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**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**





(Mark
      One)





**x**  QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      193 4


For
                the quarterly period ended
            **June
                30, 2007**




**o**  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT


For
                the transition period from
            
            to


Commission
                file number
            333-115053




**Guilin
                Paper, Inc.**
              
              (Exact
                name of small business issuer as specified in its
                charter)**Nevada**
              (State
                or other jurisdiction of incorporation or organization)
            **09-0420135**
              (IRS
                Employer Identification No.)**Yu
                Lei Bay, Lipu,**
              **Guangxi,
                P.R. China**
              (Address
                of principal executive offices)**86-773-723
                3098**
              (Issuer’s
                telephone number)**__________________________________**
              (Former
                name, former address and former fiscal year, if changed since last
                report)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 o




As
      of
      August 10, 2007 the registrant had 48,077,968  shares
      of
      common stock outstanding.





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





Transitional
      Small Business Disclosure Format (Check one): Yes x No o









**INDEX**




**Page
                  No.**PART
                  I - FINANCIAL INFORMATIONItem
                  1. Financial Statements
              
              1Report
                  of Independent Registered Public Accounting Firm
              
              3Balance
                  Sheets as of June 30, 2007, December 31, 2006 (unaudited) and October
                  31,
                  2006
              
              4Statements
                  of Income for the Six Months Ended June 30, 2007 and 2006, and
                  the Two
                  Months Ended December 31, 2006
              
              5Statements
                  of Income for the Three Months Ended June 30, 2007 and
                  2006
              
              6Statements
                  of Cash Flows for Six Months Ended June 30, 2007 and 2006, and
                  the Two
                  Months Ended December 31, 2006 (unaudited)
              
              7Statement
                  of Stockholders’ Equity for the Six Months Ended June 30, 2007 and 2006,
                  and the Two Months Ended December 31, 2006 (unaudited)
              
              8Notes
                  to Financial Statements
              
              9
                  -
                  20Item
                  2. Management’s Discussion and Analysis Or Plan of
                  OperationsItem
                  3. Controls and Procedures
              
              23PART
                  II - OTHER INFORMATIONItem
                  1. Legal Proceedings
              
              24Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              24Item
                  3. Defaults Upon Senior Securities
              
              24Item
                  4. Submission of Matters to a Vote of Security Holders
              
              24Item
                  5. Other Information
              
              24Item
                  6. Exhibits
              
              24SIGNATURES
              
              25










**PART
      1 - FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**










**GUILIN
      PAPER, INC.**








**CONSOLIDATED
      FINANCIAL STATEMENTS**





**JUNE
      30, 2007**










1


**TABLE
      OF CONTENTS**




Report
                of Independent Registered Public Accounting Firm
            3ConsolidatedBalance
                Sheets
            4
                -
                5ConsolidatedStatements
                of Income
            6
                -
                7ConsolidatedStatements
                of Cash Flows
            8
                -
                9ConsolidatedStatements
                of Stockholders’ Equity
            10Notes
                to Consolidated Financial Statements
            11
                - 23






2




***MORGENSTERN,
      SVOBODA, & BAER, CPA’s, P.C.***




*CERTIFIED
      PUBLIC ACCOUNTANTS*


40
      Exchange Place, Suite 1820


New
      York,
      NY 10005


TEL:
      (212) 925-9490


FAX:
      (212) 226-9134


E-MAIL:
      MSBCPAS@GMAIL.COM




Board
      of
      Directors and Stockholders of


Guilin
      Paper, Inc.





We
      have
      reviewed the accompanying consolidated balance sheets of Guilin Paper, Inc.,
      (“The Company”) as of June 30, 2007, December 31, 2006, and October 31, 2006 and
      the related consolidated statements of income, comprehensive losses, statement
      of stockholders' equity, and cash flows for the six months ended June 30, 2007
      and 2006 and for the two months ended December 31, 2006.. These 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 review in accordance with standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with standards
      of the Public Company Accounting Oversight Board (United States), the objective
      of which is the expression of an opinion regarding the financial statements
      taken as a whole. Accordingly, we do not express such an opinion.





Based
      on
      our reviews, we are not aware of any material modifications that should be
      made
      to the accompanying interim financial statements referred to above for them
      to
      be in conformity with accounting principles generally accepted in the United
      States of America.








Morgenstern,
      Svoboda & Baer, CPAs, P.C.


Certified
      Public Accountants





New
      York,
      NY


August
      8,
      2007





3


**GUILIN
        PAPER, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **JUNE
        30, 2007, DECEMBER 31, 2006 AND OCTOBER 31, 2006**
 
 **ASSETS**
              
              **6/30/2007**
              
              **12/31/2006**
              
              **10/31/2006****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              371,196
              
              $
              115,521
              
              $
              185,192Accounts
                  receivable, net
              
              
              12,161,529
              
              
              12,771,315
              
              
              13,875,435Notes
                  receivable
              
              
              242,995
              
              
              232,364
              
              
              470,817Inventory
              
              
              6,097,327
              
              
              4,198,509
              
              
              3,558,716Other
                  receivables, net
              
              
              1,862,903
              
              
              1,783,749
              
              
              1,460,398Trade
                  deposits
              
              
              3,324,279
              
              
              4,312,558
              
              
              3,936,394Prepaid
                  expenses
              
              
              66,651
              
              
              40,217
              
              
              61,351Total
                  Current Assets
              
              
              24,126,880
              
              
              23,454,233
              
              
              23,548,303**Property
                  & equipment, net**
              
              
              13,928,863
              
              
              14,341,963
              
              
              14,162,422**Other
                  Assets**Intangibles
              
              
              2,529,041
              
              
              2,560,101
              
              
              2,590,161Other
                  assets
              
              
              36,403
              
              
              36,403
              
              
              36,403Total
                  Other Assets
              
              
              16,494,307
              
              
              16,938,467
              
              
              16,788,986**Total
                  Assets**
              
              $
              40,621,187
              
              $
              40,392,700
              
              $
              40,337,289**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  LiabilitiesNotes
                  payable - current
              
              $
              12,928,103
              
              
              12,641,516
              
              $
              12,654,944Accounts
                  payable and accrued expenses
              
              
              3,921,197
              
              
              7,426,059
              
              
              7,169,715Interest
                  payable
              
              
              6,335,696
              
              
              5,890,420
              
              
              5,803,345Customer
                  advances
              
              
              1,965,458
              
              
              610,331
              
              
              1,284,985Income
                  tax payable
              
              
              161,897
              
              
              586,775
              
              
              1,365,942Total
                  Current Liabilities
              
              
              25,312,351
              
              
              27,155,101
              
              
              28,278,931Long
                  Term DebtsNotes
                  payable - net of current portion
              
              
              656,858
              
              
              640,409
              
              
              652,951**Total
                  Liabilities**
              
              
              25,969,209
              
              
              27,795,510
              
              
              28,931,882**Stockholders'
                  Equity**Common
                  stock, par value, “nil”
              
              
              48,078
              
              
              48,078
              
              
              48,078Additional
                  paid in capital
              
              
              7,796,007
              
              
              7,796,007
              
              
              7,762,198Statutory
                  reserves
              
              
              5,246,450
              
              
              5,246,450
              
              
              4,193,528Other
                  comprehensive losses
              
              
              (477,588
              )
              
              (405,007
              )
              
              (534,436
              )Retained
                  earnings (deficit)
              
              
              2,039,031
              
              
              (88,338
              )
              
              (63,961
              )Total
                  Stockholders' Equity
              
              
              14,651,978
              
              
              12,597,190
              
              
              11,405,407Total
                  Liabilities and Stockholders' Equity
              
              $
              40,621,187
              
              
              40,392,700
              
              $
              40,337,289


The
      accompanying notes are an integral part of these financial
      statements.





4








**GUILIN
                PAPER, INC.****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE SIX MONTHS ENDING JUNE 30, 2007 AND JUNE 30, 2006**


**AND
      THE TWO MONTHS ENDED DECEMBER 31, 2006**




6/30/2007
            
            6/30/2006
            
            12/31/2006Sales,
                net
            
            $
            15,199,712
            
            $
            13,859,078
            
            $
            5,717,667Cost
                of sales
            
            
            11,134,651
            
            
            10,387,154
            
            
            4,247,263**Gross
                profit**
            
            
            4,065,061
            
            
            3,471,924
            
            
            1,470,404General
                and administrative expenses
            
            
            1,290,429
            
            
            761,616
            
            
            664,172**Income
                from operations**
            
            
            2,774,632
            
            
            2,710,308
            
            
            806,232Other
                (Income) ExpenseInterest
                expense
            
            
            439,651
            
            
            713,769
            
            
            164,056Other
                income, net
            
            
            (15,846
            )
            
            (123,443
            
            
            (736,919
            )Total
                Other (Income) Expense
            
            
            423,805
            
            
            590,326
            
            
            (572,863
            )**Income
                before income taxes**
            
            
            2,350,827
            
            
            2,119,982
            
            
            1.379,095Provision
                for income taxes
            
            
            223,458
            
            
            230,815
            
            
            184,012**Net
                income**
            
            $
            2,127,369
            
            $
            1,889,167
            
            
            1,195,083




The
      accompanying notes are an integral part of these financial
      statements.




5








**GUILIN
                PAPER, INC.****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE THREE MONTHS ENDING JUNE 30, 2007 AND JUNE 30, 2006**




6/30/2007
            
            6/30/2006Sales,
                net
            
            $
            7,785,496
            
            $
            6,935,159Cost
                of sales
            
            
            5,665,935
            
            
            5,310,857**Gross
                profit**
            
            
            2,119,561
            
            
            1,624,302General
                and administrative expenses
            
            
            757,659
            
            
            204,228**Income
                from operations**
            
            
            1,361,902
            
            
            1,420,074Other
                (Income) ExpenseInterest
                expense
            
            
            204,621
            
            
            446,643Other
                income, net
            
            
            (13,971
            )
            
            (60,984
            )Total
                Other (Income) Expense
            
            
            190,650
            
            
            385,659**Income
                before income taxes**
            
            
            1,171,252
            
            
            1,034,415Provision
                for income taxes
            
            
            92,178
            
            
            110,441**Net
                income**
            
            $
            1,079,074
            
            $
            923,974




The
      accompanying notes are an integral part of these financial
      statements.




6




**GUILIN
                PAPER, INC.****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006**


**AND
      THE TWO MONTHS ENDED DECEMBER 31, 2006**




6/30/2007
            
            6/30/2006
            
            12/30/2006**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            2,127,369
            
            $
            1,889,167
            
            $
            1,195,083Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                and amortization
            
            
            608,572
            
            
            585,594
            
            
            181,032Provision
                for doubtful accounts
            
            
            157,775
            
            
            (252,872
            )
            
            (749,331
            )(Increase)
                decrease in assets:Accounts
                receivable
            
            
            452,011
            
            
            (1,499,808
            )
            
            1,853,451Other
                receivables
            
            
            (89,785
            )
            
            (516,213
            )
            
            (84,898
            )Trade
                deposits
            
            
            988,279
            
            
            (384,194
            )
            
            (376,164
            )Inventory
            
            
            (1,898,818
            )
            
            (77,684
            )
            
            (639,793
            )Other
                current assets
            
            
            (26,434
            )
            
            (28,637
            )
            
            21,134Increase
                (decrease) in current liabilities:Accounts
                payable and accrued expenses
            
            
            (3,504,862
            )
            
            436,649
            
            
            256,344Interest
                payable
            
            
            445,276
            
            
            432,277
            
            
            87,075Customer
                advances
            
            
            1,355,127
            
            
            21,927
            
            
            (674,654
            )Income
                tax payable
            
            
            (424,878
            )
            
            (340,102
            )
            
            (779,167
            )**Net
                cash provided by operating activities**
            
            
            189,632
            
            
            266,104
            
            
            290,112**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property & equipment
            
            
            (
                164,412
            )
            
            (699,004
            )
            
            (330,513
            )**Net
                cash used in investing activities**
            
            
            (164,412
            )
            
            (699,004
            )
            
            (330,513
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Notes
                Payable - net
            
            
            303,036
            
            
            243,052
            
            
            (25,970
            )Paid
                in capital - net of effect of merger
            
            
            -
            
            
            11,828
            
            
            (132,729
            )**Net
                cash (used in) provided by financing activities**
            
            
            303,036
            
            
            254,880
            
            
            (158,699
            )Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (72,581
            )
            
            (82,858
            )
            
            129,429Net
                change in cash and cash equivalents
            
            
            255,675
            
            
            (260,878
            )
            
            (69,671
            )**Cash
                and cash equivalents, beginning balance**
            
            
            115,521
            
            
            414,995
            
            
            185,192**Cash
                and cash equivalents, ending balance**
            
            $
            371,196
            
            $
            154,117
            
            $
            115,521**SUPPLEMENTAL
                DISCLOSURES:**Cash
                paid during the year for:Income
                tax payments
            
            $
            648,336
            
            $
            570,917
            
            $
            963,179Interest
                payments
            
            $
            -
            
            $
            281,492
            
            $
            -




The
      accompanying notes are an integral part of these financial
      statements.




7








**GUILIN
                PAPER, INC.****CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                THE SIX MONTHS ENDED JUNE 30, 2007 AND THE TWO MONTHS ENDED DECEMBER
                31,
                2006**













Common
                Stock
            
            Additional
              Paid
                I Capital
            
            Statutory
              Reserves
            
            Comprehensive
              Loss
            
            Retained
              Earnings
            
            Total
              Shareholders
              EquityBalance
                11/1/2006
            
            $
            48,078
            
            $
            7,762,198
            
            $
            4,193,528
            
            $
            (534,436
            )
            $
            (63,961
            )
            $
            11,405,407Paid
                in capital
            
            
            
            
            
            5,000
            
            
            
            
            
            
            
            
            
            
            
            5,000Effect
                of merger
            
            
            
            
            
            28,809
            
            
            
            
            
            129,429
            
            
            (166,538
            )
            
            (8,300
            )Transfer
                Reserves
            
            
            
            
            
            
            
            
            1,052,922
            
            
            
            
            
            (1,052,922
            )
            
            -Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,195,083
            
            
            1,195,083Balance
                12/31/2006
            
            
            48,078
            
            
            7,796,007
            
            
            5,246,450
            
            
            (405,007
            )
            
            (88,338
            )
            
            12,597,190Comprehensive
            
            
            
            
            
            
            
            
            
            
            
            (72,581
            )
            
            
            
            
            (72,581
            )Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,127,369
            
            
            2,127,369Balance
                06/30/2007
            
            $
            48,078
            
            $
            7,796,007
            
            $
            5,246,450
            
            $
            (477,588
            )
            $
            2,039,031
            
            $
            14,651,978








The
      accompanying notes are an integral part of these financial
      statements.




8





**GUILIN
      PAPER, INC.**


**NOTE
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      1 -** **ORGANIZATION**





As
      of
      April 18, 2007 an agreement and plan of merger was made with LGSE, a Nevada
      corporation (“LGSE”), LGSE Merger Sub, Inc, a Nevada Corporation, and a
      wholly-owned subsidiary of LGSE (“Sub”), China Lipu Paper Limited, a British
      Virgin Islands corporation (“CLP”), and the shareholders of CLP. On June 21,
      2007 we changed our name to Guilin Paper, Inc. (the “Company”).





Sub
      merged with and into CLP (the “Merger”), and as a result all of the issued and
      outstanding shares of Common Stock of CLP were converted into shares of LGSE
      Common Stock.





CLP
      was
      incorporated in 1965 under the laws of the People’s Republic of China (PRC). It
      was named China Lipu Paper Limited and restructured from a State owned company
      in 1998. The Company’s subsidiaries include Guangi Lipu Paper Manufacture Ltd.,
      Lipu Lubao Paper Recycling Ltd, and Hengli Power Generation Ltd., which are
      all
      wholly owned. The Company is engaged in the business of manufacturing cardboard
      and cartons, waste paper recycling, and power generation.





For
      accounting purposes, the Company accounted for the transaction as a reverse
      acquisition, with Guilin Paper, Inc. (formerly Logsearch Inc.) being the
      surviving entity. The Company did not recognize goodwill or any intangible
      assets in connection with the transaction. Prior to the Agreement, the Company
      was an inactive corporation with no significant assets and
      liabilities.





The
      accompanying financial statements present the historical financial condition,
      results of operations and cash flows of the operating company prior to the
      merger.





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





Basis
      of Presentation





The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America. The
      Company's functional currency is the Chinese Renminbi; however the accompanying
      consolidated financial statements have been translated and presented in United
      States Dollars.





Translation
      Adjustment





As
      of
      June 30, 2007 and 2006, the accounts of Guilin Paper, Inc. were maintained,
      and
      its financial statements were expressed, in Chinese Yuan Renminbi (“CNY”). Such
      financial statements were translated into U.S. Dollars (“USD”) in accordance
      with Statement of Financial Accounts Standards (“SFAS”) No. 52, Foreign Currency
      Translation with the CNY as the functional currency. According to the Statement,
      all assets and liabilities were translated at the current exchange rate,
      stockholders’ equity is translated at the historical rates and income statement
      items are translated at the average exchange rate for the period. The resulting
      translation adjustments are reported under other comprehensive income in
      accordance with SFAS No. 130, Reporting Comprehensive Income as a component
      of
      shareholders’ equity. Transaction gains and losses are reflected in the income
      statement.




9




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





Use
      of
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





Risks
      and Uncertainties





The
      Company is subject to substantial risks from, among other things, intense
      competition associated with the industry in general, other risks associated
      with
      financing, liquidity requirements, rapidly changing customer requirements,
      limited operating history, foreign currency exchange rates and the volatility
      of
      public markets.





Contingencies





Certain
      conditions may exist as of the date the financial statements are issued, which
      may result in a loss to the Company but which will only be resolved when one
      or
      more future events occur or fail to occur. The Company’s management and legal
      counsel assess such contingent liabilities, and such assessment inherently
      involves an exercise of judgment. In assessing loss contingencies related to
      legal proceedings that are pending against the Company or unasserted claims
      that
      may result in such proceedings, the Company’s legal counsel evaluates the
      perceived merits of any legal proceedings or unasserted claims as well as the
      perceived merits of the amount of relief sought or expected to be
      sought.





If
      the
      assessment of a contingency indicates that it is probable that a material loss
      has been incurred and the amount of the liability can be estimated, then the
      estimated liability would be accrued in the Company’s financial statements. If
      the assessment indicates that a potential material loss contingency is not
      probable but is reasonably possible, or is probable but cannot be estimated,
      then the nature of the contingent liability, together with an estimate of the
      range of possible loss if determinable and material would be disclosed.





Loss
      contingencies considered to be remote by management are generally not disclosed
      unless they involve guarantees, in which case the guarantee would be
      disclosed.





10




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Cash
      and Cash Equivalents





Cash
      and
      cash equivalents include cash on hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.





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. Terms of sales vary. Reserves are recorded primarily
      on a specific identification basis. Allowance for doubtful accounts amounted
      to
      $1,273,876 and $1,236,657 as at June 30, 2007 and December 31, 2006
      respectively.




Inventories





Inventories
      are valued at the lower of cost (determined on a weighted average basis) or
      market. Management compares the cost of inventories with the market value and
      allowance is made for writing down their inventories to market value, if lower.
      As of June 30, 2007 and December 31, 2006 inventory consisted of finished goods
      valued at $1,792,567 and $1,142,784 respectively and raw material inventory
      was
      $4,304,760 and $3,055,725, respectively.




Property,
      Plant & Equipment




Property
      and equipment are stated at cost. Expenditures for maintenance and repairs
      are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When property and equipment are retired or otherwise disposed
      of,
      the related cost and accumulated depreciation are removed from the respective
      accounts, and any gain or loss is included in operations. Depreciation of
      property and equipment is provided using the straight-line method for
      substantially all assets with estimated lives of:





Real
                Property
            50
                yearsMachinery
                & Equipment
            15
                yearsDelivery
                Equipment
            10
                yearsComputers
                & Office Equipment
            5
                years




As
      of
      June 30, 2007 and December 31. 2006 Property, Plant & Equipment consist of
      the following:





6/30/2007
            
            12/31/2006Real
                Property
            
            $
            5,099,390
            
            $
            5,089,310Machinery
                & Equipment
            
            
            15,706,459
            
            
            15,579,647Delivery
                Equipment
            
            
            793,765
            
            
            793,765Computers
                and Office equipment
            
            $
            163,422
            
            
            135,90121,763,036
            
            
            21,598,623Accumulated
                depreciation
            
            
            (7,834,173
            )
            
            (7,256,660
            )$
            13,928,863
            
            $
            14,341,963




11




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**




**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Intangible
      Assets





Intangible
      assets are amortized using the straight-line method over their estimated period
      of benefit, ranging from one to ten years. Management evaluates the
      recoverability of intangible assets periodically and takes into account events
      or circumstances that warrant revised estimates of useful lives or that indicate
      that impairment exists. All of our intangible assets are subject to
      amortization. No impairments of intangible assets have been identified during
      any of the periods presented. In August of 2000 the Company purchased land
      rights which expire in 2050.





The
      components of finite-lived intangible assets are as follows:


June
                  30, 2007
              December
                  31, 2006$
                  2,940,343
              $2,940,343




The
      estimated future amortization expense related to intangible asset as of June
      30,
      2007 is as follows:




2007
              $
                  62,8162008
              62,8162009
              62,8162010
              62,8162011
              62,816Thereafter
              $
                  2,214,961


Long-Lived
      Assets




Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
      and
      the accounting and reporting provisions of APB Opinion No. 30, Reporting the
      Results of Operations for a Disposal of a Segment of a Business. The Company
      periodically evaluates the carrying value of long-lived assets to be held and
      used in accordance with SFAS 144. SFAS 144 requires impairment losses to be
      recorded on long-lived assets used in operations when indicators of impairment
      are present and the undiscounted cash flows estimated to be generated by those
      assets are less than the assets carrying amounts. In that event, a loss is
      recognized based on the amount by which the carrying amount exceeds the fair
      market value of the long-lived assets. Loss on long-lived assets to be disposed
      of is determined in a similar manner, except that fair market values are reduced
      for the cost of disposal. Based on its review, the Company believes that, as
      of
      June 30, 2007 there were no significant impairments of its long-lived assets.




12




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**




**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Fair
      Value of Financial Instruments




Statement
      of financial accounting standard No. 107, Disclosures about fair value of
      financial instruments, requires that the Company disclose estimated fair values
      of financial instruments. The carrying amounts reported in the statements of
      financial position for current assets and current liabilities qualifying as
      financial instruments are a reasonable estimate of fair value.





Revenue
      Recognition





The
      Company’s revenue recognition policies are in compliance with Staff accounting
      bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectability is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue.




Stock-Based
      Compensation




In
      October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
      Compensation. SFAS No. 123 prescribes accounting and reporting standards for
      all
      stock-based compensation plans, including employee stock options, restricted
      stock, employee stock purchase plans and stock appreciation rights. SFAS No.
      123
      requires compensation expense to be recorded (i) using the new fair value method
      or (ii) using the existing accounting rules prescribed by Accounting Principles
      Board Opinion No. 25, Accounting for stock issued to employees (“APB 25”) and
      related interpretations with proforma disclosure of what net income and earnings
      per share would have been had the Company adopted the new fair value method.
      The
      Company uses the intrinsic value method prescribed by APB 25 and has opted
      for
      the disclosure provisions of SFAS No.123.





Advertising





Advertising
      expenses consist primarily of costs of promotion for corporate image and product
      marketing and costs of direct advertising. The Company expenses all advertising
      costs as incurred.




Income
      Taxes




The
      Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.





13




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**




**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Basic
      and Diluted Earnings Per Share




Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (“SFAS No. 128”), Earnings per share. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (“APB 15”). Net loss per share for all
      periods presented has been restated to reflect the adoption of SFAS No. 128.
      Basic net loss per share is based upon the weighted average number of common
      shares outstanding. Diluted net loss per share is based on the assumption that
      all dilutive convertible shares and stock options were converted or exercised.
      Dilution is computed by applying the treasury stock method. Under this method,
      options and warrants are assumed to be exercised at the beginning of the period
      (or at the time of issuance, if later), and as if funds obtained thereby were
      used to purchase common stock at the average market price during the period.




Statement
      of Cash Flows




In
      accordance with SFAS No. 95, Statement of Cash Flows, cash flows from the
      Company’s operations is based upon the local currencies. As a result, amounts
      related to assets and liabilities reported on the statement of cash flows will
      not necessarily agree with changes in the corresponding balances on the balance
      sheet.





Concentration
      of Credit Risk




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk are cash, accounts receivable and other receivables arising from its normal
      business activities. The Company places its cash in what it believes to be
      credit-worthy financial institutions. The Company has a diversified customer
      base, most of which are in China. The Company controls credit risk related
      to
      accounts receivable through credit approvals, credit limits and monitoring
      procedures. The Company routinely assesses the financial strength of its
      customers and, based upon factors surrounding the credit risk, establishes
      an
      allowance, if required, for uncollectible accounts and, as a consequence,
      believes that its accounts receivable credit risk exposure beyond such allowance
      is limited.




Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), Disclosure about
      Segments of an Enterprise and Related Information requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company's management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.




14





**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




Recent
      accounting pronouncements





In
      December 2004, the FASB issued FASB Statement No. 123R, ”Share-Based Payment, an
      Amendment of FASB Statement No. 123” (”FAS No. 123R”). FAS No. 123R requires
      companies to recognize in the statement of operations the grant-date fair value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company’s first quarter of fiscal 2006.





In
      May
      2005, the FASB issued SFAS No. 154, ”Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between “retrospective application” of an
      accounting principle and the “restatement” of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
      Period for Leasehold Improvements (“EITF 05-6”). EITF 05-6 provides guidance on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. EITF 05-6 is not expected to have a material effect on
      its
      consolidated financial position or results of operations.





In
      June
      2005, the FASB Staff issued FASB Staff Position 150-5 (“FSP 150-5”),
      Issuers Accounting under FASB Statement No. 150 for Freestanding Warrants
      and Other Similar Instruments on Shares that are Redeemable. FSP 150-5
      addresses whether freestanding warrants and other similar instruments on shares
      that are redeemable, either puttable or mandatorily redeemable, would be subject
      to the requirements of FASB Statement No. 150, Accounting for Certain
      Financial Instruments with Characteristics of Both Liabilities and Equity,
      regardless of the timing or the redemption feature or the redemption price.
      The
      FSP is effective after June 30, 2005.





In
      February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
      Instruments, SFAS No. 155 amends SFAS No 133, Accounting for Derivative
      Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS
      No.
      155, permits fair value re-measurement for any hybrid financial instrument
      that
      contains an embedded derivative that otherwise would require bifurcation,
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133, establishes a requirement to evaluate
      interest in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation, clarifies that concentrations
      of
      credit risk in the form of subordination are not embedded derivatives, and
      amends SFAS No. 140 to eliminate the prohibition on the qualifying
      special-purpose entity from holding a derivative financial instrument that
      pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company’s first fiscal year that begins
      after September 15, 2006.





15




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





In
      March
      2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
      Financial Assets - an amendment to FASB Statement No. 140. Statement 156
      requires that an entity recognize a servicing asset or servicing liability
      each
      time it undertakes an obligation to service a financial asset by entering into
      a
      service contract under certain situations. The new standard is effective for
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows.





In
      September, 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (“GAAP”), and expands disclosures about
      fair value measurements. This Statements applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans - an amendment of FASB Statements No.
      87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded statues in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements.





A
      brief
      description of the provisions of this Statement


The
      date
      that adoption is required


The
      date
      the employer plans to adopt the recognition provisions of this Statement, if
      earlier.





The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. The Company believes that the
      adoption of these standards will have no material impact on its financial
      statements.





16




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





In
      December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
      Payment Arrangements (“FSP 00-19-2”) which addresses accounting for registration
      payment arrangements. FSP 00-19-2 specifies that the contingent obligation
      to
      make future payment or otherwise transfer consideration under a registration
      payment arrangement, whether issued as a separate agreement or included as
      a
      provision of a financial instrument or other agreement or included as a
      provision of a financial or other agreement, should be separately recognized
      and
      measured in accordance with FASB Statement No. 5, Accounting for Contingencies.
      FSP 00-19-2 further clarifies that a financial instrument subject to a
      registration payment arrangement should be accounted for in accordance with
      other applicable generally accepted accounting principles without regard to
      the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement.





For
      registration payment arrangements and financial instruments subject to those
      arrangements that were entered into prior to the issuance of EITF 00-19-2,
      this
      guidance shall be effective for financial statements issued for fiscal years
      beginning after December 15, 2006 and interim periods within those fiscal years.
      The Company has not yet determined the impact that the adoption of FSP 00-19-2
      will have on its financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
      to measure many financial instruments, and certain other items, at fair value.
      SFAS 159 applies to reporting periods beginning after November 15, 2007. The
      adoption of SFAS 159 is not expected to have a material impact on the Company’s
      financial condition or results of operations.





17




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      3 -** **NOTES
      PAYABLE**





The
      following summarizes notes payable as of June 30, 2007 and December 31, 2006.





6/30/2007
            12/31/2006Cinda
                Trustor Of China - Nanning
            $
                8,292,092
            $
                8,121,681Note
                originally held by Bank of China - Guilin. On June 25, 2004 the loans
                were
                transferred to Cinda Trustor of China. Original terms of these loans
                call
                for interest between 5.223% & 5.475% interest per annum, with
                principal due between 1996-2002.Changcheng
                Trustor Of China- Nanning
            1,220,352
            $
                1,189,773Note
                originally held by Industry and Commercial Bank of China. On June
                30, 2005
                the loans were transferred to China Great Wall Asset Management Corp.
                Original term of this loan called for interest of 6.15% interest
                per
                annum. Principal past due at date of transfer.Agricultural
                Bank Of China
            4,072,517
            $
                3,970,471Term
                of notes call for interest from 6.912 to 7.488% per annum with principal
                due in 2007 & 2008.Total
            $
                13,584,961
            $
                13,281,925Current
                Portion
            12,928,103
            12,641,516Long
                term Portion
            $
                656,858
            $
                640,409





Notes
      to
      Cinda Trustor of China are collateralized with pledged machinery and equipment.
      Notes to Agricultural Bank of China are collateralized with both pledged
      machinery and equipment and plant buildings.





As
      of
      June 30, 2007 and December 31, 2006 accrued interest unpaid on these notes
      was
      $6,335,696 and $5,890,420 respectively.





**Note
      4 -** **COMPENSATED
      ABSENCES**




Regulation
      45 of local labor law entitles employees to annual vacation leave after one
      year
      of service. In general all leave must be utilized annually, with proper
      notification. Any unutilized leave is cancelled.




18




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**





**Note
      5 -** **INCOME
      TAXES**





The
      Company is governed by the Income Tax Laws of the PRC. Pursuant to the PRC
      Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory rate of
      33%, which is comprises of 30% national income tax and 3% local income tax.





The
                following is a reconciliation of income tax expense:06/30/2007Current
            
            
            
            
            $
            223,458Deferred
            
            
            
            
            
            -Total
            
            
            
            
            $
            223,45806/30/2006Current
            
            
            
            
            $
            230,815Deferred
            
            
            
            
            
            -Total
            
            
            
            
            $
            230,815PRC
                income tax
            
            
            33
            %Effective
                rate
            
            
            33
            %




**Note
      6 -** **STATUTORY
      RESERVES**





In
      accordance with the laws and regulations of the PRC, a wholly-owned Foreign
      Invested Enterprises income, after the payment of the PRC income taxes, shall
      be
      allocated to the statutory surplus reserves and statutory public affair fund.
      Prior to January 1, 2006 the proportion of allocation for reserve was 10 percent
      of the profit after tax to the surplus reserve fund and additional 5-10 percent
      to the public affair fund. The public affair fund reserve was limited to 50
      percent of the registered capital. Effect January 1, 2006 there is now only
      one
      fund requirement. The reserve is 10 percent of income after tax, not to exceed
      50 percent of registered capital.





Statutory
      Reserve funds are restricted for set off against losses, expansion of production
      and operation, or increase in register capital of the respective company.
      Statutory public welfare fund is restricted to the capital expenditures for
      the
      collective welfare of employees. These reserves are not transferable to the
      Company in the form of cash dividends, loans or advances. These reserves are
      therefore not available for distribution except in liquidation. As of June
      30,
      2007 and December 31, 2006 the Company had allocated $5,246,450 to these
      non-distributable reserve funds.





19




**GUILIN
      PAPER, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**




**Note
      7 -** **OTHER
      COMPREHENSIVE INCOME**





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity at June 30, 2007 and December
      31, 2006 are as follows:





Foreign
                Currency Translation Adjustment
            
            Accumulated
                Other Comprehensive IncomeBalance
                at November 1, 2006
            
            $
            (534,436
            )
            $
            (534,436
            )Change
                for two months
            
            
            129,429
            
            
            129,429Balance
                at December 31, 2006
            
            $
            (405,007
            )
            $
            (405,007
            )Change
                for Six Months
            
            
            (72,581
            )
            
            (72,581
            )Balance
                at June 30, 2007
            
            $
            (477,588
            )
            $
            (477,588
            )





**Note
      8**  **-** **CURRENT
      VULNERABILITY DUE TO CERTAIN RISK FACTORS**





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 environments in the PRC, by the general state
      of
      the PRC's economy. The Company’s business may be influenced 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.





**Note
      9 -** **MAJOR
      CUSTOMERS AND CREDIT RISK**





The
      Company had no customers who accounted for more then 10% of revenues during
      the
      six months ended June 30, 2007 and 2006. Two and one customers accounted for
      25.2% and 16.6% of the Company’s accounts receivable at June 30, 2007 and
      December 31, 2006, respectively. The Company had no vendors during the six
      months ended June 30, 2007 and 2006 who accounted for more than 10% of the
      total
      purchases. One vendor at June 30, 2007 and December 31, 2006 comprised
      approximately 12.93% of the Company’s accounts payable. As of June 30, 2007 no
      vendor exceeded 10% of payables.





**Note
      10 -** **RELATED
      PARTY TRANASACTIONS**





The
      Company, through common ownership is related to Feitao Paper Product Ltd. The
      Company sells raw materials, and electrical power to Feitao Paper Product Ltd.
      and buys waste paper to them. During the six months ended June 30, 2007 sales
      totaled $1,199,875. Purchases totaled $85,626 for the six months ended June
      30,
      2007. At June 30, 2007 accounts receivable included $2,342,850, due from Feitao
      Paper Product Ltd.




20




**Item
      2.****Management’s
      Discussion and Analysis Or Plan of Operations******




The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements and related notes included elsewhere in this
      quarterly report.





**Forward
      Looking Statements**





The
      information in this discussion contains forward-looking statements within the
      meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
      These
      forward-looking statements involve risks and uncertainties, including statements
      regarding our capital needs, business strategy and expectations. Any statements
      contained herein that are not statements of historical facts may be deemed
      to be
      forward-looking statements. In some cases, you can identify forward-looking
      statements by terminology such as “may”, “will”, “should”, “expect”, “plan”,
“intend”, “anticipate”, “believe”, estimate”, “predict”, “potential” or
“continue”, the negative of such terms or other comparable terminology. Actual
      events or results may differ materially. We disclaim any obligation to publicly
      update these statements, or disclose any difference between its actual results
      and those reflected in these statements.





**Results
      of Operations**




**Net
      Sales**




Net
      Sales
      for the quarter ended June 30, 2007, totaled $7,785,496, compared to $6,935,159
      for the quarter ended June 30, 2006, an increase of $850,337 or approximately
      12.26%. The increase was due to the market expansion by the Company.




Net
      sales
      for the six months ended June 30, 2007 totaled $15,199,712, compared to
      $13,859,078 for the six months ended June 30, 2006, an increase of $1,340,634
      or
      approximately 9.67%. The increase was due to the market expansion by the
      Company.




C **ost
      of Sales**




Cost
      of
      sales for the quarter ended June 30, 2007 totaled $5,655,935, or 72.78% of
      the
      net sales in the same period, compared to $5,310,857 for the quarter ended
      June
      30, 2006, or 76.58% of the net sales in the same period, a $355,078 increase,
      or
      approximately 6.69%. The increase in gross margin was due to the decrease in
      raw
      material cost.




Cost
      of
      sales for the six months ended June 30, 2007 totaled $11,134,651 compared to
      $10,387,154 for the six months ended June 30, 2006, an increase of $717,497
      or
      approximately 7.20%. The increase was due to the increase in net sales. The
      cost
      to sales ratio for the six months ended June 30, 2007, is 73.26% compared to
      74.95% in the six months ended June 30, 2006, a decrease of 1.69%. The increase
      in gross margin was due to the adjustment of product variety, the increase
      of
      unit price and the appreciation of RMB currency. The increase in unit price
      was
      caused by an increase in the price of raw materials. The price of raw materials
      has risen due to the growth in special paper sales. Simultaneously, the cost
      of
      sales has been relatively decreasing. In addition, on June 30, 2006 the RMB
      exchange rate was 7.9956, on June 30, 2007 was 7.6155.




21





**General
      and Administrative Expenses**




Selling,
      general and administrative, and consulting fees for the quarter ended June
      30,
      2007 totaled $757,659, or 9.73% of net sales in the same period, compared to
      $204,228, or 2.94% of net sales for the quarter ended June 30, 2006, an increase
      of $553,431, or approximately 270.99%. The increase was due to the increase
      of
      insurance costs, $32,581, employee’s salaries expenses, $36,341, environmental
      costs, $18,797, hospitality business expenses, $33,835, travel expenditures,
      $32,581, and the increase of the doubtful debt reserves, $100,251. Others are
      doubtful debt reserves for the same period last year, approximately $ 299,499.





Selling,
      general and administrative, and consulting fees for the six months ended June
      30, 2007 totaled $1,290,429, or 8.94% of net sales in the same period, compared
      to $761,616, or 5.50% of net sales for the six months ended June 30, 2006,
      an
      increase of $528,813, or approximately 69.43%. The increase in general and
      administrative expenses was primarily due to the increased expenses in market
      expansion, employee’s salaries expenses, accounting and legal, and other
      professional consultant fees.





**Income
      (Loss) from Operations**




Income
      (loss) from operations for the quarter ended June 30, 2007 totaled $1,361,902,
      compared to $1,420,074 for the quarter ended June 30, 2006, a decrease of
      $58,172 or approximately 4.10%. The decrease of income (loss) from operations
      was due to the increase of the doubtful debt reserves, approximately
      $105,104.





Income
      (loss) from operations for the six months ended June 30, 2007 totaled
      $2,774,632 compared to $2,710,308 for the six months ended June 30,
      2006, an increase of $64,324 or approximately 2.37%. The increase of income
      (loss) from operations was due to the increase of gross profit and the
      technology advancement resulted in the increase of product value.





**Other
      Income (Expenses)**




Other
      income (Expenses) for the quarter ended June 30, 2007 totaled ($190,650),
      compared to ($385,659) for the quarter ended June 30, 2006, an expense decrease
      of $195,009 or approximately 50.56%. The decrease in other expenses was due
      to
      the appreciation of RMB currency.








Other
      income (Expenses) for the six months ended June 30, 2007 totaled ($423,805)
      compared to ($590,326) for the six month ended June 30, 2006, an expense
      decreases $166,521, or approximately 28.20%. The decreased expense was due
      to
      the appreciation of RMB currency.





**Net
      Income**




Net
      income (loss) for the quarter ended June 30, 2007, totaled $1,079,074, compared
      to $923,974 for the quarter ended June 30, 2006, an increase of $155,100, or
      16.79%. The increase in net income was due to the increase in net sales and
      appreciation of RMB currency.





Net
      income (loss) for the six months ended June 30, 2007 totaled $2,127,369 compared
      to $1,889,167 for the six months ended June 30, 2006, an increase of $238,202
      or
      approximately 12.61%. The increase in net income was primarily due to the
      increase in net sales and the appreciation in RMB currency.




22




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2007, we had cash and cash equivalents of $371,196 as compared to
      $154,117 as of June 30, 2006. Cash flows from operating activities was $189,632
      for the six month period ended June 30, 2007 as compared to $266,104 for the
      period ended June 30, 2006. Cash flows from financing activities was $303,036
      for the six month period ended June 30, 2007 as compared to $254,880 for the
      period ended June 30, 2006. We expect that our cash and cash equivalents will
      be
      sufficient to satisfy our cash requirements for the next twelve months. On
      a
      long-term basis, our liquidity is dependent on successfully executing our
      business plan, receipt of revenues, and additional infusions of capital through
      equity and debt financing. Any funds raised from an offering of our equity
      or
      debt will be used to continue to develop and execute our business plan. However,
      there can be no assurance that we will be able to obtain additional equity
      or
      debt financing on terms acceptable to us.





We
      do not
      currently own any plant or significant equipment, and during 2007, we do not
      anticipate purchasing any plant or significant equipment.





**Item
      3.**  **Controls
      and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




As
      of
      June 30, 2007, the end of the period covered by this report, our Chief Executive
      Officer and our Chief Financial Officer reviewed and evaluated the effectiveness
      of the our disclosure controls and procedures (as defined in Exchange Act Rule
      13a-15(e) and 15d-15(e)), which are designed to ensure that material information
      we must disclose in our report filed or submitted under the Securities Exchange
      Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized,
      and reported on a timely basis, and have concluded, based on that evaluation,
      that as of such date, our disclosure controls and procedures were effective
      to
      ensure that information required to be disclosed by us in reports that we file
      or submit under the Exchange Act is accumulated and communicated to our Chief
      Executive Officer and Chief Financial Officer as appropriate to allow timely
      decisions regarding required disclosure.




**Changes
      in Internal Control over Financial Reporting**




There
      was
      no change in our internal control over financial reporting that occurred during
      the fiscal quarter covered by this report on Form 10-QSB that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




23




**PART
      II - OTHER INFORMATION**






**Item
      1.****Legal
      Proceedings**






Not
      applicable




**Item
      2.****Unregistered
      Sales of Equity Securities and Use of Proceeds**





Responsive
      information previously has been included in a Current Report on Form
      8-K.




**Item
      3.****Defaults
      Upon Senior Securities**




The
      following summarizes outstanding notes which the Company is in default as per
      the terms of such instruments as of June 30, 2007.





Amount
                due as of 6/30/2007Cinda
                Trustor Of China - Nanning
            $
                8,292,092Note
                originally held by Bank of China - Guilin. On June 25, 2004 the loans
                were
                transferred to Cinda Trustor of China. Original terms of these loans
                call
                for interest between 5.223% & 5.475% interest per annum, with
                principal due between 1996-2002.Changcheng
                Trustor Of China- Nanning
            1,220,352Note
                originally held by Industry and Commercial Bank of China. On June
                30, 2005
                the loans were transferred to China Great Wall Asset Management Corp.
                Original term of this loan called for interest of 6.15% interest
                per
                annum. Principal past due at date of transfer.Agricultural
                Bank Of China
            4,072,517Term
                of notes call for interest from 6.912 to 7.488% per annum with principal
                due in 2007 & 2008.Total
            $
                13,584,961




**Item
      4.****Submission
      of Matters to a Vote of Security Holders**




Responsive
      information previously has been included in an Information Statement on Schedule
      14C.




**Item
      5.****Other
      Information**




Not
      applicable.




**Item
      6. Exhibits**




**Exhibit
                Number**
            **Exhibit
                Title**31.1
            Certification
                of CEO pursuant to Rule 13a-14(a) or 15d-14 (a) as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            Certification
                of CFO pursuant to Rule 13a-14(a) and Rule 15d-14(a) as adopted pursuant
                to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




24





**SIGNATURES**






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




Guilin
                Paper, Inc.Date:
                August 14, 2007
              
              
              By:
            /s/
                Fangde ZhangFangde
                Zhang, Chief Executive OfficerBy:
            /s/
                Mingzhu ZhangMingzhu
                Zhang, Chief Financial Officer





25