Forestry and
its PRC operating subsidiarys daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of these entities, we believe that we would be
entitled to consolidate the financial results of Aosen Forestry and its subsidiary in our consolidated financial statements under relevant U.S. GAAP.

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.

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.

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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. 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.

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.

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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.

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.

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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.

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.

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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. 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. 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.

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.

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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.

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.

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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.

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.

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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.

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.

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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 since Mr. Bais option to acquire control of the Company will not vest until May 2011, which
is 12 months following 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.

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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.

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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.

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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 1B. UNRESOLVED STAFF COMMENTS.

Not Applicable.

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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Our corporate headquarters are located in Guiyang, Guizhou
province. We use 20,128 square meters of land on which plants, warehousing and
packaging facilities, dormitory space, administrative offices, and maintenance
facilities are located. 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 us,
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 mid-2011.

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

|                   |                                       | Area                |                   |                
|------------------ | ------------------------------------- | ------------------- | ----------------- | ---------------
|Certificate Number | Locality                              | (square kilometers) | Date of Issuance  | Expiration Date
|B520802335298      | Liping County, Guizhou
      Province | 17.33               | December 10, 2009 | October, 2040  
|B520802556795      | Liping County, Guizhou Province       | 5.17                | December 10, 2009 | October, 2040  

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 but we have not yet received
land use rights or applicable government housing permits for such housing. We
employ 3 staff members to safeguard our employee housing and our executive
office buildings.

We have been granted the land use rights for 3,723 square
meters of office space for which we are still awaiting the property
certificate.

We sell some of our products through eight affiliate stores
that are operated under lease agreements. Of these stores, five are leased by
GST or its affiliates - Guizhou Silvan Wood Company Limited of Guizhou Branch
and Guangxi Branch, one, Zhong Xin, is leased by Silvan Flooring, and the
remaining two stores, at Jinyang and Nanchong, are leased by non GST parties.
The GST leased stores exist as a result of our former joint venture relationship
with GST, which has not been terminated. We began to strategically reduce sales
to the GST leased stores during 2010 and we are in process of transferring the
leases of such stores to Silvan Flooring. We consider the Jinyang and Nanchong
stores to be our stores because we have supported their growth with funds for
advertisement, decoration, samples and various promotions, and they are subject
to our standard requirements.

The aggregate monthly payments under these leases total $9,249,
as set forth on the table below:

|Store              | Location | Leasing Parties                                                                                               | Material Terms                                                                                                                      | Expiration Date  
|------------------ | -------- | ------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -----------------
|Zhong Xin          | Guizhou  | Lessor: Guizhou Military Region Logistic Dept
      Property Mgmt Office Lessee: Silven Flooring              |   Store Leased Area: 128 m^2   Store Monthly fee: $1,243
        Warehouse Leased Area: 700 m^2   Warehouse Monthly fee: $2,868 | December 31, 2013
|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, 2011     

26

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|Xinfa     | Guizhou | Lesser: Guiyang Xinfa Large Decoration Material Market
      Lessee: Huaneng Guo (individual)               |    Leased Area:81 m^2    Monthly fee: $619                                                                                               | June 30, 2011                           
|--------- | ------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------
|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, 2012                       
|Xingyi    | Guizhou | Lesser: Tan, Dalin (individual) Lessee: Minggang Liu
      (individual)                                     |    Store Leased Area: 150 m^2    Warehouse Leased Area:
      190 m^2    Total Monthly fee: $821                                        | February 24, 2011 
    (renewal pending)
|Huqiu     | Guangxi | Lesser: Nanning Xungui Trading Co., Ltd Lessee: GST,
      Guangxi Subsidiary                               |   
      Leased Area: 222 m^2    Monthly fee: $563                                                                                       | August
      31, 2013                   
|Daguanlou | Yunnan  | Lesser: Kunming Daguan Building and Wood Material Market
      Lessee: Xu Li (individual)                   |    Leased Area: 260 m^2    Monthly fee: $1,048                                                                                           | Monthly                                 
|Nanchong  | 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                         

27

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We believe that all leased space is in good condition.

|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

|ITEM 4. | (REMOVED AND RESERVED).                                                                                                  
|------- | -------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                          
|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 under the symbol
CNFI. 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.

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.

Purchases of Equity Securities

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

28

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|        |                         
|------- | ------------------------
|ITEM 6. | SELECTED FINANCIAL DATA.

Not Applicable.

|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 at five branch offices, eight
affiliate stores, and approximately 504 contracted flooring specialty retail
stores, concentrated mostly in southwestern China. 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.

29

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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.

30

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Results of Operations

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.

|                                    |  | All amounts,   |   |  |              |   |  | All amounts,   |   |  |              |   |  | Increase/    |  |  | Increase/    | 
|----------------------------------- |  | -------------- | - |  | ------------ | - |  | -------------- | - |  | ------------ | - |  | ------------ |  |  | ------------ | 
|                                    |  | other than     |   |  |              |   |  | other than     |   |  |              |   |  | (Decrease)   |  |  | (Decrease)   | 
|                                    |  | percentage, in |   |  | % of Sales   |   |  | percentage, in |   |  | % of Sales   |   |  | Dollar ($)   |  |  | Percentage   | 
|                                    |  | U.S. dollars   |   |  | Revenue      |   |  | U.S. dollars   |   |  | Revenue      |   |  |              |  |  |              | 
|                                    |  | For the year   |   |  | For the year |   |  | For the year   |   |  | For the year |   |  | For the year |  |  | For the year | 
|                                    |  | ended          |   |  | ended        |   |  | ended          |   |  | ended        |   |  | ended        |  |  | ended        | 
|                                    |  | December 31,   |   |  | December 31, |   |  | December 31,   |   |  | December 31, |   |  | December 31, |  |  | December 31, | 
|                                    |  | 2010           |   |  | 2010         |   |  | 2009           |   |  | 2009         |   |  | 2010         |  |  | 2009         | 
|Net revenue                         |  | 37,042,160     |   |  | 100.0%       |   |  | 13,285,949     |   |  | 100.0%       |   |  | 23,756,211   |  |  | 178.81%      | 
|Cost of goods sold                  |  | 25,296,696     |   |  | 68.3%        |   |  | 9,996,622      |   |  | 75.2%        |   |  | 15,300,074   |  |  | 153.05%      | 
|Gross profit                        |  | 11,745,464     |   |  | 31.7%        |   |  | 3,289,327      |   |  | 24.8%        |   |  | 8,456,137    |  |  | 257.08%      | 
|Operating expenses                  |  |                |   |  |              |   |  |                |   |  |              |   |  |              |  |  |              | 
|Selling and marketing expenses      |  | (252,042       | ) |  | (0.7%        | ) |  | (90,273        | ) |  | (0.7%        | ) |  | 161,769      |  |  | 179.20%      | 
|General and administrative expenses |  | (1,446,629     | ) |  | (3.9%        | ) |  | (612,054       | ) |  | (4.6%        | ) |  | 834,575      |  |  | 136.36%      | 
|Total operating expenses            |  | (1,698,671     | ) |  | (4.6%        | ) |  | (702,327       | ) |  | (5.3%        | ) |  | 996,344      |  |  | 141.86%      | 
|Income from operations              |  | 10,046,793     |   |  | 27.1%        |   |  | 2,587,000      |   |  | 19.5%        |   |  | 7,459,793    |  |  | 288.36%      | 
|Other income (expense)              |  |                |   |  |              |   |  |                |   |  |              |   |  |              |  |  |              | 
|Other income                        |  | 103,411        |   |  | 0.3%         |   |  | 30,440         |   |  | 0.2%         |   |  | 72,971       |  |  | 239.72%      | 
|Government grant                    |  | 2,110,792      |   |  | 5.7%         |   |  | 169,546        |   |  | 1.3%         |   |  | 1,941,246    |  |  | 1144.97%     | 
|Interest expense                    |  | (289,408       | ) |  | (0.8%        | ) |  | (162,860       | ) |  | (1.2%        | ) |  | 126,548      |  |  | 77.70%       | 
|Total other income (expenses)       |  | 1,924,795      |   |  | 5.2%         |   |  | 37,126         |   |  | 0.3%         |   |  | 1,887,669    |  |  | 5084.49%     | 
|Income before income taxes          |  | 11,971,588     |   |  | 32.3%        |   |  | 2,624,126      |   |  | 19.8%        |   |  | 9,347,462    |  |  | 356.21%      | 
|Provision for income taxes          |  | (2,680,096     | ) |  | (7.2%        | ) |  | (378,095       | ) |  | (2.8%        | ) |  | 2,302,001    |  |  | 608.84%      | 
|Net income                          |  | 9,291,492      |   |  | 25.1%        |   |  | 2,246,031      |   |  | 16.9%        |   |  | 7,045,461    |  |  | 313.68%      | 

31

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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.

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.

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.

32

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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:

|Cash Flows                                                |  
|--------------------------------------------------------- | -
|                                                          |  
|                                                          |  
|                                                          |  
|Net cash provided by (used in)
      operating activities | $
|Net cash used in investing activities                     | $
|Net cash provided by financing
      activities           | $
|Effects of exchange rate change in cash                   | $
|Net increase in cash and cash
      equivalents           | $
|Cash and cash equivalent at beginning of the period       | $
|Cash and cash equivalent at end of
      the period       | $

Operating activities

Net cash used in operating activities was $1.3 million for the
year ended December 31, 2010, as compared to net cash provided by operating
activities of $2.2 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 $6.1 million increase in deposits and prepaid expenses for the
expansion of our production facilities 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 $6.2 million, as compared to $3.2 million in 2009. The
increase in net cash used in investing activities was primarily due to our
purchase of land use rights to 2,250 hectares (approximately, 22.5
km2) of forest land for $5.9 million.

Financing activities

Net cash provided byfinancing activities for the year
ended December 31, 2010 was $7.8 million, as compared to $2.2 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.

33

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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  | Duration
|------------------------------------------- | --------- | ------------- | -------------- | --------
|Bank of Chongqing                           | 3,034,000 | 5.310%        | June 20, 2011  | 1 year  
|Guizhou Xingyi Rural Cooperative Bank**     | 743,330   | 7.965%        | March 25, 2011 | 1 year  
|Guizhou Xingyi Rural Cooperative
      Bank | 758,500   | 8.100%        | July 16, 2011  | 2 years 
|TOTAL                                       | 4,535,830 |               |                |         

|*  | Calculated based on the exchange rate of $1 =
    RMB6.59
|-- | ---------------------------------------------------------
|** | The amount has been repaid on March 25,
  2011.          

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. We may, however, in the future, require
additional cash resources due to changed business conditions, implementation of
our strategy to ramp up our marketing efforts and increase brand awareness, or
acquisitions we may decide to pursue. 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.

|Contractual Obligations                                          |   | Total     |  |   | Less
      than 1 Year |  |  | 1-3
      Years |  |  | 4-5
      Years |  |  | More
      than 5 Years | 
|---------------------------------------------------------------- | - | --------- |  | - | ---------------------- |  |  | --------------- |  |  | --------------- |  |  | ----------------------- | 
|Long-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              |  |  | -               |  |  | -               |  |  | -                       | 

34

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- 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, $3 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.

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:

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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 activity                                                                                                              
|-------------------------------------------------- | -------------------------------------------------- | --------------------------- | ---------------------------- | --------------------------------------------------------------------------------------------------------------------------------
|China Bingwu Forestry Group
      Limited          | Hong Kong Special
      Administrative Region, PRC | April 9, 2010               | 100% directly                | Investment holding                                                                                                              
|Qianxinan 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 timber
|Qianxinan Silvan Touch
      Flooring Co., Limited | People's Republic
      of China                   | October 22, 2007            | 100% directly                | Manufacturing and
      wholesaling of wood flooring, furniture and decorations                                                 

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 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.

On May 18, 2010, CBF entered into the Transfer Agreement with
the existing stockholders of QAF to acquire 100% equity interest of QAF for
$2,488,471. This acquisition was accounted for as a reverse merger with CBF
being the legal acquirer. The accounting treatment for this transaction is
essentially a recapitalization of QAF with CBFs common stock.

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Prior to the acquisition of QAF by CBF, CBF was a company with no operations. For reporting purposes, the Company has assumed that the existing stockholders of QAF exercised their options immediately and thus CBF and QAF were effectively under same
control of the existing stockholders of QAF when CBF acquired QAF. The acquisition transaction between CBF and QAF are accounted for as a reserve merger.

For accounting purposes, the combination of the CBF and QAF was accounted for as a reverse merger with QAF as the acquirer and CBF as the acquired party and the acquisition of QSTF was accounted for using the purchase method of accounting.

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.

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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).

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.

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

|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.

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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.

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.

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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:

|           |  | 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.

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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.

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.

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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.

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.

43

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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 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK.
|-------- | ---------------------------------------------------------------

Not Applicable.

|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 9.  | CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|-------- | -------------------------------------------------------------------------------------------
|         |                                                                                            
|None.    |                                                                                            
|         |                                                                                            
|ITEM 9A. | CONTROLS AND PROCEDURES.                                                                   

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.

44

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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 has already taken measures to remediate these material weaknesses by seeking an additional 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 working closely with its outside consultant in reinforcing
the rigorous process for collecting and reviewing information required for the preparation of the financial statements including footnotes.

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.

45

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|         |                   
|-------- | ------------------
|ITEM 9B. | OTHER INFORMATION.

We have no information to disclose that was required to be
disclosed in a report on Form 8-K during fourth quarter of fiscal year 2010, but
was not reported.

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 became our Chief Financial Officer
on November 1, 2010 and has served as a senior finance manager at Aosen Forestry
since September 2007. Mr. He holds a Bachelor of Science Degree in Accounting
from the Guizhou College of Finance and Economics.

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 9th Committee of
Peoples Political Consulting Conference in 2004, and a member of the Guiyang
12th People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.

46

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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.

47

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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.

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 11. EXECUTIVE COMPENSATION.

Summary Compensation Table  Fiscal Years Ended December 31,
2010 and 2009

The following table sets forth information concerning all cash
and non-cash compensation awarded to, earned by or paid to the named persons for
services rendered in all capacities during the noted periods. No other executive
officer received total annual salary and bonus compensation in excess of
$100,000.

|                                  |        |        |       | Stock  | Option | All Other    |       
|--------------------------------- | ------ | ------ | ----- | ------ | ------ | ------------ | ------
|                                  | Fiscal | Salary | Bonus | Awards | Awards | Compensation | Total 
|Name and
      Principal Position | Year   | ($)    | ($)   | ($)    | ($)    | ($)          | ($)   
|Yulu Bai,                         | 2010   | 5,621  | -     | -      | -      | -            | 5,621 
|Chairman
      and CEO (1)        | 2009   | 8,800  | -     | -      | -      | -            | 8,800 
|Rene Soullier,                    | 2010   | 36,000 | -     | -      | -      | -            | 36,000
|former CEO
      (2)              | 2009   | 36,000 | -     | -      | -      | -            | 36,000

|(1) | On November 1, 2010, we acquired Bingwu Forestry in a
      reverse acquisition transaction that was structured as a share exchange
      and in connection with that transaction, Mr. Bai became our Chairman and
      Chief Executive Officer, effective immediately. Prior to the effective
      date of the reverse acquisition, Mr. Bai served as the General Manager of
      Aosen Forestry. The annual, long term and other compensation shown in this
      table include the amount Mr. Bai received from Aosen Forestry prior to the
      consummation of the reverse acquisition.                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(2) | Upon closing of the reverse acquisition of Bingwu
      Forestry on November 1, 2010, Mr. Soullier resigned from all offices he
      held with us effective immediately, and from his position as our director
      effective as of November 28, 2010. Beginning March 1, 2008, we agreed to
      pay Mr. Soullier a monthly salary of $3,000. Mr. Soullier agreed to defer
      his salary until financing was secured. The amounts shown in the table include the salary accrued, but
unpaid, for the noted periods. All amounts owed to Mr. Soullier were repaid in
connection with the change of control that occurred on September 23, 2010.

48

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Employment Agreements

On May 5, 2010, we entered into a three-year employment
agreement with Mr. Bai, our Chief Executive Officer pursuant to which we are
obligated to pay him an annual salary of $8,800.

On March 27, 2009, we entered into a three-year employment
agreement with Mr. He, our Chief Financial Officer, pursuant to which we are
obligated to pay him an annual salary of $6,300.

On March 16, 2009, we entered into a three-year employment
agreement with Mr. Peng, our Chief Operating Officer, pursuant to which we are
obligated to pay him an annual salary of $7,400.

On May 5, 2010, we entered into a three-year employment
agreement with Mr. Tan to serve as our Chief Marketing Officer, pursuant to
which we obligated to pay him an annual salary of $6,200.

Other than the salary and necessary social benefits required by
the government, which are defined in the employment agreement, we currently do
not provide other benefits to our officers at this time. Our executive officers
are not entitled to severance payments upon the termination of their employment
agreements or following a change in control.

Outstanding Equity Awards at Fiscal Year End

For the year ended December 31, 2010, no director or executive
officer has received compensation from us pursuant to any compensatory or
benefit plan. There is no plan or understanding, express or implied, to pay any
compensation to any director or executive officer pursuant to any compensatory
or benefit plan.

Compensation of Directors

No member of our board of directors received any compensation
for his services as a director during the year ended December 31, 2010.

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------------

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth information regarding beneficial
ownership of our common stock as of April 12, 2010 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Unless otherwise specified, the address of each of the persons set
forth below is in care of the Company, Jun Yue Hua Ting, Building A, 3rd Floor,
Unit -1, #58 Xin Hua Road, Guiyang, Guizhou 550002, Peoples Republic of China.

|                                                                               |                                      |                | Amount and   |         
|------------------------------------------------------------------------------ | ------------------------------------ | -------------- | ------------ | --------
|                                                                               |                                      |                | Nature of    | Percent 
|                                                                               |                                      |                | Beneficial   | of      
|Name and
      Address of Beneficial Owner                                     | Office, If Any                       | Title of Class | Ownership(1) | Class(2)
|Officers and Directors                                                        
|Yulu
      Bai(3)                                                              | Chairman and Chief Executive Officer | Common Stock   | 20,500,000   | 68.33%  
|Jiyong He                                                                      | Chief Financial Officer              | Common Stock   | 0            | *       
|Fangping
      Peng                                                            | Chief Operating Officer              | Common Stock   | 0            | *       
|Dongsheng Tan                                                                  | Chief Marketing Officer              | Common Stock   | 0            | *       
|Yudong Ji                                                                      | Director                             | Common Stock   | 0            | *       
|Yi Zeng                                                                        | Director                             | Common Stock   |              |         
|All
      officers and directors as a group 
    (6 persons
      named above) |                                      | Common Stock   | 20,500,000   | 68.33%  

49

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|5% Security Holders                                                                              
|-------------------------------------------------------------------------------------------------
|Ren Ping
      Tu(3)                                                                             
|Violet Phoenix Limited(4)Equity Trust
      Chambers P.O. Box 3269 Apia, Samoa                   
|Horoy
      International Holdings Limited(5)Offshore Chambers
      P.O. Box 217 Apia, Samoa    
|Goldenbridge Investment Holdings Limited(6)P.O.Box 3444 Road Town, Tortola British Virgin Islands

* Less than 1%

|(1) | Beneficial Ownership is determined in accordance with the
      rules of the SEC and generally includes voting or investment power with
      respect to securities. Each of the beneficial owners listed above has
      direct ownership of and sole voting power and investment power with
      respect to the shares of our common stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                               
|(2) | A total of 30,000,000 shares of our common stock are
      considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of April
      12, 2010. For each beneficial owner above, any options exercisable
within 60 days have been included in the denominator.                                                                           

|(3) | The shares held by Ms. Ren Ping Tu are subject to an
      option agreement, which gives our Chairman and CEO, Mr. Yulu Bai, an
      option to acquire all of the shares of our common stock currently owned by
      Ms. Tu. Ms. Tu is Mr. Bais wife.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                         
|(4) | Xiaolei Liang is the director of Violet Phoenix Limited
      and has voting and investment power over the securities held by
  it.                                                                                                                     
|    |                                                                                                                                                                                                                                                         
|(5) | Mr. Lai Hoi Man and Ms. Chan See Ting are the directors
      of Horoy International Holdings Limited and have voting and investment
      power over the securities held by it.                                                                        
|    |                                                                                                                                                                                                                                                         
|(6) | Jiang Yu is the director of Goldenbridge Investment
      Holdings Limited and has voting and investment power over the securities
      held by it.                                                                                                    

Changes in Control

On May 17, 2010, our Chairman and CEO, Mr. Yulu Bai, entered
into an option agreement with Ms. Ren Ping Tu, his wife, pursuant to which Mr.
Bai was granted an option to acquire all of the shares of 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 365th day 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.

There are no other arrangements which if consummated may result
in a change of control of our Company.

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.

|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.

50

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- On October 22, 2007, Aosen Forestry established Silvan Flooring as a 55%
  majority owned joint venture with 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
  September 29, 2009, Mr. Bai disposed of his interest in GST to a third party
  purchaser.
- 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 to Aosen
  Forestry and then licensed it back to GST to be used in connection with its
  distribution of our Silvan Touch products.
- 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.

|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.
|-------- | ---------------------------------------

Independent Auditors Fees

The following is a summary of the fees billed to the Company
for professional services rendered for the fiscal years ended December 31, 2010
and 2009:

|                   |   | Year Ended December 31, | 
|------------------ | - | ----------------------- | 
|                   |   | 2010                    | 
|Audit Fees         | $ | 21,302                  | 
|Audit-Related Fees |   | 1,982                   | 
|Tax Fees           |   | -                       | 
|All Other Fees     |   | 67,729                  | 
|TOTAL              | $ | 91,013                  | 

Audit Fees consisted of fees billed for professional services
rendered by the principal accountant for the audit of our annual financial
statements and review of the financial statements included in our Form 10-K and
10-Q or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements.

Audit-Related Fees consisted of fees billed for assurance and
related services by the principal accountant that were reasonably related to the
performance of the audit or review of our financial statements and are not
reported under the paragraph captioned Audit Fees above.

51

---

Tax Fees consisted of fees billed for professional services
rendered by the principal accountant for tax returns preparation.

"All Other Fees" consisted of fees billed for products and
services provided by the principal accountant, other than the services reported
above under other captions of this Item 14.

Pre-Approval Policies and Procedures

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit
services performed by our auditors must be approved in advance by our board of
directors to assure that such services do not impair the auditors independence
from us. In accordance with its policies and procedures, our board of directors
pre-approved the audit service performed by Madsen & Associates CPAs, Inc.
for our financial statements as of and for the year ended December 31, 2010.

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]                                    
|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                                                                                   

52

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|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                            
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 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]                         
|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

53

---

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                          
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 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]                                                                 
|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]                                                                                                                    
|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

54

---

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 to be
signed on its behalf by the undersigned, thereto duly authorized individual.

Date: April 15, 2011

CHINA FORESTRY INDUSTRY GROUP, INC.

By: /s/ Yulu
BaiYulu BaiChief Executive Officer

By: /s/ Jiyong
HeJiyong HeChief 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               |  | April 15, 2011
|Yulu Bai            |  | (Principal Executive Officer)                      |  |               
|                    |  |                                                    |  |               
|/s/ Jiyong
      He |  | Chief Financial Officer                            |  | April 15, 2011
|Jiyong He           |  | (Principal Financial and Accounting
      Officer) |  |               
|                    |  |                                                    |  |               
|/s/ Yudong
      Ji |  | Director                                           |  | April 15, 2011
|Yudong Ji           |  |                                                    |  |               
|                    |  |                                                    |  |               
|/s/ Yi Zeng         |  | Director                                           |  | April 15, 2011
|Yi Zeng             |  |                                                    |  |               

55

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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 AND 
DECEMBER 31, 2009





---

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

|INDEX TO CONSOLIDATED FINANCIAL
      STATEMENTS                
|----------------------------------------------------------------
|                                                                
|                                                                
|REPORT OF INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM   
|CONSOLIDATED BALANCE SHEETS                                     
|CONSOLIDATED STATEMENTS OF INCOME AND
      COMPREHENSIVE INCOME
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                 
|CONSOLIDATED STATEMENTS OF CASH
      FLOWS                     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      

F-1

---

Madsen & Associates CPAs, Inc.


|                                          |                       |           
|----------------------------------------- | --------------------- | ----------
|684 East Vine Street #3, Murray, UT 84107 | PHONE: (801) 268-2632 | FAX: (801)
|268-3978                                  |                       |           

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.

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

F-2

---

|CHINA FORESTRY INDUSTRY GROUP, INC. AND
      SUBSIDIARIES             |  
|---------------------------------------------------------------------- | -
|(FORMERLY PHOENIX ENERGY RESOURCE
      CORPORATION)                   |  
|                                                                       |  
|CONSOLIDATED BALANCE SHEETS                                            |  
|DECEMBER 31, 2009 AND DECEMBER 31, 2008                                |  
|                                                                       |  
|ASSETS                                                                
|Current assets                                                         |  
|Cash and cash equivalents                                              | $
|Accounts receivable, net of
      allowance for doubtful accounts      |  
|Inventory                                                              |  
|Deposits and prepaid expenses                                          |  
|Other receivables                                                      |  
|Taxes recoverable                                                      |  
|Total current assets                                                   |  
|Property and equipment                                                 |  
|Property and equipment, net of accumulated
      depreciation          |  
|Land use rights, net of
      accumulated amortization                 |  
|Construction in progress                                               |  
|Total property and equipment                                           |  
|Total assets                                                           | $
|LIABILITIES AND STOCKHOLDERS'
      EQUITY                            
|Current liabilities                                                    |  
|Accounts payable                                                       | $
|Other payables and accrued expenses                                    |  
|Taxes payable                                                          |  
|Customer deposits                                                      |  
|Short term debts                                                       |  
|                                                                       | $
|Long term liabilities                                                  |  
|Long term debts                                                        |  
|Total liabilities                                                      |  
|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            |  
|Additional paid in capital                                             |  
|Retained earnings                                                      |  
|Accumulated other
      comprehensive income                           |  
|Total stockholders' equity                                             |  
|Total liabilities and
      stockholders' equity                       | $

See accompanying notes of these consolidated financial
statements

F-3

---

|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 |  
|                                                                  |  
|Revenues                                                          | $
|Cost of goods sold                                                |  
|Gross profit                                                      |  
|Selling and marketing expenses                                    |  
|General and administrative
      expenses                         |  
|Net income from operations                                        |  
|Other income (expenses)                                           |  
|Other income                                                      |  
|Government grant                                                  |  
|Interest expense                                                  |  
|Total other income (expenses)                                     |  
|Income before provision for income taxes                          |  
|Provision for income taxes                                        |  
|Net income                                                        |  
|Other comprehensive income                                        |  
|Foreign currency translation
      gain                           |  
|Comprehensive income                                              | $
|Stock dividend                                                    | $
|Earnings per share:                                               |  
|Basic                                                             | $
|Diluted                                                           | $
|Weighted average numbers of outstanding
      shares:             |  
|Basic                                                             |  
|Diluted                                                           |  

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 STOCKHOLDERS
      EQUITY                          | 
|FOR THE YEARS ENDED DECEMBER 31, 2010
      AND DECEMBER 31, 2009              | 
|                                                                               | 
|                                                                               | 
|                                                                               | 
|                                                                               | 
|Balance as of January 1, 2009                                                  | 
|Net income for the year                                                        | 
|Additional paid in capital contribution
      from a stockholder of QAF        | 
|Issue of common stock for cash by QAF                                          | 
|Stock dividend distributed by QAF                                              | 
|Issue of common stock                                                          | 
|Non-controlling interest redeemed                                              | 
|Foreign currency translation gain                                              | 
|Balance as of December 31, 2009                                                | 
|Issue of common stock for settlement of convertible notes
      of CBF         | 
|Gain on extinguishment of debt relatd to
      reverse acquisition             | 
|Common stock issued for services rendered related to
      reverse acquisition | 
|Stock offering costs - reverse acquisition                                     | 
|Common stock issued for services rendered                                      | 
|Recapitalization - reverse merger
      acquisition of CNFI                    | 
|Issuance of warrant                                                            | 
|Net income for the year                                                        | 
|Foreign currency translation gain                                              | 
|Balance as of December 31, 2010                                                | 

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 CASH FLOWS FOR THE YEARS ENDED
      DECEMBER 31, 2010 AND DECEMBER 31, 2009 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                                                                                                                                                        |  
|Cash flows from operating activities                                                                                                                                                                                    |  
|Net income for the year                                                                                                                                                                                                 | $
|Adjustments to reconcile net
      income to net cash provided by operating activites:                                                                                                                                  |  
|Depreciation                                                                                                                                                                                                            |  
|Amortization                                                                                                                                                                                                            |  
|Stock based compensation                                                                                                                                                                                                |  
|Changes in operating assets
      and liabilities:                                                                                                                                                                      |  
|Decrease (increase) in
      inventory                                                                                                                                                                                  |  
|(Increase) decrease in deposits and prepaid expenses                                                                                                                                                                    |  
|Increase in accounts
      receivable                                                                                                                                                                                   |  
|(Increase) decrease in other receivables                                                                                                                                                                                |  
|Increase in taxes
      recoverable                                                                                                                                                                                     |  
|Increase
      in taxes payable                                                                                                                                                                                         |  
|(Decrease) increase in
      accounts payable                                                                                                                                                                           |  
|Increase
      (decrease) in customer deposits                                                                                                                                                                          |  
|Decrease in other
      payables and accrued expenses                                                                                                                                                                   |  
|Net cash (used in) provided by
      operating activities                                                                                                                                                               |  
|Cash flows from investing activities                                                                                                                                                                                    |  
|Purchase
      of property and equipment                                                                                                                                                                                |  
|Purchase of land use
      rights                                                                                                                                                                                       |  
|Payment
      of construction in progress                                                                                                                                                                               |  
|Net cash used in investing activities                                                                                                                                                                                   |  
|Cash flows from financing activities                                                                                                                                                                                    |  
|Proceeds from issuance of
      common stock                                                                                                                                                                            |  
|Proceeds
      from issuance of convertible notes                                                                                                                                                                       |  
|Capital contribution from
      stockholders                                                                                                                                                                            |  
|Redemption of non-controlling interest                                                                                                                                                                                  |  
|Repayment of short term
      and long term debt                                                                                                                                                                        |  
|Proceeds
      from short term and long term debt                                                                                                                                                                       |  
|Net cash provided by financing activities                                                                                                                                                                               |  
|Effects on exchange rate changes on
      cash                                                                                                                                                                          |  
|Increase in cash and cash equivalents                                                                                                                                                                                   |  
|Cash and cash equivalents, beginning
      of year                                                                                                                                                                      |  
|Cash and cash equivalents, end of year                                                                                                                                                                                  | $
|                                                                                                                                                                                                                        |  
|Supplementary disclosures of cash flow information:                                                                                                                                                                     |  
|Cash paid for
      interest                                                                                                                                                                                            | $
|Cash paid for income taxes                                                                                                                                                                                              | $
|Non-cash transactions:                                                                                                                                                                                                  |  
|Distribution of stock dividend                                                                                                                                                                                          | $
|Issue of common
      stock from additional paid in capital                                                                                                                                                             | $
|Common stock issued for payment
      of notes payable                                                                                                                                                                  | $
|Common stock
      issued for stock offering costs                                                                                                                                                                      | $

See accompanying notes of these consolidated financial
statements

F-6



---



|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, the Peoples
      Republic of China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|   |                                             
|-- | --------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
|   |                                             
|   | 2.1                                         
|   |                                             
|   |                                             

F-7

---

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

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 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-8

---

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

F-9

---

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.8                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

| | 2.9  | SHIPPING AND HANDLING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Shipping and handling costs related to cost of goods sold
      are included in selling and marketing expenses which totaled $80,985 and
      $81,812 for the years ended December 31, 2010 and December 31, 2009,
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2.10 | ADVERTISING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Advertising costs are included in selling and marketing
      expenses which totaled $141,486 and $7,184 for the years ended December
      31, 2010 and December 31, 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2.11 | GOVERNMENT GRANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Government grants represent local authority grants to the
      company for industry development and the revenue is recognized on cash
      basis when the local authority approves the grant to the
company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2.12 | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | 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 $2,291,124 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-10

---

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

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.

| |      |                        | 
| | ---- | ---------------------- | 
| | 2.16 | 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 lives of the assets.

| | 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.

F-11

---

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.17                                                        
|   |                                                             
|   |                                                             

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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-12

---

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

F-13

---

|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-14

---

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

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.

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-15

---

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

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 equirement 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-16

---

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

| |      |                                               
| | ---- | ----------------------------------------------
| | 2.30 | RECENT ACCOUNTING PRONOUNCEMENTS
  (CONTINUED)

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.

F-17

---

|   |             
|-- | ------------
|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:

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

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-18

---

|   |                                                                                                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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-19

---

|   |                              
|-- | -----------------------------
|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-20

---

|    |                    
|--- | -------------------
|10. | PLANT 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 , 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, 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-21

---

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



| |                            |   | 2010      |  |   | 2009      | 
| | -------------------------- | - | --------- |  | - | --------- | 
| | Due to related parties     | $ | 1,527,080 |  | $ | 511,674   | 
| | Due to former stockholders |   | -         |  |   | 2,487,210 | 
| | Due to third parties       |   | 775,187   |  |   | 598,976   | 
| | Due to employees           |   | 151,700   |  |   | 134       | 
| | Accrued 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      |  |   | 2009    | 
| | ---------------------------------------- | - | --------- |  | - | ------- | 
| |                                          |   |           |  |   |         | 
| | VAT                                      | $ | 730,056   |  | $ | 7,184   | 
| | Enterprise income tax                    |   | 2,501,229 |  |   | 378,327 | 
| | City maintenance and construction levies |   | 31,925    |  |   | -       | 
| | Stamp duty                               |   | 1,731     |  |   | 610     | 
| | Education levies                         |   | 25,540    |  |   | -       | 
| |                                          | $ | 3,290,481 |  | $ | 386,121 | 

F-22

---

|    |                               
|--- | ------------------------------
|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-23

---

|    |                                 
|--- | --------------------------------
|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 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.

F-24

---

|    |                         
|--- | ------------------------
|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.

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)  | 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 them prior to December 31
      of every year within 5 years from the Company listing on OTCBB. The
      agreement contains an exclusivity provision whereby the Company has agreed
      to engage them as the Companys sole financial advisor and its related
      company within 2 years since the date of the Companys listed on OTCBB and
      also contains a $1 million liquidated damages provision for breach of such
      exclusivity.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (ii) | CCG Investor Relations Partners LLC, CCG, an 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 a letter agreement, dated December 15, 2010, between the
      Company and CCG. The warrant shall have 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.                                                                                                                                                                                                                                                                                                     

F-25

---

|    |                         
|--- | ------------------------
|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                                                             | 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.
| |                                                                          |                                                                                                                                                                                                                                                              
| | Guizhou Silvan Touch Wooden Co., Limited controlled by
      Mr.YuLu Bai | The Company sold wooden fiber sheets of $9,835,471 to
      Guizhou Silvan Touch Wooden Co., Limited for the year ended December 31,
      2009. Mr. YuLu Bai ceased his controlling interest on September 29, 2009.                                         

|    |                  
|--- | -----------------
|25. | SUBSEQUENT EVENTS

On March 23, 2011, the Company repaid
the $1,527,080 due to Mr. Yulu Bai.

F-26

---

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]                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                       
|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]                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                       
|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]                               
|            |  |                                                                                                                                                                                                                                                                                                                                                       

---

|            |  |                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                      
|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]                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                      
|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]                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                      

---

|                |  |                                                                                                                                                                                                                                                                         
|--------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.     |  | Description                                                                                                                                                                                                                                                             
|                |  |                                                                                                                                                                                                                                                                         
|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]       
|                |  |                                                                                                                                                                                                                                                                         
|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 |  |                                                                                                                                                                                                                                                                         



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