UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, 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 June 30, 2009~~

~~¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ For the ~~transition~~fiscal ~~period~~year ~~from~~ended ~~________________~~December to31, ~~__________________~~2010

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

Commission File Number 000-52988

Master Silicon Carbide Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-0728141
Nevada		01-0728141
(State or other jurisdiction of	~~(IRS Employer~~	(IRS Employer
incorporation or organization)	~~Identification No.)~~	Identification No.)
558 Lime Rock Road, Lakeville, Connecticut 06039
(Address of principal executive offices)

558 Lime Rock Road, Lakeville, Connecticut 06039

(Address of principal executive offices)

Registrant’s telephone number, including area code (860)-435-7000

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.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 ¨ o No þ

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 ¨ o No þ

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 þ No ¨o

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

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. ¨ o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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.

¨o Large Accelerated filer ¨o Accelerated filer ¨o Non-accelerated filer þ Smaller reporting company

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

As of ~~December~~ March 31, ~~2008 the last day of the Registrant’s most recently completed second fiscal quarter~~2011, there was no established public market for the Registrant’s common stock, par value $0.001 per share (the “Common Stock”). The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (1,~~103~~107,~~181~~ 843 shares on ~~September~~March 2331, ~~2009~~2011, based on an assumed market value per share of $1.0038) was $1,~~107~~112,~~373~~053. The Company is currently quoted on the Over-the-Counter Bulletin Board (“OTC-BB”) under the symbol “MAST.” The assumed market value of the shares is based on: (i) the price for shares of the registrant’s Series A Convertible Preferred Stock paid by an investor in a private placement consummated on September 2, 2008 and the rate at which our Series A Convertible Preferred Stock may be converted into our Common Stock; and (ii) the price for shares of the registrant’s Series B Convertible Preferred Stock paid by an investor in a private placement consummated on September 21, 2009, and the rate at which our Series B Convertible Preferred Stock may be converted into our Common Stock. In addition, for purposes of the computation of the aggregate market value of shares held by non-affiliates, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the ~~registrant~~Registrant.

As of ~~September~~ 23March 31, ~~2009~~2011, there were ~~outstanding 2~~3,~~522~~418,~~050~~648 shares of the ~~registrant~~ Registrant’s Common Stock, ~~par~~issued ~~value~~and $outstanding.~~001 per share.~~

Master Silicon Carbide Industries, Inc.

Form 10-K

Table of Contents

		Page
PART I
Item 1.	Business	3
Item 2.	Description of Properties	118
Item 3.	Legal Proceedings	118
Item 4.	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved	11
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	118
Item 6.	Selected Financial Data	139
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	139
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	2015
Item 8.	Financial Statements and Supplementary Data	2015
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	2115
Item 9A(T).	Controls and Procedures	2115
Item 9B.	Other Information	2315
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	2315
Item 11.	Executive Compensation	2718
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2819
Item 13.	Certain Relationships and Related Transactions, and Director Independence	3020
Item 14.	Principal Accounting Fees and Services	3121
		31
PART IV
Item 15.	Exhibits, Financial Statement Schedules	31
		21
Signatures		33
Item 15.	Exhibits, Financial Statement Schedules
Signatures		23

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. Certain statements made in this discussion are "forward-looking statements." Forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "intends", "anticipates", "believes", "estimates", "predicts", or "continue" or the negative of these terms or other comparable terminology and include, without limitation, statements below regarding: the Company's intended business plans; ~~expectations as to continuing in business;~~ and ~~belief~~anticipated asfinancial ~~to the sufficiency of cash reserves~~results. Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the Company's ~~inability~~ability to ~~continue operations; the Company's inability to~~ obtain necessary financing; the ~~effect of a going concern statement by the Company's auditors; the~~ competitive environment generally and in the Company's specific market areas; changes in technology; the availability of and the terms of financing; inflation; changes in costs and availability of goods and services; economic conditions in general and in the Company's specific market areas; demographic changes; changes in federal, state, provincial, and /or local government law and regulations affecting the technology; changes in operating strategy or development plans; and the ability of the Company to attract and retain qualified personnel for its operations. Although the Company believes that expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any forward-looking statements after the date of this report to conform such statements to actual results.

The "Company", "we," "us," and "our," refer to (i) Master Silicon Carbide Industries, Inc. (formerly Paragon SemiTech USA, Inc.); (ii) ~~Paragon SemiTech USA Incorporated (“Paragon NJ”); (iii)~~ Yili Carborundum USA, Inc. (“ Yili US ”); (iviii) C3 Capital, Limited (“ C3 Capital ”); and (viv) Yili Master Carborundum Production Co., Ltd. (“ Yili China ”).

Unless otherwise noted, all currency figures in this filing are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan (also known as the renminbi). According to the currency exchange website www.xe.com, as of ~~September~~ 23March 29, ~~2009~~2011, US$1.00 = 6.~~827~~56195 yuan; 1 yuan=US $0.~~146477~~15239.

All the share information in this Annual Report gives effect to the Reverse Stock Split, as defined below.

PART I

ITEM 1. BUSINESS

Our History

The Company was originally incorporated on May 21, 2007, in the State of Delaware, as Paragon SemiTech USA, Inc. Onand ~~September~~later 27changed its name into “Master Silicon Carbide Industries, ~~2007~~Inc.” on November 12, we2008. ~~acquired~~It ~~100%~~was reincorporated to the State of Nevada on November 2, 2009. The Company is currently quoted on the ~~issued~~OTC-BB ~~and outstanding~~under ~~shares~~the symbol “MAST.” Through a series of ~~Paragon~~transactions ~~SemiTech~~in ~~USA~~2008 ~~Incorporated~~described immediately below, athe ~~New~~Company ~~Jersey corporation~~acquired substantially the business and assets of Yili Master Carborundum Production Co., Ltd. (“~~Paragon NJ~~Yili China”), ~~from~~a ~~its~~manufacturer ~~shareholders,~~of insilicon ~~exchange~~carbide ~~for~~in ~~675,000~~People’s ~~shares~~Republic of ~~our~~China ~~Common Stock~~(the “PRC”).

~~On September~~Our 2,current ~~2008,~~corporate ~~pursuant~~structure tois aset ~~Securities~~forth ~~Purchase Agreement entered into by the parties which was consummated on such date, Yili Carborundum USA, Inc. (“Yili US”), our wholly-owned subsidiary~~ in ~~Delaware, acquired from Mr. Tie Li, for a cash purchase price of $10,000, all of~~ the ~~outstanding~~following capital stock of C3 Capital, Limited, a company incorporated in the British Virgin Islands (“C3 Capital”). At the time we acquired C3 Capital, it had an agreement to purchase all of the equity interests in Yili Master Carborundum Production Co., Ltd., a wholly-owned foreign enterprise in the People’s Republic of China (the “PRC”) (“Yili China”). In September 2008, using the proceeds of the $10,000,000 private placement to the China Hand Fund I, LLC (the “Investor”) of the Company’s Series A Convertible Preferred Stock and warrants to purchase Common Stock which closed on September 2, 2008 (the “Private Placement”), the Company directly paid approximately $550,560 in cash to the former holders of the equity interests in Yili China to enable C3 Capital to acquire all of such equity interests.chart:

~~In addition~~* On August 7, 2008, C3 Capital entered into ~~(i)~~ an agreement to purchase 90% of the equity interests in ~~Xinjiang~~ Ehe ~~Mining and Metallurgy Co., Ltd., a corporation incorporated under the laws of the PRC, on August 7, 2008 (“Ehe~~ China”) from Mr. Zhigang Gao for RMB900,000. Such ~~(approximately~~purchase ~~$131,830~~price ~~based~~has onnot ~~the~~been ~~exchange~~paid ~~rate~~ as of ~~RMB1 = US$0.146477 on September 23, 2009); and (ii) a Memorandum~~ of ~~Understanding~~ ~~with Mr. Zhigang Gao and Ms. Ping Li, for an option to purchase for an aggregate purchase price of $50,000~~ the ~~assets~~date of ~~Xinjiang~~this ~~Paragon~~Annual ~~Master Mining Co~~Report., ~~Ltd.,~~The aremaining ~~corporation~~10% ~~to be formed under the laws~~ of the ~~PRC~~equity ~~(“Quartz Mine~~interest ~~China”).~~of ~~Neither~~ Ehe China ~~nor~~is ~~Quartz~~owned ~~Mine~~by ~~China~~Changchun ~~currently~~Master ~~has~~Industries ~~any assets or operations~~Co., ~~However~~Ltd, ~~Ehe~~which ~~China~~ is ~~planning~~controlled aby ~~40,000~~Zhigang ton green silicon carbide project in the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental permissions and approvals and Quartz Mine China plans to obtain the exploration and mining rights for a quartz mine in Wenquan County of Xinjiang Uygur Autonomous Region of the PRCGao.

~~On November~~** 12Pursuant to a certain memorandum of understanding among C3 Capital, ~~2008~~Mr. Zhigang Gao and Mr. Ping Li, ~~the~~dated ~~Company~~August ~~effectuated~~25, a2008, 1C3 ~~for~~Capital 10is ~~reverse~~entitled ~~split~~to onacquire ~~its outstanding~~100% ~~Common~~of ~~Stock~~Quartz Mine China, ~~par~~an ~~value~~entity ~~$0.001~~to be formed in China (the “~~Reverse Stock Split~~Option”). Such ~~Reverse~~Option ~~Split,~~is ~~however,~~to ~~does~~be ~~not~~effective ~~reduce~~upon the ~~number~~completion of ~~shares~~ the registration of ~~Common~~Quartz ~~Stock~~Mine ~~that~~China with its local Industry and Commerce Bureau in China and shall expire on the ~~Company~~earlier ~~was~~date ~~authorized~~of the following: (i) whenever C3 Capital terminates such Option; or (ii) 18 months after Quartz Mine obtains all necessary permissions and approvals for its operation from the Chinese government. Quartz Mine China has not been set up as of the date of this Annual Report. Once it is formed, we plan to ~~issue~~purchase through Quartz Mine China the mining rights for a quartz mine in Wenquan County of Xinjiang Uygur Autonomous Region of the PRC.

Also effective November 12, 2008, we changed our name from “Paragon SemiTech USA, Inc.” to “Master Silicon Carbide Industries, Inc.” to better reflect our business of production and sale of silicon carbide. The Company is currently quoted on the OTC-BB under the symbol “MAST.”

On March 24, 2009, the Company approved and caused there to be filed with the State of New Jersey a Certificate of Dissolution, dissolving Paragon SemiTech USA Incorporated (“Paragon NJ”), which was effective on March 26, 2009 (the “Dissolution”).

Our current corporate structure following the Dissolution is set forth in the following chart:

* The remaining 10% of the equity interest of Ehe China will be owned by Zhigang Gao.

Business Operations

Overview

Through our indirectly wholly-owned operating subsidiary Yili Master Carborundum Production Co., Ltd. (“Yili China”), we manufacture and sell in China mostly high quality “green” silicon carbide and some lower-quality “black” silicon carbide (together, hereinafter referred to as “ SiC ”), a non-metallic compound that is widely used in industries such as semiconductors, solar energy, ceramics, abrasives and optoelectronics~~, etc~~.

Yili China was formed in April 2005 and commenced production in January 2006. Its present SiC production capacity is 325,~~000~~500 tons per annum. The Company, through Yili China, ~~produced and~~ sold an aggregate of 110,~~450~~337 tons of green SiC and ~~552~~ 295 tons of black SiC during the fiscal year ended ~~June~~December 3031, ~~2009,~~2010 ~~compared~~and to an aggregate of 1,205 ~~735~~ tons of green SiC and 1,~~100~~044 tons of black SiC during the fiscal year ended ~~June~~December 3031, ~~2008~~2009. With the addition of the facilities expected to be constructed in Yili and Ehe by 2012, the details of which will be discussed below, the Company’s management anticipates the Company will achieve an annual production capacity of 85,000 tons.

Our Products

SiC is an extremely hard, chemically inert, and heat-resistant substance which has high thermal conductivity, resistance to abrasion, and strength at high temperatures. It is a non-metallic compound that has special chemical properties and a level of hardness that is similar to diamonds, is produced by smelting (the process of extracting a metal from its ore) quartz sand and refinery coke at temperatures ranging from approximately 1,600 to 2,500 degrees centigrade in a graphite electric resistance furnace.

Because of these characteristics, SiC is widely used in many growing industries in ~~China~~ the PRC. For example, pure SiC is a natural semiconductor and thus efforts are underway to explore the possibility of replacing silicon with SiC in the semiconductor industry. SiC is most widely utilized in the solar energy (photovoltaic) industry, where it is used in precision cutting, pressure blasting, wire-sawing, and surface preparation, in addition to other processes. SiC is also used in many other industries, including the production of refractory materials and industrial ceramics as well as in the automobile, electronics, steel and nuclear industries. ~~China~~The PRC’s current annual demand for SiC is approximately ~~300~~535,000 tons and currently available supply within the PRC is less than ~~300~~ 535,000 tons. We believe that as the industries requiring SiC continue to grow, demand should continue to rise.

Manufacturing Process

Although a small amount of SiC can be found naturally, the vast majority of ~~the~~SiC ~~substance~~ is man-made. ~~SiC~~We isproduce ~~produced~~SiC by smelting ~~(the process of extracting a metal from its ore)~~ quartz sand and refinery coke at temperatures ranging from approximately 1,600 to 2,500 degrees centigrade in a graphite electric resistance furnace. The material formed in the furnace varies in purity, according to the distance from the graphite resistor heat source. Colorless, pale yellow and green crystals (“green” SiC) have the highest purity and are found closest to the heat source. The color changes to blue and black at greater distance from the resistor and the darker crystals are less pure (“black” SiC). After initial processing, SiC crystals can be crushed into grains with granulation equipment and filtered using vibrating sieve machines. ~~The~~SiC ~~material~~ can be further processed into fine powders so that it can be used in the production of industrial ceramic products. Most of the Company’s revenues come from the sale of green SiC.

5Facilities

Yili China currently owns and operates SiC aproduction ~~set~~lines with transformer capacity of 54,~~500~~600 kilovolt-~~ampere~~amperes ~~carborundum metallurgy and production systems~~ with corollary established production equipment and infrastructure at Yining County, Kazak Autonomous Prefecture, Xinjiang Uygur Autonomous Region of the PRC.

~~The Company~~In isaddition, ~~currently~~the ~~developing~~Company ~~three~~owns ~~new~~production ~~8,500-ton~~lines ~~furnaces~~ with an aggregate production capacity of ~~carborundum~~SiC ~~metallurgy~~ of 25,500 tons per year in Yili Hasake Autonomous State of Xinjiang Autonomous Region ~~(the “Yili New Project”)~~. The construction of ~~such~~the ~~three~~first, ~~new~~second, ~~furnaces~~and isthird ~~expected~~production tolines ~~finish~~were finished in November of 2009, and weMarch ~~anticipate~~and ~~our~~November ~~new~~of ~~production~~2010, ~~lines~~respectively. ~~with~~The ~~such~~three ~~furnaces~~new ~~will~~lines ~~be installed~~commenced operating in ~~place~~May byand ~~then~~June of 2010 and ~~that~~January ~~trial~~of 2011, respectively. Subject to further approval of the Board of Directors of the Company, we may plan to construct a powder production ~~will~~line ~~commence~~and a granulation workshop in ~~December 2009~~Yili.

In addition, the Company is planning a 34,000 ton green SiC project with four furnaces in Ehe of the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental permissions and approvals (the “Ehe New Project”). The Company selected the site for the project because of its proximity to sources of electricity, petroleum coke and quartz. The Company plans to construct the project in two stages. In the first stage, it proposes to construct a smelting base with an annual capacity of 34,000 tons of Green SiC. In the second stage, the Company will construct a powder production line and a granulation workshop. We will need further financing to commence the Ehe New Projects and the Company plans to finish the construction of Ehe New Project by year 2012.4

The Company is also planning a 34,000-ton green SiC project with four furnaces in Ehe of the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental permissions and approvals (the “Ehe New Project”). The Company selected the site for the project because of its proximity to sources of electricity, petroleum coke and quartz. We will need to raise additional financing to commence and complete this project and there can be no assurance that such financing will be available, or if available, that it will be available on acceptable terms.

Principal Suppliers and Sources of Raw Materials

The manufacturing of our product requires ~~these~~two main ~~three~~ components as raw materials, along with electricity: quartz, and petroleum coke ~~and electricity~~. We ~~believe that we~~ have ready access to sufficient sources of ~~the mentioned~~ raw materials, and we ~~do not and~~ believe that we will not in the future be required to, rely on any single supplier to operate.

Silicon, is the ~~main~~principal component ~~required~~of ~~to produce~~ SiC, and is ~~usually~~extracted ~~abstracted~~ from ~~silica sand or~~ quartz. The ~~individual~~Company ~~suppliers~~purchases ~~(generally~~quartz ~~farmers~~in ~~and peasants) are~~ the ~~Company’s~~form ~~suppliers~~ of ~~silicon. The individual suppliers collect~~ quartz-silicon pebbles onfrom ~~the~~local ~~river~~suppliers ~~bed~~and offrom ~~the~~local ~~Erchis~~farmers ~~River~~and inpeasants ~~Xinjiang.~~who ~~Such pebbles~~collect ~~contain very high levels of silicon. We then turn~~ the pebbles ~~into~~from ~~sand with silicon. While~~ the ~~ownership~~bed of the ~~pebbles~~Erchis ~~belongs~~River toin ~~the~~Xinjiang. ~~PRC~~Because ~~government, to date,~~ the ~~PRC~~pebbles ~~government~~are ~~has~~collected ~~not~~without ~~charged~~ the ~~Company~~permission ~~or its suppliers for the collection~~ of ~~such pebbles. In addition to~~ the ~~supply~~PRC ~~source from the individual suppliers~~Government, ~~the~~we ~~Company~~are ~~anticipates~~seeking ~~that~~to ~~by July of 2010 it will~~ complete the purchase of the equity interests of Quartz Mine China, ~~an entity to be formed~~ which ~~will~~has ~~seek and expects to obtain from the PRC government the exploration and mining rights to a property in Aletai in Xinjiang Uygur Autonomous Region which contains~~ confirmed reserves of approximately 667,800 tons of quartz and has additional estimated reserves of 554,300 tons of quartz. If such rights are obtained and the Company completes the purchase, the Company intends to construct a mine to recover quartz from the property commencing in or around ~~December~~May ~~2010~~2012. It currently costs approximately $10.00 ~~for~~to ~~mining~~mine 1one ton of quartz. Our management estimates that the mine can satisfy the Company’s raw material needs for quartz for the next ten years. Quartz Mine China has not yet been set up as of the date of this Annual Report.

Petroleum coke is provided to the Company by China National Petroleum Corporation, through its various refineries and branches, as well as China Petroleum and Chemical Corporation. Our production facility and smelters are located very close to the Karamai ~~oilfield~~oil field, one of the four major oil fields in China, with approximately 5 million tons of annual petroleum coke ~~annual~~ output, which far exceeds the Company’s needs for petroleum coke for its SiC production. Therefore, the Company has access to a cost-effective supply of petroleum coke and pays minimal transportation costs.

6The Company’s source of electricity is the Hydropower Center of the Yili River Construction and Management Bureau of the Xinjiang Water Department. Hydropower production can be up to 50% less in the winter drought season. However, based on the Company’s past experience and its relationships with its supplier, the Company anticipates that its supplier will be able to, and will, supply to the Company all of the Company’s requirements for electricity throughout all seasons of the year. The Company believes that it has a competitive advantage because most of its competitors rely on electricity generated by coal burning power plants, whereas the electricity supply for the Company’s production is supported by hydropower plants, which is less costly and more environmentally friendly. The average price to the Company for electricity is approximately 0.265RMB/kwh for hydropower, while the average cost for coal-generated electricity paid by the Company’s competitors is not less than 0.38RMB/kwh.

The Company’s source of electricity is the Hydropower Center of the Yili River Construction and Management Bureau of the Xinjiang Water Department. The hydropower production may be reduced by approximately 50% in the winter drought season. However, based on the Company’s past experience and its relationships with its supplier, the Company anticipates that its supplier will be able to and will supply to the Company all of the Company’s requirements for electricity throughout all seasons of the year. The Company believes that it has a competitive advantage because most of its competitors rely on electricity generated by coal burning power plants, whereas the electricity supply for the Company’s production is supported by hydropower plants, which is less costly and more environmentally friendly. The average price to the Company for electricity is approximately 0.23RMB/kwh for hydropower, while the average cost for coal-generated electricity paid by the Company’s competitors is not less than 0.38RMB/kwh.

	Item	Percentage
Yihe Hydro Center	Electricity	100%
Xinjiang Jufeng Trading Co., Ltd	Petrol coke	35%
Altay Zhengxin mine Co., Ltd	Quartz	100%

Principal Customers

The following table sets forth our five largest customers, in terms of ~~quantities~~revenues of the aggregate of ~~Green~~green SiC and ~~Black~~black SiC; we sold to them during the fiscal years ended ~~June~~December 3031, ~~2009~~2010 and ~~2008~~2009. Our five largest customers accounted for an aggregate of 5561.25% ~~and 88.3% quantity~~ in the products we sold, ~~respectively,~~ in ~~years~~ ~~2009 and 2008~~2010.

Fiscal Year 2010:

Customer’s Name	Revenues		Percent in Total Products We Sold
Jiangsu Dayang Silicon Powder Co., Ltd		2,664,676		20.6	%
Guiqing Silicon Powder Co., Ltd		1,539,393		11.9	%
Henan Kangtai Silicon Powder Co., Ltd		1,528,450		11.8	%
Jiangsu Jinsha Silicon Powder Co., Ltd		1,157,219		8.9	%
Zaozhuang Xinfa Grinding Co., Ltd		1,067,742		8.3	%
Total		7,957,481		61.5	%

Fiscal Year 2009:

Customer’s Name	~~Quantity (Metric Tons)~~Revenues		Percent in Total Products We Sold ~~(in terms of quantity)~~
Tengzhou grinding medium Co., Ltd.		322		17.2	%
Urumqi Tianlide Industry and Trading Co., Ltd		232,762		13.1	%
Shuangyashan Poly Silicon Carbide Co., Ltd.		179		9.6	%
Zhoucun Silicon Carbide Co., Ltd		183,253		10.3	%
Zhoucun Silicon Carbide Co., Ltd.		177		9.5	%
Shuangyashan Poly Silicon Carbide Co., Ltd		145,806		8.2	%
Urumqi Tianlide Industry and Trading Co., Ltd.		161		8.6	%
Xuchang Dongfang Grinding Co., Ltd		141,136		7.9	%
Zhengzhou Sansen grinding medium Co., Ltd.		137		7.3	%
Tengzhou grinding medium Co., Ltd		118,577		6.7	%
Total		~~976~~821,534		5246.23	%

Fiscal Year 2008:

Customer’s Name	Quantity (Metric Tons)		Percent in Total Products We Sold (in terms of quantity)
Urumqi Tianlide Industry and Trading Co., Ltd.		568		31.0	%
Changge Shengdi Silicon Industry Co., Ltd.		360		19.6	%
Henan Xinmi Silicon Carbide Factory		247		13.5	%
Gongyi City Jinshi Fire Proof Material Co., Ltd.		240		13.1	%
Henan Yangguang Silicon Carbide Co., Ltd.		203		11.1	%
Total		1,290		88.3	%

Marketing

The Company established a marketing department after it began to expand its SiC production capacity insince October 2008. In April, 2010, the Company set up a sales office and hired three sales persons in Zhengzhou of Henan Province. The Company deploys a relatively direct marketing strategy by conducting extensive market research and sending our sales personnel to visit and communicate with customers in person. This approach also enables the Company to quickly obtain customers’ feedback on its products therefore to improve the quality of its products. The Company also has engaged an advertising agency to promote the Company’s products in the industry. In addition, the Company believes that it has a good reputation in the industry through its participation in the China Abrasives Industry Association, seminars, conferences and other contacts.

Seasonality of Business

The Company’s ~~does not believe that its~~ business is not subject to seasonal trends.

Backlogs

As of ~~June~~December 3031, ~~2009~~2010, the Company had no order or supply backlogs.

Competition

~~The Company~~There ~~believes that it has six competitors in Xinjiang province, five of which~~ are ~~manufacturing~~over ~~green~~100 ~~SiC and the other manufacturing black SiC. The number of~~ manufacturers of SiC in China ~~is over 100~~. The Company believes that ~~Gui~~Xinjiang ~~Qiang~~ Longhai Silicon Carbide Co., Ltd., (“Longhai”) located in the ~~Qinghai~~Xinjiang province of the PRC, isand ~~the largest~~Gui ~~producer~~Qiang ofSilicon ~~green~~Carbide ~~SiC in China~~Co., ~~with~~Ltd. ~~approximately~~(“Gui ~~35%~~Qiang”) oflocated ~~the~~in ~~market. The~~Qinghai ~~Company~~Province, ~~believes~~are ~~that~~the ~~upon~~Company’s ~~construction~~major ofcompetitors. ~~its~~Longhai ~~planned~~and ~~integrated~~Gui ~~SiC production~~Qiang ~~facility~~are, respectively, the ~~Company~~largest ~~would~~and ~~become~~ the second largest ~~producer~~green of SiC producers in China, bywith respective market share of approximately 20% and 15% for the fiscal year ~~2012~~2010.

As smelting is an important process to the production of different types of SiC, the construction of smelters becomes the key factor of defining the competitive position of an SiC manufacturer. Several fundamental issues will continue to constrain the construction of SiC smelters for the foreseeable future. First ~~and foremost~~, the SiC production landscape in China is dominated by small and inefficient players. SiC smelters are large, expensive facilities that require a great deal of capital to construct. We believe that these small manufacturers lack the capital and scale necessary to rapidly construct smelters to meet the market demand for SiC. ~~Secondly~~Second, ~~the~~recent ~~construction~~implementation of ~~incremental~~new ~~production facilities is restricted by another factor: due to the recent passage of~~ environmental regulatory measures, has made government approval of new construction ~~has become very~~ difficult to obtain.

~~We believe that the~~ SiC production is an industry ofwith high ~~entry~~barriers ~~barrier~~to entry, and therefore, is relatively exclusive. The Company principally faces ~~the~~competition ~~challenges mainly~~ from ~~the competitors~~companies such as ~~Gui~~Longhai ~~Qiang~~and ~~Silicon~~Gui ~~Carbide Co.~~Qiang, ~~Ltd.~~but ~~The~~does ~~Company~~not ~~always positions~~anticipate ~~itself~~competition asfrom anew ~~strong~~companies ~~player~~ in the ~~SiC~~near ~~industry with its unique competitive advantages which are described immediately below~~future.

With respect to its strategy to compete with larger SiC players, the Company always positions itself by utilizing what we believe are its unique competitive advantages described below.

Cheap Raw Materials

~~The~~As set forth above, the three main cost components of SiC production are, (in ~~descending~~ order, or price with highest first) petroleum coke, electricity, and quartz. Due to the close proximity of four major oil fields that annually produce approximately 5 million tons of petroleum coke, the Company has access to a cost-effective supply of petroleum coke and pays minimal transportation costs. The Company also has access to cheap electricity due to its proximity to local hydroelectric facilities. The Company’s cost of 0.23 265 RMB/kwh represents aan 29approximate 30% discount to that of the Company’s main competitor, Gui ~~Qiang~~ ~~Silicon Carbide Co~~Qiang., ~~Ltd.~~Last, ~~located in Qinghai Province. Lastly,~~ the Company’s operating facility is located near properties in Aletai in Xinjiang Uygur Autonomous Region of the PRC, which has confirmed reserves of 667,800 tons of quartz and has additional estimated reserves of 554,300 tons of quartz based on a geographical report issued by Xinjiang Nonferrous Metal Geographical Survey Team Technology Commission on August 30, 2003. The Company has entered into a Memorandum of Understanding with ~~Mr.~~ Zhigang Gao and ~~Ms.~~ Ping Li for an option to purchase for $50,000 the equity interests of Quartz Mine China, an entity to be formed by them which will seek, and expects to obtain from the PRC government, exploration and mining rights to such property. The Company anticipates that if such rights are obtained (of which there can be no assurance) and the Company exercises its option to acquire the equity interests in Quartz Mine China, the Company will have sufficient quartz for its production of SiC for the next ten years.

Intellectual Capital / Technology

The Company has an experienced team of management and technical staff. ~~The~~Additionally, ~~lead engineer~~the ofCompany ~~our~~has ~~research~~developed ~~team~~several ~~has~~proprietary ~~been~~techniques ~~working~~utilized in the ~~SiC~~smelting ~~industry~~process. ~~since~~One ~~1966. The~~such ~~staff~~technique ~~also~~involves ~~includes~~the ~~members~~use ~~who~~of ~~participated~~the Company’s discoveries in ~~the~~carbon ~~development~~monoxide ~~and implementation~~gas ofrecovery technology - the ~~first~~Company ~~green~~can ~~SiC~~capture carbon monoxide created during the smelting process inand ~~China.~~use Asit ato ~~result, the~~reduce its fuel costs. The Company isintends ~~currently~~to ~~regarded~~register asthis ~~the~~technology ~~standard~~as ~~setter~~a patent in the ~~SiC industry~~future.

Additionally, the Company has developed several proprietary techniques utilized in the smelting process. One such technique involves the use of the Company’s discoveries in carbon monoxide gas recovery technology - the Company can capture carbon monoxide created during the smelting process and use it to reduce its fuel costs. The Company intends to register this technology as a patent in the future.

Support from local government and businesses

Through Yili China the Company maintains a meaningful relationship with local government and business in Xinjiang Province, ~~China~~PRC. Yili China is the first business entity that operated in the Yining East Industrial Park of Xinjiang Uygur Autonomous Region of the PRC, and the Company’s management team has been closely working with the local government since 2005. The Company has received support and assistance from local businesses. Yili China has already obtained permission to construct its proposed SiC processing facility in ~~Xingjiang~~Xinjiang. ~~Furthermore~~Further, the Company’s relatively remote location in Xinjiang Province coupled with such ~~province~~ Province’s low population density reduces the risk of potential regulatory constraints impeding the Company’s further expansion in the future.

Intellectual Property

Patents

The Company believes that it has proprietary know-how regarding the construction and operation of furnaces that will enable it to reduce costs and increase productivity in the smelting process through waste heat recovery, effluent recycling and exhaust reduction techniques. The Company does not believe that it would be advantageous to it to disclose such technology and has therefore ~~declined~~ chosen not to apply for a patent or patents regarding such technology.

Trademarks

The Company presently does not have any trademarks, although it intends to apply for a trademark in the PRC regarding its name and logo.

Research and Development

Please refer to the “Intellectual Capital / Technology” under the Section “Competition” herein for details of the Company’s research and development activities. The Company has ~~incurred~~no ~~$834~~expenses for its research and development infor ~~fiscal~~the ~~year~~ years ended December 31, 2010 and 2009.

Government Regulation

The Company is or will be subject to laws, rules and regulations of the PRC and local governments regarding the discharge of waste materials into the environment, the operation of its mining operations and the quality of its products. SiC manufacturing is a restricted industry under the PRC Catalogue for the Guidance of Foreign Investment Industries and other relevant regulations. Annual production of SiC cannot exceed an approved amount. Currently, we have approved amount of 30,000 tons each year and we may be able to apply for an increase in the approved amount if the Company plans to expand.

Environmental Compliance

The Company always adopts an environmentally friendly strategy in its production and ~~developments~~ development. The Company’s production of SiC is supported by hydropower plants, which are more cost-effective and less pollutant than most of the coal burning power plants. The Company has also developed a technique that can capture carbon monoxide created during the smelting process and use it to reduce its fuel costs.

Our current production facilities have passed the environmental protection review by the Environmental Protection Bureau of Yining County of Yili Hasake Autonomous State of Xinjiang Uygur Autonomous Region (the “Yining Environmental Protection Bureau”) in October of 2007. The Yining Environmental Protection Bureau allocated certain permissible emission amounts of SO2 (i.e. sulfur dioxide) and CODcr (i.e. chemical oxygen demand) to each of the manufacturers under its jurisdiction. So far, the Company has controlled its emission of SO2 and CODcr far below ~~the~~permissible ~~permission standard~~levels, and we dohave not ~~have~~violated any ~~violation of any~~ environmental regulations.

We did not incur any expenses on environmental compliance for fiscal year 2009.

Employees

As of ~~September~~ 23March 17, ~~2009~~2011, we had ~~150~~365 employees, of whom 3077 ~~are~~were executive and administrative personnel, ~~5 are research~~ and ~~development~~288 ~~staff~~were ~~and 115 are~~ manufacturing personnel.

~~New SiC Projects~~7

The Company is currently developing three new 8,500-ton furnaces with an aggregate production capacity of carborundum metallurgy of 25,500 tons per year in Yili Hasake Autonomous State of Xinjiang Autonomous Region (the “Yili New Project”). The construction of such three new furnaces is expected to finish in November 2009, and we anticipate our new production lines with such furnaces will be installed in place by then and that trial production will commence in December 2009.

Securities Purchase Agreement

On September 2, 2008, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Investor and issued to several assigns of the Investor an aggregate of 996,186 shares of a newly designated Series A Convertible Preferred Stock of the Company, par value $0.001 per share (“Series A Stock”) and warrants (the “Warrants”) to purchase an aggregate of 24,904,645 shares of the Company’s Common Stock, par value $.001 per share (“Common Stock”), in exchange for a cash payment in the amount of $10,000,000 (the “Private Placement”).

As set forth in the Securities Purchase Agreement, during the period from the closing of the Private Placement to November 30, 2008, the Investor had an option to purchase up to 697,350 additional shares of Series A Stock and warrants to purchase up to 1,743,375 additional shares of its Common Stock for an aggregate purchase price of up to Seven Million U.S. Dollars ($7,000,000) under the same terms and conditions as provided in the Private Placement, including, but not limited to the same per unit purchase price. The Investor, however, never exercised such option.

In connection with the Securities Purchase Agreement, we designated 2,000,000 shares of Series A Convertible Preferred Stock out of our total authorized number of 10,000,000 shares of Preferred Stock, par value $0.001 per share. The rights and preferences of the Series A Preferred Stock are set forth in the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock which we filed with the Secretary of State of Delaware on September 2, 2008. A summary of the rights and preferences of the Series A Stock is set forth in Item 1.01 our Current Report on Form 8-K which we filed with the Securities and Exchange Commission on September 8, 2008 and which summary is incorporated by reference herein.

ITEM 2. DESCRIPTION OF PROPERTIES

We lease our office space at both 558 Lime Rock Road, Lakeville, Connecticut and 420 Lexington Avenue, Suite 860, New York, NY from Kuhns Brothers, Inc. and its affiliates (“Kuhns Brothers”). Our Chairman, ~~CEO~~ and ~~Interim~~CEO ~~CFO,~~ Mr. Kuhns, is a controlling shareholder, President, CEO, a director and Chairman of Kuhns Brothers. The lease ~~commenced~~is ~~on September 1, 2008~~ for ~~a term of~~ one year with ~~a monthly~~an ~~rent~~annual rental rate of $7,500~~, and such lease is extended for a year with the same rate of rent after September 1, 2009~~.

Our operating facilities are located at Zone A, Industry Zone of Yining County of Yili Hasake Autonomous State under Xinjiang Uygur Autonomous Region of the PRC. On October 28, 2008, the Company paid $790,934 to obtain the land use right for fifty years for nearly 107,214 square meters of land where our operating facilities are located. In Onthis ~~such~~location ~~property~~we have built three new production lines, each line is composed of 6 furnaces, and we have constructed ~~temporary~~ factory buildings covering an area of approximately 232,~~600~~000 square meters, as well as ~~our office building of 350 square meters and~~ an employee’s dormitory building with a construction area of ~~350~~3,751 square meters. ~~The~~Our ~~land~~office onbuilding ~~which all the buildings are located has an area~~ of ~~approximately 33~~4,~~333~~167 square meters. ~~The~~is ~~purchase~~still ofunder ~~such land~~construction. ~~use~~We ~~right~~also isown toand ~~satisfy~~keep in the ~~need~~facility ofnew ~~our~~equipment ~~ongoing~~for ~~constructions of~~ our new ~~furnaces~~ ~~and~~production tolines, ~~expand~~which ~~our~~include ~~operations.~~the following:

Item	Unit
5 ton crane	3
110KV transformer	1
Automatic raw material supply system	3

ITEM 3. LEGAL PROCEEDINGS

~~The~~ As of the date of this Report, the Company iswas not ~~currently~~ a party to any pending or threatened legal proceeding.

ITEM 4. ~~SUBMISSION~~REMOVED OFAND ~~MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED

No matters were submitted to a vote of shareholders in the fourth quarter of the fiscal year ended June 30, 2009.

PART II

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

Market Information

WeAs ~~have two~~of the date of this Annual Report, we had three classes of equity securities: (i) Common Stock, par value $.001 per share, 2 3,~~522~~418,~~050~~648 shares of which ~~are~~were outstanding as of ~~September~~March 2331, ~~2009~~2011; ~~and~~ (ii) Series A Convertible Preferred Stock, par value $0.001 per share, 996,186 shares of which ~~are~~were outstanding as of ~~September~~March 2331, ~~2009~~2011; and (iii) Series B Convertible Preferred Stock, par value $.001 per share, 920,267 shares of which were outstanding as of March 31, 2011. We also had warrants to purchase 2,490,465 shares of common stock issued and outstanding as of March 31, 2011. Our Common Stock was approved for quotation on the OTC-BB on September 1, 2009. Our Common Stock is currently quoted on the OTC-BB under the symbol “MAST.” However, since September 1, 2009 there has been no trading of our Common Stock.

~~Holders~~Stockholders

As of ~~September~~ 23March 31, ~~2009~~2011, there ~~are~~were approximately 4543 holders of record of our Common Stock. ~~The Company is not aware of any persons or entities who hold our common stock in nominee or “street” name through brokerage firms.~~

Dividends

Common Stock

We have never paid dividends on our Common Stock. We plan to retain future earnings, if any, for use in our business, and do not anticipate paying dividends on our Common Stock in the foreseeable future.

Series A Convertible Preferred Stock

Pursuant to the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated August 2918, ~~2008~~2009 (which replaces certain Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated August 12, 2009 of the Company’s Delaware predecessor, hereinafter, the “Certificate of Designation of Series A Stock”), the holders of our Series A Stock are entitled to dividends payable at the rate of six percent (6%) per annum of the then effective liquidation preference of the Series A Stock. Dividends begin to accrue on the date of issuance of the Series A Stock and are payable quarterly in arrears, on January 1, April 1, July 1 and October 1 of each year. The Certificate of Designation of Series A Stock is incorporated herein by reference to Exhibit 3.1 to ~~our~~the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2008.

As of ~~June~~ 30December 31, ~~2009~~2010, we issued to the Series A Stock holders a total of ~~347~~1,~~017~~243,615 shares of our Common Stock. As of the date of this Report, the Company has issued an aggregate ~~496,450~~ of 1,393,048 shares of Common Stock as dividends ~~(the “Dividend Shares”)~~ to the holders of Series A Stock.

~~Set forth below is a table of the Dividend Shares that we have issued to the holders of Series A Stock through July 1, 2009 with the issuance dates of such shares:~~8

Dividend Period	Shares Issuance Date	Number of Shares Issued as Dividend to Series A Stock Holders
09/02/2008-09/30/2008	10/01/2008	48,151
10/01/2008-12/31/2008	01/01/2009	149,433
01/01/2009-03/31/2009	04/01/2009	149,433
04/01/2009-06/30/2009	07/01/2009	149,433

Series B Convertible Preferred Stock

~~Shares~~Holders ~~Authorized~~of ~~for Issuance~~our ~~under~~Series ~~Equity~~B ~~Compensation~~Stock ~~Plans~~are not entitled to dividends pursuant to the Certificate of Designations of Series B Stock.

Securities Authorized for Issuance under Equity Compensation Plans

The Company does not have any equity compensation plans under which our securities may be issued as of the date of this Report.

Recent Issuances of Securities

Through July 1, 2009, the Company has issued to the holders of Series A Stock an aggregate of 496,450 shares of Common Stock as Dividend Shares, the details of which are discussed in the subsection “Dividends” above. As of June 30, 2009, we had issued to the Series A Stock holders a total of 347,017 shares. The additional 149,433 shares were issued on July 1, 2009

On October 9, 2007, we issued warrants to acquire 100,000 shares of our Common Stock to Columbia China Capital Group, Inc., an affiliate of the Company (“CCCG Warrant”). The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, On February 10 and May 12, 2009, the Company issued 40,000 shares and 60,000 shares of Common Stock, respectively, to two individuals upon the exercise of CCCG Warrants. Such issuances were exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933.

Transfer Agent

The Company's stock transfer agent is Island Stock Transfer located at 100 Second Avenue South, Suite 705S, St. Petersburg, Florida 33701. Its telephone number is 727-289-0010 and facsimile number is 727-290-3961.

Penny Stock Regulations

The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock falls within the definition of penny stock and is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ~~REULTS~~RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Annual Report on Form 10-K.

Certain statements in this Report, and the documents incorporated by reference herein, constitute forward-looking statements. Such forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

The "Company", "we," "us," and "our," refer to (i) Master Silicon Carbide Industries, Inc. (formerly Paragon SemiTech USA, Inc.); (ii) ~~Paragon SemiTech USA Incorporated (“Paragon NJ”); (iii)~~ Yili Carborundum USA, Inc. (“Yili US”); (iviii) C3 Capital, Limited (“C3 Capital”); and (viv) Yili Master Carborundum Production Co., Ltd. (“Yili China”).

Overview

Through our indirectly wholly-owned operating subsidiary Yili China, we produce and sell in China high quality “green” silicon carbide and lower-quality “black” silicon carbide (together, hereinafter referred to as “SiC”). SiC is a non-metallic compound that has special chemical properties and a level of hardness that is similar to diamonds, is produced by smelting (the process of extracting a metal from its ore) quartz sand and refinery coke at temperatures ranging from approximately 1,600 to 2,500 degrees centigrade in a graphite electric resistance furnace.

13The Company’s present SiC production capacity is 25,500 tons per annum. The construction of the three new production lines was finished in 2010. Two lines began production during 2010, and the third line began trial production at the end of 2010. The capacity of each line is 8,500 tons per annum.

The Company’s present SiC production capacity is 3,000 tons per annum. It is anticipated that our production capacity can reach 25,500 tons per year by the first quarter of fiscal year 2010, when the contemplated construction of three new 8,500-ton furnaces of carborundum metallurgy is finished.9

~~The Company~~Results ~~has~~of ~~developed~~Operations ~~several~~for ~~proprietary techniques utilized during~~ the ~~smelting~~ ~~process~~Fiscal ofYears ~~SiC.~~ended ~~The~~December ~~carbon monoxide gas recovery technology~~31, ~~among other~~2010 ~~things that were developed by the Company can collect the waste carbon monoxide gas created during the smelting process~~ and ~~reuse it to produce heat which reduces energy costs. The Company plans to patent this technique in the future.~~2009

The ~~Company~~ isfollowing ~~planning~~tables aand ~~34,000~~analysis ~~ton~~show ~~green SiC project in~~ the ~~Aletai~~operating ~~Area~~results of ~~Xinjiang~~ ~~Uygur Autonomous Region of~~ the ~~PRC pending governmental approvals. The~~ Company ~~selected the site at Aletai~~ for the ~~project~~fiscal ~~because~~years ofended ~~its~~December ~~proximity to sources of electricity~~31, ~~petroleum~~2010 and ~~quartz~~2009. The Company plans to construct the project in two stages, the first of which involves the construction of a smelting base with an annual capacity of 34,000 tons of SiC, and a powder production line and a granulation workshop on the second stage.

Recent Development

	Fiscal Year Ended December 31, 2010		Fiscal Year Ended December 31, 2009			Percentage change
Revenues	$	12,948,096	$	1,775,559		629%
Cost of revenues		9,803,074		1,841,836		432%

Gross profit (loss)		3,145,022		(66,277	)	(4,845%)

General and administrative expenses		2,935,460		1,646,794		78%

Total operating expenses		2,935,460		1,646,794		78%

Profit (loss) from operations		209,562		(1,713,071	)	(112%)

Interest income		101,186		64,051		58%
Other income (expenses)		7,386		490		1,407%

Total other income (expenses)		108,572		64,541		68%

Profit (loss) before income taxes		318,134		(1,648,530	)	(119%)

Income tax provision		85,155		39,526		115%

Net profit (loss)	$	232,979	$	(1,688,056	)	(114%)

On March 24, 2009, the Company approved and filed with the State of New Jersey a Certificate of Dissolution for Paragon SemiTech USA Incorporated (“Paragon NJ”), which was effective on March 26, 2009 (the “Dissolution”). Prior to the Dissolution, Paragon NJ had no assets, had ceased doing business, did not intend to recommence doing business and had not made any distribution of cash or property to its shareholders within the last 24 months.

Until November 30, 2008 after the closing of the Private Placement, the Investor had an option to purchase additional shares of our Series A Convertible Preferred Stock for an aggregate purchase price of $7,000,000. The Investor did not exercise such option. In order to prevent disruption to the construction of our new production lines at Yili, we have applied for loans of approximately RMB 30,000,000 (or $4,387,960) from local banks in China. We anticipate that our new production lines with the furnaces will be installed in place by November 2009 and that trial production will commence in December 2009.

Results of Operations for the Fiscal Year ended June 30, 2009 and 2008

The following tables and analysis show the operating results of the Company for the fiscal year ended June 30, 2009 and June 30, 2008. The financial results for the fiscal year ended June 30, 2009 include approximately ten months of the operating results of Yili China, since the acquisition of Yili China by the Company was closed on September 4, 2008.

	Fiscal Year Ended			Fiscal Year Ended
	June 30, 2009			June 30, 2008
Revenues	$	1,593,117		$	-
Cost of revenues		1,382,331			-
Gross profit		210,786			-
General and administrative expenses		2,253,946			200,398
Total operating expenses		2,253,946			200,398
Loss from operations		(2,043,160	)		(200,398	)
Interest (income)		(52,847	)		-
Other expenses (income)		(446	)		(643	)
Total other (income) expense		(53,293	)		(643	)
Loss before income taxes		(1,989,867	)		(199,755	)
Income tax provision		35,940			-
Net loss	$	(2,025,807	)	$	(199,755	)

Net Revenues

We generated sales revenues of $12,948,096 and $1,~~593~~775,~~117~~559 for the fiscal ~~year~~years ended ~~June~~December 3031, ~~2009~~2010 ~~since~~and ~~we acquired Yili China on September 4~~2009, ~~2008~~respectively. The ~~production~~total ~~and~~revenues ~~sales~~ of ~~the~~fiscal ~~Green SiC~~years 2010 and ~~Black~~2009 ~~SiC~~include ~~mainly contribute to our revenues as set forth in~~ the ~~following~~ ~~table~~following:

Item	Fiscal Year Ended December 31, 2010	~~Sales volume in ton~~	Fiscal Year Ended December 31, 2009	Percentage change	~~Price per ton in US dollars~~		~~Sales in US dollars~~
Green silicon			1,316			1,058.82		1,393,407
Green silicon:
Black silicon			307			650.52		199,710
Selling volume (ton)	10,337		1,205	758%
Total			1,623					1,593,117
Average price in US dollars	1,232.78		918.68	34%
Subtotal	12,743,283		1,107,013	1,051%
Black silicon:
Selling volume (ton)	295		1,044	(72%)
Average price in US dollars	694.28		640.37	8%
Subtotal	204,813		668,546	(69%)
Total	12,948,096		1,775,559	629%

~~Cost~~ The Company added three new 8,500-ton production lines in 2010. The construction of ~~Revenue~~the three lines was finished in November of 2009, March and November of 2010, respectively. The total output of the three new silicon carbide production lines in 2010 was 12,083 tons per annum. During the same period of last year, the total output of the old line was only 2,375 tons.

~~Cost~~Compared ~~of goods~~to ~~sold~~the issame ~~primarily~~period ~~comprised~~last ofyear, the ~~costs~~market prices of ~~our~~green ~~raw~~SiC ~~materials~~ and ~~packaging~~ ~~materials,~~black ~~direct~~SiC ~~labor,~~have ~~manufacturing~~increased ~~overhead~~due ~~expenses, depreciation,~~to ~~amortization,~~the ~~inventory~~recovery ~~count~~of ~~loss~~the ~~and~~silicon ~~inbound~~carbide ~~freight~~industry ~~charges~~from the global economic recession in 2009. The ~~raw~~market ~~materials~~prices ~~includes~~of ~~quartz,~~green ~~petrol~~SiC ~~coke~~ and ~~electricity~~black ~~power.~~SiC ~~These materials~~increased ~~generally~~by ~~account~~34% ~~for~~and 8%, ~~60%~~in years 2010 and ~~32%~~2009, ~~out~~respectively. The market prices of ~~total~~green ~~raw~~SiC ~~material~~were ~~costs. Our~~$1,261 ~~cost~~and $1,275 per ton in January and February of ~~goods~~2011, ~~sold~~respectively. ~~for~~Based on this data, management believes that the ~~fiscal~~price ~~year~~of ~~ended~~SiC ~~June~~will ~~30,~~be ~~2009~~stable ~~was $1,382,331~~in 2011.

1510

Because the output of our SiC increased substantially in 2010, the Company sold 10,337 tons of green SiC and 295 tons of black SiC in year 2010. The Company only sold 1,025 tons of green SiC and 1,044 tons of black SiC in year 2009. The sales volume of green SiC in 2010 increased by nearly 758%, compared to the same period last year. Since the selling price of the green SiC also increased by nearly 34%, the Company’s net revenue reached $12,948,096 and increased by 629%, compared to the net revenue of $1,775,559 in year 2009.

Cost of Goods Sold

Cost of goods sold is primarily comprised of the costs of our raw materials and packaging materials, direct labor, manufacturing overhead expenses, depreciation, amortization, inventory count loss and freight charges. The raw materials include quartz, petrol coke and electricity power. These materials generally account for 8%, 60% and 32% of total raw material costs. Our cost of goods sold for the fiscal years ended December 31, 2010 and 2009 were $9,803,074 and $1,841,836, respectively.

During 2010, the construction of our three new 8,500-ton production lines was finished and two of our new lines began to produce green SiC in 2010 and the third line began producing in January 2011. Even though it took a few months for trial production and technical improvement, the Company still produced nearly 12,083 tons of SiC in 2010, compared to roughly 2,375 tons of SiC produced in 2009. Because we apply advanced technology to these new lines, the efficiency and effectiveness of new lines has been greatly improved. For the new lines, a unit of SiC only consumes approximately 1.8 tons of quartz and 1.54 tons of petrol coke, whereas the old lines would require roughly 2.21 tons and 1.82 tons, respectively. Therefore, the average production costs in year 2010 are nearly 15% lower than the same period last year, even though the price of petrol coke, one of the raw materials, increased by 20% in 2010.

Gross Profit

~~Our~~During the fiscal year ended December 31, 2010, we had gross profit of $3,145,022 and the gross profit margin was approximately 24.29%. In the same period last year, we had a gross loss of $66,277. The increase of our profit is ~~equal~~mainly due to the ~~difference~~following ~~between~~three ~~net~~reasons: ~~sales~~(1) the Company produced and ~~cost~~sold more SiC; (2) the selling price of ~~goods~~green ~~sold.~~SiC ~~Our gross~~increased ~~profit~~by ~~for~~a significant amount in the fiscal year ~~ended~~of ~~June~~2010; ~~30,~~and ~~2009~~(3) isthe ~~$210,786~~quantity ~~with~~of athe ~~gross profit~~consumed ~~margin~~raw materials per unit of ~~approximately~~SiC 13manufactured was much lower than the comparable period in 2009.~~2%.~~

General and Administrative Expenses

Our operating and administrative expenses consist primarily of ~~rental expenses~~freight, related salaries, ~~business~~professional ~~development~~fees, depreciation and ~~traveling~~travel expenses~~, legal and professional expenses~~. Operating and administrative expenses were $2,~~253~~935,~~946~~460 for the fiscal year ended ~~June~~December 3031, ~~2009~~2010, as compared to $~~200~~1,~~398~~646,794 for the ~~fiscal~~prior year ~~ended June 30~~, ~~2008,~~ an increase of $21,~~053~~288,~~548~~666. ~~For~~This ~~the~~increase ~~fiscal year~~was ~~ended~~mainly ~~June~~due ~~30,~~to ~~2008,~~increased ~~the~~ operating ~~and administrative~~ expenses ~~included stock-based~~such ~~compensation~~as ofnew ~~$74,700,~~employee’s ~~professional~~salaries ~~fees of $103,657~~ and ~~other expenses of $22~~welfare,~~041.~~ Inincreased ~~fiscal~~freight ~~year~~fees ~~2009,~~and ~~such~~travel ~~increase~~expenses ofdue ~~$2,053,548~~to ~~was mainly incurred by the Company after the acquisition of~~ Yili China,’s ~~including~~expanding ~~certain expenses~~production ~~of stock-based compensation, outbound freight, salaries, office expenses~~ and ~~professional fees, the details of which are set forth in the following table:~~sales.

	Fiscal Year		Fiscal Year		Percentage
	Fiscal Year Ended December 31, 2010		Fiscal Year Ended December 31, 2009		Percentage change
	Ended June 30,		Ended June 30,		change
G&A
Stock-based compensation	$	~~1,024,600~~-	$	74,700		~~1272~~(100	%)
Shipping and outbound freight fee		~~148~~1,~~612~~045,042		-188,383		~~N/A~~455	%
Professional fees		~~300~~153,~~000~~092		~~103~~208,~~657~~047		~~189~~(26	%)
Travel expenses		59109,~~949~~347		-59,176		~~N/A~~85	%
Products tax and related taxes		2147,~~580~~131		-99,544		~~N/A~~(53	%
Welfare and benefits		~~316~~710,~~916~~634		-429,737		~~N/A~~65	%
Social insurance		1333,~~777~~233		-32,774		~~N/A~~1	%
Depreciation expenses		2239,~~102~~504		-25,052		~~N/A~~58	%
Amortization expenses		3625,~~350~~148		-28,759		~~N/A~~(13	%)
Entertainment		28,482		15,054		89	%
Public Relations expenses		50,334		42,886		17	%
Motor car expenses		2952,~~887~~206		-37,328		~~N/A~~40	%
Office expenses		~~192~~403,~~826~~813		-226,612		~~N/A~~78	%
Others		58,865		6,987		742	%
Interest		56,750		-
Total	$	2,253,946	$	200,398		1025	%
Provision for bad debts		52,290		50,245		4	%
Others		156,936		143,551		9	%
Total	$	2,935,460	$	1,646,794		78	%

~~Stock-based Compensation~~11

~~On September~~Operating 2, 2008, the Company issued to Mr. Zhigang Gao an aggregate of 925,000 shares of Common Stock, as an inducement for Mr. Gao’s entry into an employment agreement with either the Company or Yili China, as the case may be, to serve as an executive officer of Yili China. The fair value of the Common Stock issued to Mr. Gao was $925,000 and these shares were treated as stock compensation cost after acquisition of Yili China.Profit

~~For fiscal~~Our ~~year~~operating ~~2008,~~profit onwas ~~October 9~~$209,562 ~~2007,~~for inthe ~~accordance~~fiscal ~~with~~year aended ~~consulting~~December ~~agreement executed with Columbia China Capital Group~~31, ~~Inc. (“CCCG”)~~2010, ~~CCCG~~as ~~received warrants~~compared to ~~purchase~~a ~~100,000~~loss ~~shares~~ of ~~the~~$1,713,071 ~~Company’s~~for ~~Common~~2009, ~~Stock at~~ an ~~exercise price~~increase of $01,922,633.~~001~~ ~~per~~Our ~~share~~increase ~~with~~in aoperating ~~term~~profits offor ~~five years from~~ the ~~date~~fiscal ofyear ~~signing. The~~ended ~~warrants~~December ~~were valued at their fair market value at the date of issuance~~31, ~~using~~ ~~the~~2010 ~~Black-Scholes~~was ~~valuation~~mainly ~~model,~~due ofto ~~$199,200,~~revenues ~~recorded~~generated asfrom ~~deferred compensation and being amortized over~~ the ~~life~~sales of ~~the~~our ~~contract.~~product ~~Stock-based compensation~~that was ~~$99,600~~produced ~~for~~by the ~~fiscal~~new ~~year~~production ~~ended June 30, 2009, as compared to $74,700 for the fiscal year ended June 30, 2008, an increase of $24,900~~lines.

Upon the request of CCCG to partially exercise the warrants for 100,000 shares of Common Stock (or 1,000,000 shares prior to the Reverse Split), the Company issued to a designee of CCCG 40,000 shares of Common Stock on February 10, 2009 and another 60,000 shares of Common Stock to another designee on May 12, 2009.

Operating Loss

Our operating loss was $2,043,160 for the fiscal year ended June 30, 2009, as compared to a loss [operating loss?] of $200,398 for the fiscal year ended June 30, 2008, an increase of $1,842,762. Our operating loss is mainly attributable to the relatively low amount of net sales of fiscal year 2009 as compared to our general and administrative expenses and the one-time non-cash stock-based compensation charge of $928,515.

Income Taxes

~~For~~Our ~~the fiscal year ended June 30, 2009, our~~ business operations ~~were~~are solely conducted by our subsidiaries incorporated in the PRC and we were governed by the PRC Enterprise Income Tax Laws. PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP. In accordance with the Income Tax Laws, a PRC domestic company is subject to ~~the~~ enterprise income tax at the rate of 25%, ~~which was effective since January 1, 2008~~ and ~~the~~ value added tax at the rate of 17% for most of the goods sold.

Incorporated in Xinjiang ~~Province~~province in 2005, Yili China is subject to enterprise income tax at the rate of 25%. Income tax provision for ~~the~~Yili ~~fiscal~~China ~~year~~during ~~ended~~the ~~June~~2010 ~~30,~~fiscal ~~2009~~ year was $3585,~~940 in accordance with the policy of Yili China’s local tax bureau~~155.

Net ~~Loss~~ Profit

Net ~~loss~~ profit for the fiscal year ended ~~June~~December 3031, ~~2009~~2010 was $2232,~~025~~979,~~807,~~ compared to a loss of $1,688,056 for 2009. Such increase of net ~~loss~~ profit of $~~199~~1,~~755~~921,035 is a result of the increase in the revenues generated by the Company for the fiscal year ~~ended~~of ~~June~~2010 ~~30,~~exceeding ~~2008.~~the ~~Such~~aggregate increase of ~~net~~expenses ~~loss by~~and $1costs. Since two new 8,~~826,052~~500-ton production lines were in ~~2009~~full capacity production in 2010, the production cost of green SiC was alower ~~result~~than last year. Production costs in 2010 were lower than the year before primarily because we are producing more tons and we are using newer and more efficient equipment. The efficiency and effectiveness of the ~~increased~~new ~~total~~lines has greatly improved our cost savings. Due to our newly expanded production and sales, the general and administrative expenses inhave increased. The Company made a small net profit for the fiscal year ~~exceeding~~ended ~~the~~December ~~revenues~~31, ~~generated~~2010 bycompared to a net loss for the ~~Company~~same period last year.

Liquidity and Capital Resources

As of ~~June~~ 30December 31, ~~2009~~2010, we had cash and cash equivalents of $1,~~121~~987,~~162~~041. AsCompared ofto ~~the date of this Report~~2009,cash ~~our~~and ~~management~~cash ~~believes~~equivalents ~~that~~decreased ~~the~~by ~~Company~~$4,207,006, ~~may~~most ~~need~~of ~~additional financing~~which tomost ~~complete~~was ~~its~~used ~~construction~~for of the ~~three~~construction ~~new 8,500-ton furnaces by November 2009. Such additional financing may include debt~~ and~~/or~~ ~~equity financing.~~the ~~There~~purchase ~~can~~of beequipment nofor ~~assurance~~the ~~that~~three ~~any~~new ~~additional~~production ~~financing will be available on acceptable terms, if at all~~lines. ~~Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.~~

During the fiscal year ended June 30, 2009, we received gross proceeds of $10,000,000 from the Private Placement. The Investor had the right in the Private Placement, but not the obligation, to purchase prior to November 30, 2008 additional shares of our Series A Stock at an aggregate purchase price of up to $7,000,000 on the same terms of the Private Placement. However, the Investor never exercised such option.

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

	Fiscal Year ended June 30, 2009			Fiscal Year ended June 30, 2008
	Fiscal Year Ended December 31, 2010			Fiscal Year Ended December 31, 2009			Percentage change
Net cash provided by (used in) operating activities	$	(1795,~~614,270~~894	)	$	(~~124~~2,~~724~~885,172	)		(72	%)
Net cash used in investing activities		(76,~~837~~399,~~623~~399	)		-(9,194,698	)		(30	%)
Net cash provided by (used in) financing activities		102,~~508~~969,~~670~~200			~~168~~11,~~179~~454,297			(74	%)
Effect of exchange rate changes on cash		1819,~~305~~087			-1,670			1,043	%
Net increase (decrease) in cash and cash equivalents		1(4,~~075~~207,~~082~~006	)		43(623,~~455~~903	)		574	%
Cash and cash equivalents, beginning of year		46,080			2,625
Cash and cash equivalents, beginning of period		6,194,047			6,817,950			(9	%)
Cash and cash equivalents, end of year	$	1,121,162		$	46,080
Cash and cash equivalents, end of period	$	1,987,041		$	6,194,047			(68	%)

Operating Activities

Net cash used in operating activities was $1795,~~614,270~~894 for the fiscal year ended ~~June~~December 3031, ~~2009~~ 2010, compared to an amount of $~~124~~2,~~724~~885,172 net cash that was used in operating activities ~~for~~in ~~the fiscal year ended June 30, 2008~~2009. The ~~increase~~decrease of ~~such~~ net cash used in operating activities iswas mainly due to ~~our~~the ~~increasing~~fact ~~cash~~that ~~purchases of~~the ~~raw~~Company ~~materials~~sold ~~and~~more ~~our~~green ~~increasing~~SiC than the same period last year, which resulted in more cash provided by operating ~~expenses~~activities. The Company spent ~~did~~more ~~not incur~~cash ~~such~~on ~~outflows~~the ~~before~~purchase ~~its~~of ~~acquisition~~raw materials during the fiscal year of ~~Yili~~2010, ~~China~~yet ~~for~~gained more cash from the sales of SiC products. Therefore, the total cash used in operating activities was lower than same period of last year. During 2010, the Company’s total revenues increased by nearly 628%.

Investing Activities

Net cash used in investing activities for the fiscal year ended ~~June~~December 3031, ~~2009~~2010 was $76,~~837~~399,~~623~~399, ~~whereas~~compared to an amount of $9,194,698 net cash that was used in investing activities for 2009. On February 10, 2010, the Company ~~didn’t~~made ~~incur~~a ~~any~~loan ~~outflows~~of $1,000,000 to China Silicon Corporation (“CSC”) on an unsecured basis at an annual rate of 6% for ~~investments~~a ~~during the~~term ~~fiscal~~of one year. ~~ended~~On ~~June~~April 3014, ~~2008~~2010, the Company extended another loan (the “Second Loan”) of $1,172,500 to CSC. The ~~cash~~Second Loan was ~~mainly~~made to fund CSC’s working capital. The Second Loan is interest free and was repaid on April 21, 2010. The rest of the cash was used for the construction of new production lines including construction costs and new equipment purchase. Besides the ~~acquisition~~$1,000,000 ofloan ~~land~~made ~~use right~~to CSC, the ~~facility~~Company invested the rest of the money for the construction ~~costs~~of ~~and~~the new lines. Since the ~~purchase~~construction of the first and the second lines was finished in 2010, we had less cash used in investing activities than last year. The Company spent $5,399,399 in building the new ~~equipments~~lines in 2010 and ~~Yili~~ ~~China~~$10,054,126 in 2009.

Financing Activities

~~During the~~Net ~~first~~cash ~~quarter~~provided ofby financing activities for the fiscal year ended ~~June~~December 3031, ~~2009~~2010 totaled $2,969,200, compared to $11,454,297 in 2009. The net cash provided by financing activities for the ~~Company~~fiscal ~~received gross~~year ~~proceeds~~of 2010 was mainly attributable to a bank loan of $102,~~000~~954,~~000~~428 ~~from~~that the ~~Private~~Company ~~Placement~~received inon ~~which~~January ~~we issued 996~~4,~~186~~ ~~shares~~2010 from Bank of aChina. ~~newly~~However, ~~designated~~on ~~Series~~November A12, ~~Convertible~~2009, ~~Preferred~~the ~~Stock~~Company received gross proceeds of ~~the Company~~$10,000,000 ~~par~~by ~~value~~selling ~~$0.001~~to ~~per~~China ~~share~~Hand Fund I, LLC and/or ~~warrants~~its tosuccessor ~~purchase~~and anassigns ~~aggregate~~a ~~of 2~~promissory convertible note,~~490~~ which was automatically converted into 920,~~465~~267 shares of ~~Common~~the Series B Convertible Preferred Stock of the Company.

Net cash provided by financing activities during the fiscal year ended June 30, 2009 totaled $10,508,670 as compared to $168,179 provided by financing activities for the corresponding period ended June 30, 2008. The increased $10,340,491 of cash provided by financing activities in fiscal 2009 was mainly attributable to our engagement in capital raising activities during the first quarter of the fiscal year and the loan from a related party as specified in Item 13 “Certain Relationships and Related Transactions, and Director Independence”.

Inventories

Inventories consisted of the following as of ~~June~~December 3031, ~~2009~~2010 and ~~2008~~2009:

	Fiscal Year Ended		Fiscal Year Ended June
	31-Dec-10		31-Dec-09
	June 30, 2009			30, 2008
Raw materials	$	306,249	$	471,690
Raw materials		58,583		-
Finished goods		2,352,406		462,314
Finished goods		537,031		-
Work in progress		316,541		67,281
Work in progress		124,416		-
Total	$	2,975,196	$	1,001,285
Total	$	720,030	$	-

Our raw materials mainly include quartz and petrol coke, which account for more than 95% of total raw materials. Quartz comes from local mining companies and individual collectors. Quartz in Xinjiang province is 99.99% pure. Petrol coke comes from the Sinopec Group which is the biggest petrol company in China. We have not, in recent years, experienced any significant shortages of manufactured raw materials and normally do not carry inventories of these items in excess of what is reasonably required to meet our production and shipping schedules. Compared with the amount of December 31, 2009, the increase of inventories is mainly attributable to the largely increased finished goods as a result of the operation of our three new production lines in operation in 2010.

Property and Equipment

The following is a summary of property and equipment at ~~June~~December 3031, ~~2009~~2010 and ~~June 30, 2008~~2009:

	Fiscal Year Ended June 30, 2009			Fiscal Year Ended June 30, 2008
	31-Dec-10			31-Dec-09
Buildings		~~243~~6,~~455~~480,400			-243,972
Machinery and equipment		~~604~~5,~~154~~135,138			-614,565
Motor vehicles		~~202~~299,~~210~~417			-236,933
Office equipment		2796,~~532~~572			-45,691
Less: accumulated depreciation		(78634,~~184~~569	)		-(141,792	)
Property and equipment, net	$	~~999~~11,~~167~~376,958		$	-999,369

We lease our office space at both 558 Lime Rock Road, Lakeville, Connecticut and 420 Lexington Avenue, Suite 860, New York, NY from Kuhns Brothers, Inc. and its affiliates (“Kuhns Brothers”). Our Chairman and CEO, Mr. Kuhns, is a controlling shareholder, President, CEO and Chairman of Kuhns Brothers. The lease commenced on September 1, 2008 for a term of one year with a monthly rent of $7,500, and such lease ~~has~~was ~~been~~ extended for ~~another~~a year atwith the same rate of rent until August 31, 2010. On September 1, 2010, we extended the lease with the same rate of rent for another one year.

Our operating facilities are located at Zone A, Industry Zone of Yining County of Yili Hasake Autonomous State under Xinjiang Uygur Autonomous Region of the PRC. On October 28, 2008, the Company paid $790,934 to obtain the land use right for fifty years for nearly 107,214 square meters of land where our operating facilities are located. On such property, we have constructed temporary factory buildings covering an area of approximately 2,600 square meters, as well as our office building of 350 square meters and an employee’s dormitory building with a construction area of 350 square meters. The land on which all the buildings are located has an area of approximately 33,333 square meters. The purchase of such land use right is to satisfy the need of our ongoing construction of our new furnaces and to expand our operations.

Accounts Payable

Accounts payable amounted to $~~888~~2,~~291~~586,381 and $01,257,657 as of ~~June~~December 3031, ~~2009~~2010 and ~~June 30~~2009, ~~2008,~~ respectively. Accounts payable primarily resulted from our purchases of raw materials and equipment. The increase of $1,328,724 in accounts payable was mainly due to our increased purchase of raw materials, including quartz, petrol coke and electricity. Also, at the same time, the prices of both petro coke and electricity have increased more than 10% in 2010. Our biggest supplier is Yihe ~~Power~~Hydro Center, the payables to which ~~account~~ accounted for more than 8020% of the total amount of accounts payable as of ~~June~~December 3031, ~~2009~~ 2010.

Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company's financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that the following reflect the more critical accounting policies that currently affect the Company's financial condition and results of operations.

Revenue Recognition

Product sales are recognized when the products are shipped and title has passed. 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 VAT at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing its finished products.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded utilizing the straight-line method over the estimated original useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired.

~~Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired.~~14

Bad Debts

The Company's business operations are conducted in the People's Republic of China. The Company extends unsecured credit only to its relatively large customers with a good credit history. Management reviews its accounts receivable on a regular basis to determine if the bad debt allowance is adequate at each period-end. Because we only extend trade credits to our largest customers, who tend to be well-established and large sized businesses, and we have not experienced any write-off of accounts receivable in the past. However, to be conservative, we record some bad debt allowance if accounts receivable is more than one year.

Off-Balance Sheet Arrangements

The Company has not engaged in any off-balance sheet transactions since its inception.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's consolidated audited financial statements for the ~~fiscal~~ years ended ~~June~~ 30December 31, ~~2009~~2010 and ~~2008~~2009, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1.

20ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

~~ITEM 9~~None.~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

~~The disclosure~~ITEM ~~required~~9A ~~by Item 304~~(bT). ofCONTROLS ~~Regulation~~AND ~~S-K~~PROCEDURES isEVALUATION ~~incorporated~~OF ~~herein~~INTERNAL ~~by reference~~CONTROLS toAND ~~our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on May 8, 2009.~~PROCEDURES

~~ITEM~~Not ~~9A (T).CONTROLS AND PROCEDURES EVALUATION OF INTERNAL CONTROLS AND PROCEDURES~~applicable

Disclosure Controls and Procedures

Mr. John Kuhns, our Chief Executive Officer, and Mr. Lin Han, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Report. Based on that evaluation, our officers concluded that due to the material weaknesses in the internal control over financial reporting as discussed immediately below, our disclosure controls and procedures were ineffective and are not adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statement for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

An evaluation of the Company’s internal control over financial reporting was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its “Internal Control - Integrated Framework.” The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

On May 1, 2009, upon the notification by the Company’s management and in consultation with our auditors, the Board of Directors of the Company concluded that its previously issued financial statements for the interim period ended September 30, 2008 (“2008 First Quarter 10Q”), should no longer be relied upon due to the following accounting misstatements:

(i) the omission of certain audit adjustments in the computation of accumulated deficit/gain from forgiveness of other payable; (ii) the misclassification of goodwill to property and equipment; (iii) the misclassification of accounts payable to accrued expenses; (iv) the misclassification of foreign currency translation gain/loss; (v) the omission of certain shipping costs; (vi) the omission of certain professional fees incurred in connection with the issuance of the Company’s Series A Stock; (vii) the omission of professional fees incurred in connection with the acquisition of Yili Master Carborundum Production Co., Ltd., the Company’s wholly-owned subsidiary in China; (viii) the misclassification of the professional fees that were incurred in connection with the issuance of Series A Stock previously expended; and (ix) the omission of dividends on the Series A Stock which were accrued.

As a result, on May 24, 2009, the Company restated the financial statements contained in the 2008 First Quarter 10Q by filing with the SEC Amendment No. 1 to such Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. The restatements had no effect on the income statement, including net income and earnings per share for the periods covered by the restated financial statements.

During the process of reviewing and assessing the Company’s internal control over financial reporting, the Company’s management also concluded that the previously issued financial statements in the Quarterly Report for the period ended December 31, 2008 (“2008 Second Quarter 10Q”) should not be relied upon due to the misclassification of Series A Stock as permanent equity. The Company intends to address the referenced misstatement and to restate such financial statements in the 2008 Second Quarter 10Q by filing with the SEC an amendment to such 2008 Second Quarter 10Q.

A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level of risk the risk that material misstatements in our financial statements will not be prevented or detected on a timely basis.

The Company’s management considered the impact of the foregoing accounting misstatements on the effectiveness of the Company’s internal control over financial reporting and determined that they amounted to a material weakness. As a result, management concluded that the Company's internal controls over financial reporting were not effective as of June 30, 2009.

Remediation Initiative

In an effort to remediate the foregoing deficiencies in the Company’s internal control, the Company intends to take the following actions: (i) to create positions in the accounting department of the Company to segregate duties of recording, authorizing and testing; (ii) to increase our accounting and financing personnel resources, by retaining more U.S. GAAP knowledgeable financial professionals; (iii) to provide U.S. GAAP training to our staff in the accounting department; (iv) to establish an audit committee of the Board of Directors of the Company, with the responsibility of overseeing the corporate accounting and financial reporting process and the internal and external audits of the financial statements of the Company.

There is no assurance that our disclosure controls or our internal controls over financial reporting can prevent all errors. An internal control system, no matter how well designed and operated, has inherent limitations, including the possibility of human error. Because of the inherent limitations in a cost-effective control system, misstatements due to error may occur and not be detected. We monitor our disclosure controls and internal controls and make modifications as necessary. Our intent in this regard is that our disclosure controls and our internal controls will improve as systems change and conditions warrant.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

This Annual Report for the year ended June 30, 2009 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 the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2009 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

~~There is no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K but not reported~~None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following are the officers and directors of the Company as of ~~September~~March 2331, ~~2009~~ 2011. Some of our directors are residents of the People’s Republic of China (the “PRC”). As a result, it may be difficult for investors to effect service of process within the United States upon them or to enforce judgments obtained in the United States courts against them in the PRC.

Name	Age	Position/Title With the Company
John D. Kuhns	5961	President, Chief Executive Officer and Director
Mary E. Fellows	4749	Executive Vice President, Secretary and Director
Lin Han	3840	Chief Financial Officer
James Tie Li	4143	Director
Shadron Stastney	4042	Director
Yousu Lin	5658	Director
Zhigang Gao	3941	Director

~~The business background of our directors and officers are as follows:~~15

The business background of our directors and officers is as follows:

Mr. John D. Kuhns was appointed the Company’s Chief Executive Officer, President and Chief Financial Officer (interim) on September 2, 2008 and the Company’s director and Chairman of the Board of Directors, effective on September 26, 2008. Mr. Kuhns has over 30 years of experience in the hydroelectric power, power technology and alternative energy industry. From 1981 to 1988, Mr. Kuhns built Catalyst Energy, one of the first publicly traded independent power producers in the United States, as the Company’s founder, President and Chief Executive Officer. While running Catalyst Energy, he acquired Chinese hydroelectric generating equipment for use in the United States. He furthered his development experience in China as Chairman and Chief Executive Officer at the New World Power Corporation from 1992 to 1996, where he developed and financed hydroelectric projects in China as well as Argentina, Costa Rica and Mexico. While at New World Power Corporation, he formed a joint venture with Wuhan Steam Turbine, a State-Owned Enterprise owned by the City of Wuhan in China, to develop hydroelectric projects in Asia, including the PRC. Mr. Kuhns is the owner of 100% of the membership interests and the sole manager of New World Power, LLC. Mr. Kuhns has additional transaction experience in China as a controlling shareholder, President, CEO, a director and Chairman of Kuhns Brothers, Inc., an investment banking firm which he founded in 1986 specializing in providing financing for power technology ventures, and, more recently, industrial and infrastructure companies operating within the PRC. Mr. Kuhns received a Bachelor of Arts degree in Sociology and in Fine Arts from Georgetown University; a Master of Fine Arts degree from the University of Chicago; and a Master's of Business Administration degree from the Harvard Business School.

Ms. Mary E. Fellows was appointed as the Company’s Executive Vice President and Secretary on September 2, 2008 and a Company director, effective on September 26, 2008. Ms. Fellows has been a Partner and Executive Vice President of Kuhns Brothers, Inc., a boutique investment bank since 1997. She served as Director of Corporate Administration and Corporate Secretary of the New World Power Corporation from 1996 to 1999, with responsibilities in the company's financing and merger and acquisition activities. She served as Corporate Secretary to the Solar Electric Light Company from 1997 to 2002. Additionally, Ms. Fellows served as Co-Chairman of the Distributed Power Company, a company with investments in solar information publications, including the photovoltaic industry's leading newsletter and market survey, and was a director of GenSelf Corporation from 2003 to 2006. Ms. Fellows received a Bachelor of Science degree (Alpha Chi) from Teikyo Post University.

Mr. Lin Han, age 3739, was appointed as the Company’s Chief Financial Officer on October 28, 2009. He is also currently ~~serves~~ serving as part-time Chief Financial Officer of China Board Mill Corporation, a Delaware corporation with its Chinese operating subsidiary engaged in the production of wooden boards. Previously, he served as Chief Financial Officer of TOPCON (China) Corporation, the Chinese partner of a Japanese public company listed on the Tokyo exchange and engaged in the business of manufacturing and sales of optical devices from June 2007 until September 2008. From February 2006 through May 2007, Mr. Han worked as the Senior Manager of Fortis Intertrust (Beijing) Co., Ltd., a consulting firm based in Beijing China. Mr. Han also worked for China Electronic Appliance Corp., a Chinese state-owned company in the business of production and sales of electronic parts, as a Deputy Financial Director from October 2003 to December 2005. Mr. Han graduated from University of Surrey with a degree of Master of Business Administration (“MBA”), and he received a bachelor degree in Auditing from the Capital University of Economics and Business in Beijing in 1994. Mr. Han is a Certified Public Accountant in China.

Mr. James Tie Li ~~was~~has been appointed as a Company director, ~~effective~~since on September 26, 2008. Mr. Li has extensive investment banking and entrepreneur experience in the U.S. and China. He was the founder and senior executive with a number of start-up companies in China including China Hydroelectric Corporation. He has been a consultant to Kuhns Brothers, Inc., advising on corporate finance, valuation and acquisition matters related to the firm’s China-related equity financing transactions since 2006. He was also the founder of Columbia China Capital Group, a U.S. based boutique investment firm advising Asian firms in mergers and acquisitions, public listing and growth strategy since 2002. Mr. Li obtained his Master of Business Administration degree from the Columbia University Graduate School of Business and a Bachelor of Science degree in accounting from City University of New York. He is a Chartered Financial Analyst and a Certified Public Accountant licensed in the State of New Jersey.

Mr. Zhigang Gao ~~was~~has been appointed as a Company director, ~~effective~~since on September 26, 2008. Mr. Gao has been the manager of Yili China, the chairman of Changchun Master Industries Co., Ltd. (“Changchun ~~China~~Master”), the controlling shareholder prior to the Company’s purchase (through C3 Capital) of Yili China, and the president of Xinjiang Ehe Mining and ~~Mettalurgy~~ Metallurgy Co., Ltd. Mr. Gao has been engaged in the applied research of SiC, silicon, organic silicon and ~~the~~ preparation of polycrystalline silicon material for many years. In all the enterprises Mr. Gao has been managing, he is the main technology leader. He is an expert in the field of SiC and semiconductor materials in China. Mr. Gao holds a bachelor’s degree and a master's degree in chemistry from Northeast Normal University in China.

24Dr. Yousu Lin has been appointed as a Company director since September 26, 2008. Dr. Lin is an accomplished financier of numerous government projects in the PRC and has been involved in the financial activities of, and provided advice on, the construction of the Three Gorges Project, the largest hydroelectric project in the world. In addition to the Three Gorges Project, Dr. Lin has also consulted on the Xiaolangdi Project, a large hydroelectric project on the Yellow River and the Wanjiazhai Project, a project to divert water from the Yellow River into Shanxi Province. He has also been a consultant in other governmental projects including the Tianjin Subway and the Beijing Olympics. In addition to these large government projects, Dr. Lin has also been involved in smaller scale construction projects with groups of private investors. Dr. Lin received his Ph.D. and Master of the Arts from Australian National University and his Bachelor of the Arts degree from Beijing Foreign Language University.

Dr. Yousu Lin was appointed as a Company director, effective on September 26, 2008. Dr. Lin is an accomplished financier of numerous government projects in the PRC and has been involved in the financial activities of, and provided advice on, the construction of the Three Gorges Project, the largest hydroelectric project in the world. In addition to the Three Gorges Project, Dr. Lin has also consulted on the Xiaolangdi Project, a large hydroelectric project on the Yellow River and the Wanjiazhai Project, a project to divert water from the Yellow River into Shanxi Province. He has also been a consultant in other governmental projects including the Tianjin Subway and the Beijing Olympics. In addition to these large government projects, Dr. Lin has also been involved in smaller scale construction projects with groups of private investors. Dr. Lin received his Ph.D. and Master of the Arts from Australian National University and his Bachelor of the Arts degree from Beijing Foreign Language University.16

Mr. Shadron Lee Stastney ~~was~~ has been appointed as a Company director, ~~effective~~since on September 26, 2008. Since June 2004, Mr. Stastney has been a partner at Vicis Capital, LLC, an investment management firm. Vicis Capital, LLC is the managing partner of Vicis Capital Master Fund, one of our principal shareholders. From July 2001 to May 2004, Mr. Stastney served as Managing Director of Victus Capital, LP, an investment management firm. Mr. Stastney holds a Bachelor of Arts degree from the University of North Dakota and a Juris Doctor from the Yale Law School.

Family Relationships

There are no family relationships among any of the Company’s present directors and officers, except that Hong Zhao, the former director t and the former Chief Financial Officer and Secretary of the Company, is the wife of James Tie Li.

Committees of the Company’s Board of ~~Director~~Directors

We do not have a standing nominating, compensation or audit committee. Rather, the board of directors performs the functions of these committees. James Tie Li qualifies as a financial expert within the meaning of Item 407(d)(5) of Regulation S-K. We do not believe it is necessary for the board of directors to appoint such committees, because the volume of matters that come before the board of directors for consideration is sufficiently small so as to permit our directors to give sufficient time and attention to such matters. The Company intends to establish the referenced three committees in the future to improve the Company’s internal control and governance. ~~Each of Dr. Yousu Lin and~~ Mr. Shad Stastney would qualify as an “independent ~~director~~directors” under NASDAQ Stock Market Rule ~~4200~~ 5605(a)(152).

We do not currently have procedures by which our security holders may recommend nominees to our Board of Directors. In considering candidates for membership on the Board of Directors, the Board of Directors will take into consideration the needs of the Board of Directors and the candidate’s qualifications. The Board will request such information as:

· The name and address of the proposed candidate; ~~· The proposed candidate’s resume or a listing of his or her qualification to be director of the Company;~~

· AThe ~~description~~proposed ofcandidate’s ~~any~~resume ~~relationship~~or ~~that~~a ~~could~~listing ~~affect~~of ~~such~~his ~~person~~or ~~qualifying~~her asqualification anto ~~independent~~be director, ~~including identifying all other public company board and committee memberships; · A confirmation~~ of ~~such person’s willingness to act as director if selected by~~ the ~~Board of Directors~~Company; ~~and~~

A description of any relationship that could affect such person qualifying as an independent director, including identifying all other public company board and committee memberships;

A confirmation of such person’s willingness to act as director if selected by the Board of Directors; and

Any information about the proposed candidate that would, under the federal proxy rules, be required to be included in the Company’s proxy statement if such person were a nominee.

Once a person has been identified by the Board of Directors as a potential candidate, the Board of Directors may collect and review publicly available information regarding the person to assess whether the person should be considered further. Generally, if the person expresses a willingness to be considered ~~and~~ to serve on the Board of Directors and the Board of Directors believes that the candidate has the potential to be a good candidate, the Board of Directors would seek to gather information from or about the candidate, including through one or more interviews as appropriate and review his or her accomplishments and qualifications generally, including in light of any other candidates that the Board of Directors may be considering. The Board of Directors’ evaluation process does not vary based on whether the candidate is recommended by a shareholder.

The Board of Directors will, from time to time, seek to identify potential candidates for director nominees and will consider potential candidates proposed by the Board of Directors and by management of the Company.

The Company does not currently have a process for security holders to send communications to the Board.

Section 16(a) Beneficial Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and persons who own more than 10% of the Company’s Common Stock to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the “SEC”). Directors, executive officers and greater than 10% stockholders are required by SEC rules to furnish the Company with copies of Section 16(a) forms they file. Based upon a review of the filings made on their behalf during the fiscal year ended June 30, 2009, as well as an examination of the SEC’s EDGAR system Form 3, 4, and 5 filings and the Company’s records, the following table sets forth exceptions to timely filings:

~~Information~~ Below is the information with respect to failures of directors, officers and/or beneficial owners of more than ten percent of any class of equity securities of the Company to timely file reports onunder ~~Form 3 required by~~ Section 16(a) ofduring ~~the~~fiscal ~~Exchange~~year ~~Act is as follows~~2010:

Name	Date of ~~Event~~Reporting ~~Requiring Filing of Form 3~~Event	Required Filing Date ~~of Form 3~~	Date ~~Form~~of ~~3 Filed with SEC~~Filing
John D. Kuhns	097/~~02/2008 (~~1)/2010	97/125/~~2008~~2010	~~Filed on 10~~3/039/~~2008~~2011
Mary E. Fellows	09/02/2008 (1)	9/12/2008	Filed on 10/03/2008
	10/1/2010	10/5/2010	3/9/2011
Shadron Stastney	09/26/2008 (1)	10/06/2008	Filed on 10/28/2008
Mary E. Fellows	7/1/2010	7/5/2010	3/9/2011
Zhigang Gao	09/26/2008 (1)	10/06/2008	Filed on 12/12/2008
	10/1/2010	10/5/2010	3/9/2011
Yousu Lin	09/26/2008 (1)	10/06/2008	Filed on 12/15/2008
Dr. Yousu Lin	7/1/2010	7/5/2010	3/9/2011
James Tie Li	09/26/2008 (1)	10/06/2008	Filed on 12/16/2008
	10/1/2010	10/5/2010	3/9/2011
Lin Han	10/28/2008 (1)	11/7/2008	Filed on 12/12/2008

~~(1) Date of appointment as an officer and/ or a director of the Company.~~17

Information with respect to failures of directors, officers and/or beneficial owners of more than ten percent of any class of equity securities of the Company to timely file reports on Form 4 required by Section 16(a) of the Exchange Act is as follows:

Name	Date of Event Requiring Filing of Form 4	Required Filing Date of Form 4	Date Form 4 Filed with SEC
John D. Kuhns	10/01/2008 (1)	10/09/2008	Filed on 08/26/2009
John D. Kuhns	01/01/2009 (1)	01/09/2009	Filed on 08/26/2009
John D. Kuhns	04/01/2009 (1)	04/09/2009	Filed on 08/26/2009
John D. Kuhns	07/01/2009 (1)	07/09/2009	Filed on 08/26/2009
Mary E. Fellows	10/01/2008 (1)	10/09/2008	Filed on 08/26/2009
Mary E. Fellows	01/01/2009 (1)	01/09/2009	Filed on 08/26/2009
Mary E. Fellows	04/01/2009 (1)	04/09/2009	Filed on 08/26/2009
Mary E. Fellows	07/01/2009 (1)	07/09/2009	Filed on 08/26/2009
Yousu Lin	10/01/2008 (1)	10/09/2008	Filed on 08/26/2009
Yousu Lin	01/01/2009 (1)	01/09/2009	Filed on 08/26/2009
Yousu Lin	04/01/2009 (1)	04/09/2009	Filed on 08/26/2009
Yousu Lin	07/01/2009 (1)	07/09/2009	Filed on 08/26/2009
James Tie Li	02/09/2009 (2)	02/19/2008	Filed on 08/26/2009
James Tie Li	05/12/2009 (2)	05/21/2009	Filed on 08/26/2009

(1) Issuance date of the Dividend Shares of Series A Preferred Stock of the Company;

(2) Date of warrant exercise.

Code of Ethics

We have not yet adopted a Code of Ethics for our executive officers. We intend to adopt a Code of Ethics applying to such persons during the fiscal year ending ~~June~~December 3031, ~~2010~~ 2011.

ITEM 11.

EXECUTIVE COMPENSATION

~~None~~ Executive ~~of our employees is subject to a written employment agreement during the fiscal year ended June 30, 2009.~~Compensation

The following Summary Compensation Table sets forth the compensation of the named executive officers of the Company for ~~fiscal~~the years ~~year~~ ended ~~June~~December 3031, 2010 and 2009:

Name and Principal Position	Salary ($)				Other Compensation ($)			Total Compensation ($)
Name and principal position	Year		Salary ($)				Bonus ($)			Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Change in pension value and nonqualified compensation earnings ($)		All other compensation (4)		Total ($)
John D. Kuhns Chief Executive Officer, President and Director (1)		145,833	(2)			-			145,833
John D. Kuhns (1)	2010			175,000							-		-		-		-		-		175,000
Mary E. Fellows Executive Vice President, Secretary and Director		83,333	(3)			-			83,333
	2009			175,000							-		-		-		-				175,000
Lin Han Chief Financial Officer		35,296	(4)			-			35,296
Mary E. Fellows (2)	2010			100,000							-		-		-		-				100,000
James Tie Li Director		-				-			-
	2009			100,000							-		-		-		-				100,000
Shadron Stastney Director		-				-			-
Lin Han (3)	2010			52,941							-		-		-		-				52,941
Yousu Lin Director		-				-			-
	2009			52,941							-		-				-				52,941
Zhigang Gao Director		-				925,000	(5)		925,000

27(1) Mr. Kuhns is currently Chief Executive Officer, President and a director of the Company. He was appointed as the Company’s interim Chief Financial Officer from 09/02/2008 through October 28, 2008.

(12) MrMs. ~~Kuhns~~ ~~was~~Fellows ~~appointed~~is ascurrently ~~the~~Executive ~~Company’s~~Vice ~~interim~~President, ~~Chief~~Secretary ~~Financial~~and ~~Officer~~a ~~from 09/02/2008~~director ~~through~~of ~~October~~the ~~28, 2008~~Company.

(23) ~~The appointment of~~ Mr. ~~Kuhns~~Han asis ~~officer~~currently ofChief ~~the~~Financial ~~Company~~Officer ~~was effective as~~ of ~~September 2, 2008. His annual salary is $175,000 and~~ the ~~salary shown in the table is for the period from September 15, 2008 through June 30, 2009~~Company.

~~(3)~~Employment The appointment of Ms. Fellows as officer of the Company was effective as of September 2, 2008. Her annual salary is $100,000 and the salary shown in the table is for the period from September 15, 2008 through June 30, 2009.Agreements

~~(4)~~None ~~The date~~ of ~~appointment~~our ofemployees ~~Mr. Han as CFO of the Company~~ was ~~effective~~subject onto ~~October 28,~~a ~~2008.~~written ~~His~~employment ~~monthly~~agreement ~~salary~~during ~~is $4,412 and~~ the ~~salary~~year ~~shown~~ended inDecember ~~the table is for the period from October 28~~31, ~~2008 through June 30, 2009~~2010.

~~(5)~~Director As an inducement for Mr. Zhigang Gao to enter into an employment agreement with the Company or its Chinese subsidiary to serve as a management member, the Company issued 925,000 shares of Common Stock to Mr. Gao on September 2, 2008. The calculation of such stock value is based on an assumed market value $1.0038 per share of the Series A Stock, which was paid by the Investor in the Private Placement consummated on September 2, 2008 and the conversion rate of each of Series A Convertible Preferred Stock being convertible into 10 shares of our Common Stock. Such stock value is rounded up to approximately $925,000.Compensation

Our Directors do not receive compensation for serving as a Director, but they are entitled to reimbursement for their travel expenses.

~~ITEM 12.SECURITY~~Grants ~~OWNERSHIP~~of OFPlan-Based ~~CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~Awards

~~The following~~No ~~tables~~plan-based ~~set~~awards ~~forth~~were ~~information~~granted ~~regarding the beneficial ownership of the Company’s Common Stock as of September 23, 2009 by (x) each stockholder known by the Company~~ to beany ~~the beneficial owner~~ of ~~more~~our ~~than~~named ~~5% of the Company’s Common Stock, (y) the~~ executive officers ofduring the ~~Company~~fiscal ~~and~~year ~~(z)~~ended ~~the~~December ~~directors and executive officers of the Company as a group. Unless otherwise noted~~31, ~~each person or company named in the tables has sole voting and investment power with respect to the shares that he or it beneficially owns~~2010. ~~As of the date of this Report, there were outstanding 2,522,050 shares of Common Stock and 996,186 shares of Series A Stock.~~

28Outstanding Equity Awards at Fiscal Year End

Title of Class	Name and Address of Beneficial Owners	Amount and Nature of Beneficial Ownership (1)			Percent of Class (2)
Common Stock	New World Power, LLC 558 Lime Rock Road Lime Rock, Connecticut 06039		2,223,085	(3)		47.71	%
Common Stock	John D. Kuhns 558 Lime Rock Road Lime Rock, Connecticut 06039		2,223,085	(3)(4)		22.90	%
Common Stock	Mary E. Fellows 558 Lime Rock Road Lime Rock, Connecticut 06039		740,862	(5)		22.90	%
Common Stock	Zhigang Gao The High-tech Building 9F, No.3003 Qianjing Street High-tech Development Zone in Changchun City PRC, 130024		925,000	(9)		36.68	%
Common Stock	Dr. Yousu Lin c/o 558 Lime Rock Road Lime Rock, Connecticut 06039		740,862	(6)		22.90	%
Common Stock	Vicis Capital Master Fund 126 East 56th St. 7th Fl, New York, NY 10022		9,176,745	(7)		80.87	%
Common Stock	James Tie Li 22 Berkshire Way, East Brunswick, NJ 08816		0	(8)		—
Common Stock	Shad Stastney 126 East 56th St. 7th Fl, New York, NY 10022		0			—
Common Stock	Hong Zhao 22 Berkshire Way, East Brunswick, NJ 08816		675,000	(8)		26.76	%
	All officers and directors as a group (6 persons)		13,806,554	(10)		96.99	%

No unexercised options or warrants were held by any of our named executive officers as of December 31, 2010. No equity awards were made during the fiscal year ended December 31, 2010.

Pension Benefits

No named executive officers received or held pension benefits during the fiscal year ended December 31, 2010.

Nonqualified Deferred Compensation

No nonqualified deferred compensation was offered or issued to any named executive officer during the fiscal year ended December 31, 2010.

Potential Payments upon Termination or Change in Control

Our executive officers are not entitled to severance payments upon the termination of their employment agreements or following a change in control.

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2010, we did not have a standing compensation committee. Our Board of Directors was responsible for the functions that would otherwise be handled by the compensation committee. All directors participated in deliberations concerning executive officer compensation, including directors who were also executive officers.

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

The following tables set forth information regarding the beneficial ownership of the Company’s Common Stock as of March 31, 2011 by (x) each stockholder known by the Company to be the beneficial owner of more than 5% of the Company’s Common Stock, (y) the executive officers of the Company and (z) the directors and executive officers of the Company as a group. Unless otherwise noted, each person or company named in the tables has sole voting and investment power with respect to the shares that he or it beneficially owns. As of the date of this Report, there were outstanding 3,418,648 shares of Common Stock, 996,186 shares of Series A Stock, 920,267 shares of Series B Stock and warrants to purchase 2,490,465 shares of Common Stock.

Title of Class	Name and Address of Beneficial Owners	Amount and Nature of Beneficial Ownership (1)			Percent of Class (2)
Common Stock	New World Power, LLC 558 Lime Rock Road Lime Rock, Connecticut 06039		2,377,027	(3)		42.78	%
Common Stock	John D. Kuhns 558 Lime Rock Road Lime Rock, Connecticut 06039		2,377,027	(3)(4)		42.78	%
Common Stock	Mary E. Fellows 558 Lime Rock Road Lime Rock, Connecticut 06039		792,150	(5)		19.18	%
Common Stock	Zhigang Gao The High-tech Building 9F, No.3003 Qianjing Street High-tech Development Zone in Changchun City PRC, 130024		925,000	(9)		27.06	%
Common Stock	Dr. Yousu Lin c/o 558 Lime Rock Road Lime Rock, Connecticut 06039		792,150	(6)		19.18	%
Common Stock	Vicis Capital Master Fund 126 East 56th St. 7th Fl, New York, NY 10022		19,014,833	(7)		88.66	%
Common Stock	James Tie Li 22 Berkshire Way, East Brunswick, NJ 08816		0	(8)		—
Common Stock	Shad Stastney 126 East 56th St. 7th Fl, New York, NY 10022		0			—
Common Stock	Hong Zhao 22 Berkshire Way, East Brunswick, NJ 08816		675,000	(8)		19.74	%
Common Stock	Lin Han A3 Yong’anli, No.1 Building A, 23rd Fl., Jianguomenwai Ave., Chaoyang District, Beijing, China 100022		0			—
Common Stock	All officers and directors as a group (7 persons)		4,886,327	(10)		69.99	%

Series A Preferred	New World Power, LLC 558 Lime Rock Road Lime Rock, Connecticut 06039		171,028			17.17	%
Series A Preferred	John D. Kuhns 558 Lime Rock Road Lime Rock, Connecticut 06039		171,028			17.17	%
Series A Preferred	Mary E. Fellows 558 Lime Rock Road		56,997			5.72	%
Series A Preferred	Dr. Yousu Lin c/o 558 Lime Rock Road Lime Rock, Connecticut 06039		56,997			5.72	%
Series A Preferred	Vicis Capital Master Fund 126 East 56th St. 7th Fl, New York, NY 10022		705,993			70.87	%
Series A Preferred	All officers and directors as a group (3 persons)		285,022			28.61	%

Series B Preferred	Vicis Capital Master Fund 126 East 56th St. 7th Fl, New York, NY 10022		920,267			100	%

(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power or as to which such person has the right to acquire such voting and/or investment power within 60 days.

(2) The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of unissued shares as to which such person has the right to acquire voting and/or investment power within 60 days. The number of shares shown includes outstanding shares of Common Stock owned as of the date of this report by the person indicated. The total number of shares of our Common Stock outstanding on the date of this report was 23,~~522~~418,~~050~~648 shares.

(3) Includes (i) an aggregate of 1,710,277 shares of Common Stock issuable upon conversion of an aggregate 171,028 shares of Series A Stock which are immediately convertible into Common Stock at the option of New World Power, LLC; and (ii) 427,569 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by New World Power, LLC.

(4) Mr. Kuhns is the owner of 100% of the membership interests and the sole manager of New World Power, LLC and therefore controls such company and, by virtue of such control, may be deemed to beneficially own all of the Company’s securities that are owned by New World Power, LLC.

(5) Includes (i) an aggregate of 569,971 shares of Common Stock issuable upon conversion of an aggregate 56,997 shares of Series A Stock which are immediately convertible into Common Stock at the option of Ms. Fellows; and (ii) 142,493 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Ms. Fellows.

(6) Includes (i) an aggregate of 569,971 shares of Common Stock issuable upon conversion of an aggregate 56,997 shares of Series A Stock which are immediately convertible into Common Stock at the option of Dr. Lin; and (ii) 142,493 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Dr. Lin.

(7) Includes (i) an aggregate of 7,059,929 shares of Common Stock issuable upon conversion of an aggregate 705,993 shares of Series A Stock which are immediately convertible into Common Stock at the option of Vicis Capital Master Fund; (ii) an aggregate of 9,202,670 shares of Common Stock issuable upon conversion of an aggregate 920,267 shares of Series B Stock which are immediately convertible into Common Stock at the option of Vicis Capital Master Fund; and (iiiii) 1,764,982 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Vicis Capital Master Fund.

(8) The share number disclosed herein does not include 675,000 shares of Common Stock owned by Ms. Hong Zhao, wife of James Tie Li, who is our former ~~director and~~ CFO.

(9) Includes a total of 925,000 shares of Common Stock issued to Mr. Gao.

(10) Includes an aggregate of (i) 1,~~418~~323,~~869~~553 shares of Common Stock that have been issued; (ii) 92,~~910~~850,~~148~~219 shares of Common Stock issuable upon conversion of an aggregate ~~991~~285,~~015~~022 shares of Series A Stock which are immediately convertible into Common Stock at the option of such persons; and (iii) 2712,~~477,537~~555 shares of Common Stock issuable upon the exercise of immediately exercisable warrants held by such persons. The shares disclosed herein do not include 675,000 shares of Common Stock owned by Ms. Hong Zhao, wife of James Tie Li, who is our former ~~director~~ ~~and~~ CFO.

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

Certain Relationships and Related Transactions

We do not have an established policy regarding related transactions.

~~On February~~We 10lease our office space at both 558 Lime Rock Road, Lakeville, Connecticut and ~~May~~420 12Lexington Avenue, ~~2009~~Suite 860, ~~the~~New ~~Company~~York, ~~issued~~NY 40from Kuhns Brothers,~~000~~ ~~shares~~Inc. and ~~60,000~~its ~~shares of~~affiliates ~~Common~~(“Kuhns ~~Stock~~Brothers”). Our Chairman and CEO, ~~respectively~~Mr. Kuhns, tois ~~two~~a ~~individuals~~controlling ~~upon~~shareholder, ~~the~~President, ~~exercises~~CEO, a director and Chairman of ~~the warrants~~Kuhns ~~that~~Brothers. ~~were~~The ~~originally~~lease ~~issued~~commenced on ~~October~~September 91, ~~2007~~2008 tofor ~~Columbia~~a ~~China Capital~~term ~~Group~~of one year with a monthly rent of $7,500, ~~Inc~~and such lease was extended for a year with the same rate of rent until August 31, 2010. On September 1, ~~then~~2010, anwe ~~affiliate~~extended ofthe lease with the ~~Company~~same rate of rent for another one year.

In connection with the Private Placement which closed on September 2, 2008, the Investor immediately assigned its rights under the Securities Purchase Agreement to several assigns, including (a) Mr. Kuhns, the Company’s President, Chief Executive Officer since September 2, 2008 and a director of the Company since September 26, 2008; (b) Ms. Mary E. Fellows, who was elected on September 2, 2008 as the Executive Vice President and Secretary of the Company and who was elected a director on September 26, 2008; and (c) Dr. Yousu Lin, who was elected a director on September 26, 2008. During the fiscal year ended June 30, 2009, the above referenced assigns also received certain shares of Common Stock as the dividends of Series A Stock. See Item 12. “Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” with respect to the security ownership of each of the assigns. Mr. Kuhns owns 100% of the membership interests and is the manager of the Investor, China Hand Fund I, LLC.20

AsOn ~~an inducement~~January ~~for~~1, ~~Mr.~~2010, ~~Zhigang~~the ~~Gao~~Company toentered ~~enter~~ into ana ~~employment~~Management ~~agreement~~Service ~~with~~Agreement, where the Company orshall ~~its~~pay ~~Chinese~~Kuhns ~~subsidiary~~Brothers toan ~~serve~~annual asmanagement afee ~~management~~of ~~member,~~one ~~the~~hundred ~~Company issued~~and ~~925~~fifty thousand dollars ($150,000) ~~shares~~starting offrom ~~Common~~January ~~Stock to Mr~~2010. ~~Gao~~The management fee was paid on ~~September~~a 2monthly basis ($12, ~~2008~~500 per month) on the first day of each month. The Company paid the total management fee of $150,000 in 2010.

30On September 17, 2008, Changchun Master Industries Co., Ltd. (“Changchun Master Company”) whose controlling stockholder is Zhigang Gao, our director, made a loan to Yili China in the amount of RMB 3,790,000 (or approximately $579,156.47 based on the exchange rate as of RMB1 = US$0.152812 on March 31, 2011) for the purpose of Yili China’s facility construction. Such loan is non-interest bearing, unsecured, and is payable on demand. The loan was due on September 15, 2009 and it was renewed for another year with similar terms and will continue to be renewed on a yearly basis with no set expiration date.

WeAside ~~lease our~~from ~~office~~the ~~space~~loan, atChangchun ~~both~~Master ~~558~~Company ~~Lime~~also ~~Rock~~advanced ~~Road,~~approximately ~~Lakeville~~$307,592 ~~Connecticut~~to ~~and~~Yili ~~420 Lexington~~China ~~Avenue,~~for ~~Suite~~certain ~~860,~~operating ~~New~~expenses ~~York, NY~~ from ~~Kuhns~~September ~~Brothers~~2, ~~Inc.~~2008 ~~and~~through ~~its affiliates~~December ~~(“Kuhns Brothers”). Our Chairman~~31, ~~CEO and Interim CFO, Mr~~2009. ~~Kuhns,~~As is a ~~controlling shareholder~~result, ~~President,~~the ~~CEO,~~Company aowed ~~director~~Changchun ~~and~~Master ~~Chairman~~Company ~~of Kuhns Brothers. The lease commenced on September 1~~$886,748 ~~2008~~as ~~for a term~~ of ~~one~~December ~~year with a monthly rent of $7,500, and such lease has been extended until August~~ 31, 2010 ~~at the same rate of rent~~.

On ~~September~~ 17February 10, ~~2008~~2010, ~~Changchun~~the ~~Master~~Company ~~Industries~~signed ~~Co.,~~a ~~Ltd.~~loan ~~(“Changchun~~agreement ~~Master Company”) whose controlling~~with ~~stockholder~~China isSilicon ~~Zhigang Gao~~Corporation, ~~our~~a ~~director,~~Delaware ~~made~~corporation a(“CSC”) ~~loan~~ to ~~Yili~~extend ~~China in~~a ~~the~~loan ~~amount~~ of ~~RMB 3~~$1,~~790~~000,000 ~~(or~~to ~~approximately~~fund ~~$555,148~~CSC’s ~~based~~working oncapital ~~the~~needs. ~~exchange rate~~The asinterest rate of ~~RMB1~~this =loan ~~US$0.146477~~is onsix ~~September~~percent ~~23, 2009~~(6%) ~~for~~per ~~the~~annum. ~~purpose~~CSC ofagreed ~~Yili China’s~~to ~~facility~~pay ~~construction.~~to ~~Such~~the ~~loan~~Company isthe ~~non-interest~~principal ~~bearing,~~sum ~~unsecured~~of $1,000,000 and is ~~payable~~interest on ~~demand.~~December ~~The~~31, ~~loan~~2010, ~~was~~but ~~due~~had onnot ~~September~~yet ~~15,~~done ~~2009,~~so ~~and~~as ~~the extension~~ of the ~~term~~date of ~~the~~this ~~loan~~Annual ~~is currently under negotiation~~Report. ~~Aside~~The ~~from~~Company ~~the~~is ~~loan, Changchun~~currently ~~Master~~in ~~Company~~discussions ~~also~~with ~~advanced~~CSC ~~approximately $312,680~~ to ~~Yili~~have ~~China~~the ~~for certain~~principal ~~operating~~and ~~expenses~~the ~~during~~accrued ~~fiscal~~interest ~~year~~of ~~2009.~~loan ~~During~~repaid ~~fiscal~~as ~~year~~soon ~~2009, Yili~~as ~~China reimbursed Mr~~possible. ~~Zhigang~~This ~~Gao~~is a ~~total~~related ofparty ~~$8,015~~transaction ~~for~~since ~~his business trip expenses. As a result,~~ the Company ~~owed~~and ~~Changchun~~CSC ~~Master~~share ~~Company~~a ~~$859~~majority shareholder,~~813~~ ascertain ~~of June~~officers ~~30,~~and ~~2009~~directors.

On April 14, 2010, the Company extended a second loan (the “Second Loan”) of $1,172,500 to CSC to fund its working capital. The Second Loan was interest free and was repaid on April 21, 2010. A copy of the loan agreement for the Second Loan, dated April 14, 2010 is filed herewith.

Director Independence

We do not have a standing nominating, compensation or audit committee. Rather, the board of directors performs the functions of these committees. We do not believe it is necessary for the board of directors to appoint such committees, because the volume of matters that come before the board of directors for consideration is not so substantial that our directors are usually allowed sufficient time and attention to such matters. Additionally, because the Company’s Common Stock is not currently listed for trading or quotation on a national securities exchange, we are not required to have such committees. ~~Each of Dr. Yousu Lin and~~ Mr. Shad Stastney would qualify as an “independent director” under NASDAQ Stock Market Rule ~~4200~~5605(a)(152). James Tie Li can qualify as a financial expert on the board of directors under the definition of Item 407(d)(5) of Regulation S-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following lists the ~~aggregate~~ fees billed ~~: (i)~~ by Liour ~~& Company, PC, the former~~ auditors ~~for the Company for fiscal year 2008 and through May 8~~, ~~2009; and (ii) by the current auditors,~~ Child, Van Wagoner & Bradshaw, PLLC, ~~through~~ ~~June~~for 30the years ended December 31, 2010 and 2009:

	Fiscal Year Ended June 30, 2009		Fiscal Year Ended June 30, 2008
	Fiscal Year Ended December 31, 2010		Fiscal Year Ended December 31, 2009
Audit Fees	$	8160,~~150~~000	$	1370,000
Audit Related Fees		521,000		-14,000
Tax Fees		34,~~000~~800		-4,750
All Other Fees		--		--

ITEM 15.

EXHIBITS

Number		Description
2.1		~~Reorganization~~Agreement and ~~Stock~~Plan ~~Purchase~~of ~~Agreement~~Merger dated September 2730, ~~2007~~2009. Incorporated by reference to Exhibit ~~2.1~~A to the Company’s ~~Registration~~Information Statement ~~on Form SB-2 (No. 333-147222)~~ filed with the SEC on ~~November~~October 713, ~~2007~~2009 (the “~~SB-2~~Information Statement”);
3.1		Articles of Incorporation of the Company filed with the ~~Delaware~~Nevada Secretary of State on ~~May~~June 2126, ~~2007~~2009. Incorporated by reference to Exhibit ~~3.1~~C to the ~~SB-2~~Information Statement;
3.2		By-laws of the Company. Incorporated by reference to Exhibit D to the Information Statement;
3.3		Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock. Incorporated by reference to Exhibit E to the Information Statement;
3.4		Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the SEC on October 27, 2009 ( the “October 27, 2009 8-K”);
3.5		Certificate of Correction to the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock; *

3121

3.2		By-laws of the Company. Incorporated by reference to Exhibit 3.1 to the SB-2;
4.1		Form of warrant issued to the investor in the September 2, 2008 private placement. Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed with the SEC on September 8, 2008 (the “September 8, 2008 8-K”);
3.3		Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2008 (the “September 8, 2008 8-K”);
4.2		Specimen of Common Stock Certificate. Incorporated by reference to Exhibit 4.2 to the Company’s annual report of fiscal year ended June 30, 2009;
3.4		Certificate of Change (regarding change of the Company’s registered agent). Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed with the SEC on October 14, 2008;
4.3		Specimen of Series A Convertible Preferred Stock Certificate. Incorporated by reference to Exhibit 4.3 to the Company’s Transition Report for the period ended December 31, 2009;
3.5		Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on October 9, 2008; *
4.4		Specimen of Series B Convertible Preferred Stock Certificate. Incorporated by reference to Exhibit 4.4 to the Company’s Transition Report for the period ended December 31, 2009;
4.1		Form of warrant issued to the investor in the September 2, 2008 private placement. Incorporated by reference to Exhibit 4.2 to the September 8, 2008 8-K;
4.5		Consent and Waiver Agreement, dated November 2, 2009, between the Company and the holders of Series A Stock. Incorporated by reference to Exhibit 4.5 to the Company’s Transition Report for the period ended December 31, 2009;
4.2		Specimen of Common Stock Certificate;*
10.1		Memorandum of Understanding by and among C3 Capital, Mr. Zhigang Gao and Mr. Ping Li. Incorporated by reference to Exhibit 10.5 to the September 8, 2008 8-K;
4.3		Specimen of Series A Convertible Preferred Stock Certificate. Incorporated by reference to Exhibit 4.1 to the September 8, 2008 8-K;
10.2		Note Purchase Agreement dated September 21, 2009, between the Company and The China Hand Fund I, LLC. Incorporated by reference to Exhibit 10.1 to the October 27, 2009 8-K;
10.1		Stock Purchase Agreement dated as of September 2, 2008, between Tie Li, Yili Carborundum USA, Inc. and the Company. Incorporated by reference to Exhibit 10.1 to the September 8, 2008 8-K;
10.3		Convertible Note of the Company, dated September 21, 2009. Incorporated by reference to Exhibit 10.2 to the October 27, 2009 8-K;
10.4		Office Space and Infrastructure Sharing Agreement, dated September 1, 2010;*
10.5		Loan Agreement, dated February 10, 2010, between the Company and China Silicon Corporation. Incorporated by reference to Exhibit 10.5 to the Company’s Transition Report for the period ended December 31, 2009;
10.6		Loan Agreement, dated April 14, 2010, between the Company and China Silicon Corporation;*
10.7		Management Services Agreement, dated January 1, 2010, between the Company and Kuhns Brothers;*
21.1		List of Subsidiaries;*
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;*
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;*
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

10.2		Stock Purchase Agreement dated September 2, 2008, between the Company and The China Hand Fund I, LLC. Incorporated by reference to Exhibit 10.2 to the September 8, 2008 8-K;
10.3		Equity Transfer Agreement, dated as of July 31, 2008 by and between C3 Capital, Yili China and Changchun Master Industry Co., Ltd, the sole shareholder of Yili China. Incorporated by reference to Exhibit 10.3 to the September 8, 2008 8-K;
10.4		Equity Interest Transfer Agreement by and between C3 Capital, Mr. Zhigang Gao. Incorporated by reference to Exhibit 10.4 to the September 8, 2008 8-K;
10.5		Memorandum of Understanding by and among C3 Capital, Mr. Zhigang Gao and Mr. Ping Li. Incorporated by reference to Exhibit 10.5 to the September 8, 2008 8-K;
10.6		Office Space and Infrastructure Sharing Agreement, dated September 1, 2009.*
16.1		Letter dated May 8, 2009 from Li & Company, PC to the SEC. Incorporated by reference to Exhibit 16.1 to the Company’s current report on Form 8-K filed with the SEC on May 8, 2009;
21.1		List of Subsidiaries;*
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;*
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;*
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith

3222

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	MASTER SILICON CARBIDE INDUSTRIES, INC.
Date: September 25, 2009	By:	/s/ John D. Kuhns
Date: March 31, 2011	By:	/s/ John D. Kuhns
		John D. Kuhns, Chief Executive Officer
		(principal executive officer)
	By:	/s/ Lin Han
		Chief Financial Officer (Principal Accounting and Financial Officer)

Pursuant to the requirements of Section 13 or 15(d) of 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.

/s/ John D. Kuhns John D. Kuhns Chief Executive Officer (Principal Executive Officer) and Director /s/ Mary E. Fellows Mary E. Fellows Executive Vice President, Secretary and Director /s/ Shad Stastney Shad Stastney Director /s/ Zhigang Gao Zhigang Gao Director

/s/ Mary E. Fellows Mary E. Fellows Executive Vice President, Secretary and Director /s/ James Tie Li James Tie Li Director /s/ Shad Stastney Shad Stastney Director /s/ Yousu Lin Yousu Lin Director /s/ Zhigang Gao Zhigang Gao Director23

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

Master Silicon Carbide Industries, Inc.

~~(Formerly Paragon~~December ~~SemiTech USA~~31, ~~Inc.)~~2010

June 30, 2009

Index to Consolidated Financial Statements

Contents	Page(s)	~~Page(s)~~
Report of the Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets	F-3
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations and Comprehensive Profit (Loss)	F-4
Consolidated Statements of Operations and Comprehensive Loss		F-3
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	F-5
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)		F-4
Consolidated Statements of Cash Flows	F-6
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements	F-7 to F-20
Notes to Consolidated Financial Statements		F-6 to F-17

F-1

Douglas W. Child, CPA
Marty D. Van Wagoner, CPA			REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
J. Russ Bradshaw, CPA
William R. Denney, CPA			To The Board of Directors and Stockholders of
Russell E. Anderson, CPA
Scott L. Farnes
			Master Silicon Carbide Industries, Inc.
			Connecticut, USA
			We have audited the accompanying consolidated balance sheets of Master Silicon Carbide Industries, Inc. (the Company) as of June 30, 2009 and 2008, and the related consolidated statements of operations and comprehensive loss, cash flows, and changes in stockholders’ equity (deficit) for the years ended June 30, 2009 and 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
			We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 audits 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
			In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Master Silicon Carbide Industries, Inc. as of June 30, 2009 and 2008, and the results of its operations, and its cash flows for the years ended June 30, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.
			The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has cash flow constraints, an accumulated deficit, and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
1284 W. Flint Meadow Dr. #D
Kaysville, Utah 84037			/s/ Child, Van Wagoner & Bradshaw, PLLC
Telephone 801.927.1337			Child, Van Wagoner & Bradshaw, PLLC
Facsimile 801.927.1344			Salt Lake City, Utah
			September 23, 2009
5296 S. Commerce Dr. #300
Salt Lake City, Utah 84107
Telephone 801.281.4700
Facsimile 801.281.4701
Suite A, 5/F
Max Share Centre
373 King’s Road
North Point, Hong Kong
Telephone 852.21.555.333

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

Master Silicon Carbide Industries, Inc.

Connecticut, USA

We have audited the accompanying consolidated balance sheets of Master Silicon Carbide Industries, Inc. (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive profit (loss), changes in stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 audits 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Master Silicon Carbide Industries, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has cash flow constraints, an accumulated deficit, and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

March 31, 2011

F-1

MASTER SILICON CARBIDE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

	Years Ended June 30,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	1,121,162		$	46,080
Notes receivable		15,741			-
Tax refundable		269,861			-
Inventories		720,030			-
Prepaid expenses		37,623			-
Total current assets		2,164,417			46,080
Deposits-fixed assets		3,564,478			-
Other receivables		39,738			-
Property, plant and equipment, net		999,167			-
Construction in progress		2,654,522			-
Intangible assets,net		1,448,695			-
Total assets	$	10,871,017		$	46,080
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	888,291		$	8,271
Advance from customers		47,665			-
Other payables		115,334			-
Amount due to related parties		859,813			-
Dividends accrued		150,000			-
Total current liabilities		2,061,103			8,271
Total liabilities		2,061,103			8,271
Redeemable Preferred Stock ($0.001 par value, 996,186 shares issued) net of
discount of $800,564 at June 30, 2009, liquidation preference of $10.038
per share and accrued dividends		9,199,439			-
Stockholders’ equity:
Preferred Stock, $0.001 par value; 10,000,000 shares authorized;
2,000,000 shares designated, 996,186 shares issued and outstanding,
and classified above outside stockholders' equity above, liquidation
preference of $10.038 per share and accrued dividends		-			-
Common stock, $0.001 par value, 100,000,000 shares authorized;
2,372,617 and 1,000,600 shares issued and outstanding, respectively		2,373			1,001
Additional paid-in capital		4,057,224			376,995
Deferred compensation		(24,900	)		(124,500	)
Retained (deficit)		(4,429,623	)		(215,687	)
Accumulated other comprehensive income		5,401			-
Total stockholders' equity (deficit)		(389,525	)		37,809
Total liabilities, redeemable preferred stock and stockholders' equity (deficit)	$	10,871,017		$	46,080

See accompanying notes to consolidated financial statements

F-2

MASTER SILICON CARBIDE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In US Dollars)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


	December 31,			December 31,
	2010			2009
ASSETS

Current assets:
Cash and cash equivalents	$	1,987,041		$	6,194,047
Notes receivable		364,051			30,875
Accounts receivable, net		1,532,896			74,400
Tax refundable		120,909			617,380
Inventories		2,975,196			1,001,285
Prepaid expenses		307,690			62,723

Total current assets		7,287,783			7,980,710

Deposits-fixed assets		2,028,936			3,859,366
Other receivables		46,562			28,530
Amount due from related party		1,000,000			-
Property, plant and equipment, net		11,376,958			999,369
Construction in progress		4,415,703			7,555,461
Intangible assets, net		1,416,650			1,428,078

Total assets	$	27,572,592		$	21,851,514

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities	$	2,586,381		$	1,257,657
Tax payable		91,534			-
Advance from customers		565,196			113,189
Other payables		209,288			142,718
Amount due to related parties		886,748			860,060
Dividends accrued		150,000			150,000

Total current liabilities		4,489,147			2,523,624

Technology payable		15,100			-
Long-term loans		4,529,875			1,464,515

Total liabilities		9,034,122			3,988,139

Redeemable Preferred Stock-A ($0.001 par value, 996,186 shares issued)
liquidation preference of $10.038 per share		10,000,000			9,466,295

Redeemable Preferred Stock-B ($0.001 par value, 920,267 shares issued)
liquidation preference of $10.8664 per share		10,000,000			10,000,000

Stockholders’ equity (deficit):
Common stock, $0.001 par value, 100,000,000 shares authorized;
3,269,215 and 2,671,483 shares issued and outstanding, respectively		3,269			2,671
Additional paid-in capital		4,646,926			4,047,524
Retained (deficit)		(6,562,995	)		(5,662,269	)
Accumulated other comprehensive income		451,270			9,154

Total stockholders’ equity (deficit)		(1,461,530	)		(1,602,920	)

Total liabilities, redeemable preferred stock and stockholders' equity (deficit)	$	27,572,592		$	21,851,514

(In US Dollars)

	Years Ended June 30,
	2009			2008
Revenues:
Revenues	$	1,593,117		$	-
Cost of revenues		1,382,331			-
Gross profit		210,786			-
General and administrative expenses		2,253,946			200,398
Total operating expenses		2,253,946			200,398
Loss from operations		(2,043,160	)		(200,398	)
Interest (income)		(52,847	)		-
Other expenses (income)		(446	)		(643	)
Total other (income) expense		(53,293	)		(643	)
Loss before income taxes		(1,989,867	)		(199,755	)
Income tax provision		35,940			-
Net loss	$	(2,025,807	)	$	(199,755	)
Dividends and accretion on redeemable preferred stock	$	943,093		$	-
Deemed dividend from issuance of preferred stock		1,245,036			-
Net loss attributable to common stockholders	$	(4,213,936	)	$	(199,755	)
Comprehensive loss:
Net loss	$	(2,025,807	)	$	(199,755	)
Foreign currency translation adjustment		5,401			-
Comprehensive loss	$	(2,020,406	)	$	(199,755	)
Basic and diluted net loss per share	$	(2.18	)	$	(0.22	)
Weighted average common shares outstanding
- basic and diluted		1,931,584			913,495

See accompanying notes to consolidated financial statements

F-3

MASTER SILICON CARBIDE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE PROFIT (LOSS) (In US Dollars)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

	For The Years Ended
	2010			2009

Revenues:
Revenues	$	12,948,096		$	1,775,559
Cost of revenues		9,803,074			1,841,836

Gross profit (loss)		3,145,022			(66,277	)

General and administrative expenses		2,935,460			1,646,794

Total operating expenses		2,935,460			1,646,794

Profit (loss) from operations		209,562			(1,713,071	)

Interest income		101,186			64,051
Other income		7,386			490

Total other income		108,572			64,541

Profit (loss) before income taxes		318,134			(1,648,530	)

Income tax provision		85,155			39,526

Net Profit (loss)	$	232,979		$	(1,688,056	)

Accretion on redeemable preferred stock	$	533,705		$	533,712

Dividends on preferred stock		600,000			600,000

Net loss attributable to common stockholders	$	(900,726	)	$	(2,821,768	)

Comprehensive profit (loss):

Net profit (Loss)	$	232,979		$	(1,688,056	)

Foreign currency translation adjustment		442,116			(7,367	)

Comprehensive profit (loss)	$	675,095		$	(1,695,423	)

Basic net profit (loss) per share	$	(0.30	)	$	(1.17	)

Diluted net profit (loss) per share	$	(0.30	)	$	(1.17	)

Weighted average common shares outstanding:
Basic		3,044,861			2,421,047
Diluted		22,209,391			12,408,728

(In US Dollars)

	Preferred Stock, $0.001 Par Value				Common Stock, $0.001 Par Value				Additional Paid-in			Deferred			Retained			Other accumulated comprehensive
	Shares		Amount		Shares		Amount		Capital			Compensation			Earnings			Income (Loss)		Total
Balance as of June 30, 2007		-	$	-		825,000	$	825	$	6,542		$	-		$	(15,932	)	$	-	$	(8,565	)
Issuance of common stock, $.30 per share on July 30, 2007						100,000		100		29,900											30,000
Issuance of common stock, $2.00 per share on January 29, 2008						900		1		1,799											1,800
Issuance of warrants for future services										199,200			(199,200	)							-
Issuance of common stock, $2.00 per share in April 2008						45,000		45		89,955											90,000
Issuance of common stock $2.00 per share on May 12, 2008, net of legal fee of $9,771						29,700		30		49,599											49,629
Amortization of deferred compensation													74,700								74,700
Net loss for the year																(199,755	)				(199,755	)
Balance as of June 30, 2008		-	$	-		1,000,600	$	1,001	$	376,995		$	(124,500	)	$	(215,687	)	$	-	$	37,809
Issuance of common shares on September 2, 2008 in connection with Yili China acquisition						925,000		925		924,075											925,000
Issuance of warrants in connection with issuance of Series A convertible preferred stock for cash on September 2, 2008										1,245,321											1,245,321
Amortization of deferred compensation													99,600								99,600
Conversion of Series A preferred stock dividend on October 1, 2008						48,151		48		48,285											48,333
Conversion of Series A preferred stock dividend on December 31, 2008						149,433		149		149,851											150,000
Exercise of warrant for 40,000 shares of common stock at exercise price of $.001 Par Value on February 10, 2009						40,000		40		360											400
Series A preferred stock beneficial conversion										1,245,036						(1,245,036	)				-
Offering cost										(83,089	)										(83,089	)
Series A preferred stock dividend																(498,333	)				(498,333	)
Accrete debt discount																(444,760	)				(444,760	)
Conversion of Series A preferred stock dividend on April 1, 2009						149,433		150		149,850											150,000
Exercise of warrant for 60,000 shares of common stock at exercise price of $.001 Par Value on May 12, 2009						60,000		60		540											600
Foreign currency translation gain																			5,401		5,401
Net loss for the year																(2,025,807	)				(2,025,807	)
Balance as of June 30, 2009		-	$	-		2,372,617	$	2,373	$	4,057,224		$	(24,900	)	$	(4,429,623	)	$	5,401	$	(389,525	)

See accompanying notes to consolidated financial statements

F-4

MASTER SILICON CARBIDE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (In US Dollars)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Common Stock, $0.001 Par Value				Additional Paid-in			Retained Earnings			Accumulated Other Comprehensive
	Shares		Amount		Capital			(Deficit)			Income (Loss)		Total
Balance as of December 31, 2008		1,973,751	$	1,974	$	2,594,676		$	(414,020	)	$	-	$	2,157,730
Conversion of Series A preferred stock dividend on January 1, 2009		149,433		149		149,851								150,000
Exercise of warrant for 40,000 shares of common stock at exercise price of $.001														400
Par Value on February 9, 2009		40,000		40		360
Series A preferred stock dividend on March 31, 2009									(150,000	)				(150,000	)
Series A preferred stock beneficial conversion						1,245,036			(1,245,036	)				-
Offering cost						(83,089	)							(83,089	)
Accrete debt discount									(444,760	)				(444,760	)
Conversion of Series A preferred stock dividend on April 1, 2009		149,433		150		149,850								150,000
Exercise of warrant for 60,000 shares of common stock at exercise price of $.001														600
Par Value on May 12, 2009		60,000		60		540
Series A preferred stock dividend on June 30, 2009									(150,000	)				(150,000	)
Foreign currency translation gain												5,401		5,401
Net loss for the year									(2,025,807	)				(2,025,807	)
Conversion of Series A preferred stock dividend on July 1, 2009		149,433		149		149,850								149,999
Series A preferred stock dividend on September 30, 2009						(150,000	)							(150,000	)
Conversion of Series A preferred stock dividend on October 1, 2009		149,433		149		149,850								149,999
Series A preferred stock dividend on December 31, 2009						(150,000	)							(150,000	)
Amortization of deferred compensation														24,900
Series B financing cost						(9,400	)							(9,400	)
Accrete debt discount									(266,856	)				(266,856	)
Foreign currency translation gain												3,753		3,753
Net loss for the year									(965,790	)				(965,790	)
Balance as of December 31, 2009		2,671,483	$	2,671	$	4,047,524		$	(5,662,269	)	$	9,154	$	(1,602,920	)
Accrete debt discount on March 31, 2010									(133,428	)				(133,428	)
Conversion of Series A preferred stock dividend on January 1, 2010		149,433		150		149,850								150,000
Series A preferred stock dividend on March 31, 2010									(150,000	)				(150,000	)
Conversion of Series A preferred stock dividend on April 1, 2010		149,433		150		149,850								150,000
Series A preferred stock dividend on June 30, 2010									(150,000	)				(150,000	)
Accrete debt discount on June 30, 2010									(133,428	)				(133,428	)
Conversion of Series A preferred stock dividend on July 1, 2010		149,433		149		149,851								150,000
Series A preferred stock dividend on September 30, 2010									(150,000	)				(150,000	)
Accrete debt discount on September 30, 2010									(133,425	)				(133,425	)
Conversion of Series A preferred stock dividend on October 1, 2010		149,433		149		149,851								150,000
Series A preferred stock dividend on December 31, 2010									(150,000	)				(150,000	)
Accrete debt discount on December 31, 2010									(133,424	)				(133,424	)
Foreign currency translation gain												442,116		442,116
Net income for the year									232,979					232,979
Balance as of Dec 31, 2010		3,269,215	$	3,269	$	4,646,926		$	(6,562,995	)	$	451,270	$	(1,461,530	)

(In US Dollars)

	Years Ended June 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(2,025,807	)	$	(199,755	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation		78,184			-
Stock based compensation		1,024,600			74,700
Amortization		33,388			-
Changes in operating assets and liabilities:
Notes receivable		(15,739	)		-
Prepaid expenses		(26,254	)		-
Inventories		(421,610	)		-
Accounts payable & accrued liabilities		190,380			3,001
Accrued expenses and other current liabilities		3,968			-
Advance from customers		(121,798	)		-
Taxes refundable		(333,582	)		(2,670	)
Net cash provided by (used in) operating activities		(1,614,270	)		(124,724	)
Cash flows from investing activities:
Deposits - fixed assets and construction in process		(6,520,076	)		-
Purchase of intangible - land use right		(785,677	)		-
Purchase of Yili China		(555,096	)		-
Purchase of Yili China - cash acquired		23,226			-
Net cash used in investing activities		(7,837,623	)		-
Cash flows from financing activities:
Issuance of stocks with warrants, net of offering costs		9,917,909			171,429
Receipt of stock subscription receivable		-			500
Due to related parties - receipts		590,761
Due to related parties - payments		-			(3,750	)
Net cash provided by (used in) financing activities		10,508,670			168,179
Effect of exchange rate changes on cash		18,305			-
Net increase (decrease) in cash and cash equivalents		1,075,082			43,455
Cash and cash equivalents, beginning of year		46,080			2,625
Cash and cash equivalents, end of year	$	1,121,162		$	46,080
Supplemental disclosures of cash flow information:
Cash paid for interest		-			-
Cash paid for taxes		-			2,670
Noncash investing and financing activities:
Dividends payable		150,000			-
Issued common stock in exchange of dividend payable		348,333			-

See accompanying notes to consolidated financial statements

F-5

MASTER SILICON CARBIDE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)

	For The Years Ended
	2010			2009

Cash flows from operating activities:
Net profit (loss)	$	232,979		$	(1,688,056	)
Adjustments to reconcile net profit (loss) to net cash
provided by (used in) operating activities:
Depreciation		477,787			116,471
Stock based compensation		-			74,700
Amortization		43,572			51,761
Allowance for bad debt		38,416			-
Changes in operating assets and liabilities:
Notes receivable - trade		(325,683	)		(82,629	)
Accounts receivable		(1,463,025	)		(18,625	)
Other receivables		(16,775	)		69,865
Prepaid expenses		(237,815	)		(94,421	)
Inventories		(1,900,710	)		(261,937	)
Accounts payable and accrued liabilities		1,269,196			231,796
Other current liabilities		55,478			52,805
Advance from customers		438,769			(717,741	)
Taxes refundable		(118,287	)		(619,161	)
Taxes payable		710,204			-

Net cash provided by (used in) operating activities		(795,894	)		(2,885,172	)

Cash flows from investing activities:
Deposits - fixed assets and construction in progress		(5,399,399	)		(10,054,126	)
Advances to related parties receivable		(2,172,500	)		-
Proceeds from related parties receivables		1,172,500			859,428

Net cash used in investing activities		(6,399,399	)		(9,194,698	)

Cash flows from financing activities:
Proceeds from loans		2,969,200			11,454,515
Due to related parties		-			(218	)

Net cash provided by (used in) financing activities		2,969,200			11,454,297

Effect of exchange rate changes on cash		19,087			1,670

Net increase (decrease) in cash and cash equivalents		(4,207,006	)		(623,903	)

Cash and cash equivalents, beginning of year		6,194,047			6,817,950

Cash and cash equivalents, end of year	$	1,987,041		$	6,194,047

Supplemental disclosures of cash flow information:
Cash paid for interest		-			-
Cash paid for taxes		2,011			-

Noncash investing and financing activities:

Conversion of Series A preferred stock dividend		600,000			600,000
Construction in progress moved to fixed assets		10,375,653			-

See accompanying notes to consolidated financial statements

F-6

Master Silicon Carbide Industries, Inc.

~~(Formerly Paragon~~December ~~SemiTech USA~~31, ~~Inc.)~~2010

June 30, 2009 and 2008

Notes to the Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND OPERATIONS

Paragon SemiTech USA Incorporated (“Paragon New Jersey”) was incorporated on April 10, 2002 under the laws of the State of New Jersey.

Master Silicon Carbide Industries, Inc., formerly Paragon SemiTech USA, Inc. was incorporated on May 21, 2007 under the laws of the State of Delaware. Prior to September 27, 2007, the date of merger with Paragon New Jersey, the Company was inactive. On September 2, 2008, Paragon SemiTech USA, Inc., through the acquisition of C3 Capital, Limited, a company incorporated in the Territory of the British Virgin Islands (“BVI”), acquired all of the equity interests in Yili Master Carborundum Production Co., Ltd. On November 12, 2008, Paragon SemiTech USA, Inc. changed its name to Master Silicon Carbide Industries, Inc. (“Master” or the “Company”). The Company believes that the new name will better identify the Company with the business conducted by its indirectly wholly-owned subsidiary in China, Yili Master Carborundum Production Co., Ltd., namely, the production and distribution of silicon carbide.

C3 Capital, Limited (“C3 Capital”), an international business company, was formed on July 26, 2005 in the British Virgin Islands by the Company. C3 Capital was inactive prior to September 2, 2008, the date of acquisition of Yili Master Carborundum Production Co., Ltd.

Yili Master Carborundum Production Co., Ltd. (“Yili China”) was incorporated on August 10, 1993 in the People’s Republic of China (“PRC”).

Master engages in the development, manufacturing and distribution of silicon carbide.

Merger of Paragon New Jersey

On September 27, 2007, the Company entered into a Reorganization and Stock Purchase Agreement (the “Reorganization Agreement”) with Paragon New Jersey. Pursuant to the Reorganization Agreement, the Company issued 675,000 shares ~~(6,750,000 shares prior to Reverse Split)~~ of its common stock at the time representing approximately 81.82% of the issued and outstanding shares of its common stock for the acquisition of all of the outstanding capital stock of Paragon New Jersey. As a result of the ownership interests of the former shareholder of Paragon New Jersey, for financial statement reporting purposes, the merger between the Company and Paragon New Jersey has been treated as a reverse acquisition with Paragon New Jersey deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with ~~Statement of Financial Accounting Standards No. 141~~ “Business Combinations” (“~~SFAS~~FASB ~~No.~~ASC ~~141~~805”). The reverse merger is deemed a capital transaction and the net assets of Paragon New Jersey (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Paragon New Jersey which are recorded at historical cost. ~~The equity of the Company is the historical equity of Paragon New Jersey retroactively restated to reflect the number of shares issued by the Company in the transaction.~~

Merger of C3 Capital, Limited

On September 2, 2008, pursuant to a Stock Purchase Agreement entered into by the parties and consummated on such date, Yili Carborundum USA, Inc. (“Yili US”), a recently formed Delaware corporation which is wholly-owned by the Company, a Delaware corporation (hereafter referred to as the “Company”, “we” or “us”, as applicable), acquired from Mr. Tie Li, for a cash purchase price of $10,000, all of the outstanding capital stock of C3 Capital, Limited, a company incorporated in the British Virgin Islands (“C3 Capital”). C3 Capital in turn has an agreement to purchase all of the equity interests of Yili Master Carborundum Production Co., Ltd. (“Yili China”), a wholly-owned foreign enterprise (“WOFE”) in the People’s Republic of China (the “PRC”) (“Yili China”), pursuant to which the Company paid $555,096 in cash for the acquisition of the equity interests of Yili China with the proceeds of the Private Placement (as defined below) closed on September 2, 2008. In addition, C3 Capital entered into (i) an agreement to purchase 90% of the equity interests in Xinjiang Ehe Mining and Metallurgy Co., Ltd., a corporation incorporated under the laws of the PRC on August 7, 2008 (“Ehe China”) from Mr. Zhigang Gao; and (ii) a Memorandum of Understanding with Mr. Zhigang Gao and Mr. Ping Li, for an option to purchase the assets to be secured by Xinjiang Paragon Master Mining Co., Ltd., a corporation to be formed under the laws of the PRC (“Quartz Mine China”). Ehe China and Quartz Mine China are currently inactive with no assets or operations. Ehe China intends to build a 3440,000 ton green silicon carbide project in the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental permissions and approvals, and Quartz Mine China intends to obtain the exploration and mining rights for a quartz mine in Wenquan County of Xinjiang Uygur Autonomous Region of the PRC.

F-67

Dissolution of Paragon New Jersey

On March 26, 2009, pursuant to the authorization of Master Silicon Carbide Industries, Inc., the sole shareholder, Paragon New Jersey was dissolved. The corporation has no assets, has ceased doing business and does not intend to recommence doing business, and has not made any distribution of cash or property to the shareholders within the last 24 months and does not intend to have any distribution following its dissolution.

Reincorporation

On November 2, 2009, Master Silicon Carbide Industries, Inc. (the “Registrant”), formerly a Delaware corporation, completed its reincorporation in Nevada by a merger of the Registrant with and into its wholly-owned subsidiary, Master Silicon Carbide Industries, Inc., a newly formed Nevada corporation (the “Reincorporation”). The Reincorporation effected a change in the Registrant’s legal domicile from Delaware to Nevada. The Registrant’s business, assets, liabilities, and headquarters were unchanged as a result of the Reincorporation and the directors and officers of the Registrant prior to the Reincorporation continued to serve the Registrant after the reincorporation. In addition, the Registrant’s stockholders automatically became stockholders of Master Silicon Carbide Industries, Inc. on a share-for-share basis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This basis differs from that used in the statutory accounts of the operating subsidiaries of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

The consolidated financial statements include (i) the accounts of the Company and (ii) the accounts of its consolidated subsidiaries, C3 Capital, Limited and Yili ~~China,~~ ~~for the period from September 2, 2008 (date of acquisition) through June 30, 2009~~China. All inter-company balances and transactions have been eliminated.

These consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $46,~~429~~562,~~623, but future profit is anticipated in the development of its business~~995. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to address the going concern issue by funding future operations through the sale of equity capital.

Business combination

In accordance with ~~Statement~~FASB ofASC ~~Financial Accounting Standards No. 141~~ 805 “Business Combinations”, ~~(“SFAS No. 141”)~~ the Company allocates the purchase price of acquired entities to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

Management makes estimates of fair values based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from revenues, customer relationships, key management and market positions, assumptions about the period of time the acquired trade names will continue to be used in the Company’s combined product portfolio, and discount rates used to establish fair value. These estimates are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting amounts of revenues and expenses during the reported period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates.

~~Cash equivalents~~F-8

~~The Company~~Cash ~~considers~~and ~~all highly liquid investments with maturities of three months or less at the time of purchase to be~~ cash equivalents. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. At June 30, 2009, the Company had $677,408 in one bank, which exceeds the FDIC insured limit of $250,000 by $427,408. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.

~~F-7~~For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits held by banks. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.

As of December 31, 2010, the cash balance in financial institutions in the United States was $1,813,674. Accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2010, the Company had deposits that were in excess of the FDIC insurance limit.

Accounts receivable

Trade accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense if any is included in general and administrative expenses.

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure to its customers.

Inventories

The Company values inventories, consisting of finished goods, work in process and raw materials, at the lower of cost or market. Cost is determined on the weighted average cost method. Cost of work in process and finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company follows ~~Statement~~ ofFASB ~~Financial~~ASC ~~Accounting~~330-10-30 ~~Standards No. 151~~ “Inventory-Overall-Initial ~~Costs an amendment of ARB No. 43, Chapter 4~~Measurement” ~~(“SFAS No. 151”)~~ for the allocation of production costs and charges to inventories. The Company allocates fixed production overheads to inventories based on the normal capacity of the production facilities expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. Judgment is required to determine when a production level is abnormally low (that is, outside the range of expected variation in production). Factors that might be anticipated to cause an abnormally low production level include significantly reduced demand, labor and materials shortages, and unplanned facility or equipment down time. The actual level of production may be used if it approximates normal capacity. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of abnormally low production or idle plant and unallocated overheads of underutilized or idle capacity of the production facilities are recognized as period costs in the period in which they are incurred rather than as a portion of the inventory cost.

The Company regularly reviews raw materials and finished goods inventories on hand and, when necessary, records a provision for excess or obsolete inventories based primarily on current selling price and sales prices of confirmed backlog orders. As of ~~June~~December 3031, ~~2008~~2010, the Company determined no reserves for obsolescence were ~~necessary~~immaterial.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets’ estimated useful lives ranging from five (5) years to twenty (20) years:

Furniture and office equipment	5 years
Motor vehicles	5-10 years
Machinery and equipment	10 years
Building	20 years

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations. Leasehold improvements, if any, are amortized on a straight-line basis over the lease period or the estimated useful life, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

F-9

Land use right

Land use right represents the cost to obtain the right to use certain land in the PRC. Land use right is carried at cost and amortized on a straight-line basis over the life of the right of approximately fifty (50) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts. Land use right is included in intangible assets on the Balance Sheet.

F-8

Impairment of long-lived assets

The Company follows ~~Statement~~FASB ofASC ~~Financial~~360-10-35-15 ~~Accounting Standards No. 144~~ “~~Accounting for the~~ Impairment or Disposal of Long-Lived Assets” ~~(“SFAS No. 144”)~~ for its long-lived assets. The Company’s long-lived assets, ~~which include property, plant and equipment, land use right, software and production license~~ are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company determined that there were no impairments of long-lived assets as of ~~June~~December 3031, ~~2009 or 2008~~2010.

Redeemable preferred stock

On September 2, 2008, the Company completed the sale to China Hand Fund I, LLC and/or its designees or assignees of 996,186 units for total proceeds of $10,000,000, each unit consisting of one share of the Company’s Series A Convertible Preferred Stock and one three year warrant to purchase ~~twenty-five~~2.5 shares of the Company’s common stock (after the 1:10 reverse split). The preferred stock pays annual dividends of 6% regardless of the Company’s profitability, which dividend may be paid in common stock at the option of the Company. Each preferred share is convertible into ten shares of common stock. ~~Upon~~After December 30, 2010, the Company ismay be required to redeem for cash the outstanding preferred stock, if not previously converted by the holders, for $1.0038 per share plus accrued but unpaid dividends. Because the ~~Company~~preferred isstock ~~required~~contains toa ~~redeem~~redemption ~~the~~feature ~~preferred stock~~outside onthe ~~December~~control ~~30,~~of ~~2010,~~the if Company, it ~~has~~is ~~not~~classified ~~been~~outside ~~previously~~of ~~converted~~stockholders’ byequity ~~the holders,~~ in accordance with EITF Topic D-98~~, the preferred stock is classified outside of stockholders’ equity~~.

In accordance with ~~Accounting~~FASB ~~Principles~~ASC ~~Board (“APB”) No. 14~~470-20-25, “~~Accounting for Convertible~~ Debt ~~and~~ -Debt ~~Issued~~ with ~~Stock~~Conversion ~~Purchase Warrants,~~Options-Recognition”, the Company allocated the proceeds received between the preferred stock and the warrants. The resulting discount from the face amount of the preferred stock is being amortized using the effective interest method over the period to the required redemption date. After allocating a portion of the proceeds to the warrants, the effective conversion price of the preferred stock was lower than the market price at the date of issuance and therefore a beneficial conversion feature was recorded. The dividends on the preferred stock, together with the periodic accretion of the preferred stock to its redemption value, are charged to retained earnings.

On September 21, 2009, the Company entered into a Note Purchase Agreement with Vicis Capital Master Fund and/or its successor and assigns, an accredited investor (the “Investor”) where in consideration of $10,000,000, the Investor purchased from the Company a convertible promissory note in a principal amount of $10,000,000, (the “Note”). The Note was due on December 31, 2009, and was automatically convertible into 920,267 shares of the Series B Convertible Preferred Stock of Master Silicon Carbide Industries, Inc., a Nevada corporation (“MSCI Nevada”), within three business days after the Company merged into MSCI Nevada, completing the Company’s reincorporation from Delaware to Nevada on or around November 2, 2009 (the “Reincorporation”). Each preferred share is convertible into ten shares of common stock. After December 31, 2011, the Company may be required to redeem for cash the outstanding preferred stock, if not previously converted by the holders, for $1.087 per share. Because the preferred stock contains a redemption feature outside the control of the Company, it is classified outside of stockholders’ equity in accordance with EITF Topic D-98.

Fair value of financial instruments

The Company follows ~~Statement~~FASB ofASC ~~Financial~~825-10-50-10 ~~Accounting Standards No. 107~~ “~~Disclosures about Fair Value of~~ Financial Instruments-Overall-Disclosure” ~~(“SFAS No. 107”)~~ for its financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, customer deposits, taxes payable, accrued expenses and other current liabilities, approximate their fair values because of the short maturity of these instruments.

F-10

Revenue recognition

The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“SAB No. 101”), as amended by SAB No. 104 (“SAB No. 104”) for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company derives the majority of its revenue from sales contracts with customers with revenues being generated upon the shipment of goods. Persuasive evidence of an arrangement is demonstrated via invoice, product delivery is evidenced by a warehouse shipping log as well as a signed bill of lading from the trucking or rail company and title transfers upon shipment, based on free on board (“FOB”) destination; the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.

F-9

Shipping and handling costs

The Company accounts for shipping and handling fees in accordance with ~~the~~FASB ~~Financial~~ASC ~~Accounting Standards Board Emerging Issues Task Force Issue No. 00-10~~ 705 “~~Accounting~~Cost ~~for~~of ~~Shipping~~Sales and ~~Handling Fees and Costs~~Services” ~~(“EITF Issue No~~. ~~00-10”).~~ Shipping and handling costs related to costs of raw materials purchased is in included in cost of revenue. While amounts charged to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.

Research and development

Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment and material and testing costs for research and development. There is no research and development costs for the fiscal year 2010 and 2009.

Advertising costs

Advertising costs are expensed as incurred. Advertising costs for the fiscal year ended December 31, 2010 and 2009 are $66,525.21 and 8,201.28, respectively.

Stock-based compensation

The Company adopted the fair value recognition provisions of ~~Statement~~FASB ofASC ~~Financial Accounting Standards No. 123 (revised 2004)~~ 718“~~Share~~Compensation-~~Based~~Stock ~~Payment~~Compensation” ~~(“SFAS No~~. ~~123R”).~~

We made the following estimates and assumptions in determining fair value:

Valuation and Amortization Method – We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Ø	Expected Term – The expected term represents the weighted-average period that our stock-based awards are expected to be outstanding. We applied the “Simplified Method” as defined in the Securities and Exchange Commission’s Staff Accounting Bulletins No. 107 and 110.

Ø	Expected Volatility – The expected volatility is calculated by considering, among other things, the expected volatilities of public companies engaged in similar industries.

Ø	Expected Dividend – The Black-Scholes valuation model calls for a single expected dividend yield as an input.

Ø	Risk-Free Interest Rate – The Company bases the risk-free interest rate on the implied yield currently available on United States Treasury zero-coupon issues with an equivalent remaining term.

Stock compensation expense is $1,024,600 for fiscal year 2009 and $74,700 for 2008.

Income taxes

The Company accounts for income taxes under ~~Statement~~FASB ofASC ~~Financial~~740 ~~Accounting Standards No. 109~~ “~~Accounting for~~ Income Taxes” ~~(“SFAS No~~. ~~109”).~~ Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of FIN 48.F-11

~~F-10~~The Company adopted the provisions of FASB ASC 740. The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FASB ASC 740, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of FASB ASC 740.

Segment reporting

~~Statement of~~ FASB ~~Financial~~ASC ~~Accounting Standards No. 131 (SFAS 131)~~280, “~~Disclosure~~Segment ~~about Segments of an Enterprise and Related Information~~Reporting” 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.

In accordance with ~~Statement~~FASB ofASC ~~Financial Accounting Standards No. 131 “Disclosure about Segments of an Enterprise and Related Information”~~280, the Company has reviewed its business activities and determined that multiple segments do not exist that need to be reported.

Foreign currency translation

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with ~~Statement~~FASB ofASC ~~Financial~~830 ~~Accounting Standards No. 52~~ “Foreign Currency ~~Translation~~Matters” ~~(“SFAS No. 52”)~~ and are included in determining net income or loss.

The financial records of the subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency of those subsidiaries. The parent’s functional currency is U.S. dollars. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the financial statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the statement of stockholders’ equity.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted from approximately RMB 8.28 per US dollar to approximately RMB 8.11 per US dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the US dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

Unless otherwise noted, the rate presented below per U.S. $1.00 was the noon buying rate for RMB in New York City as reported by the Federal Reserve Bank of New York on the date of its balance sheets contained in these consolidated financial statements. Management believes that the difference between RMB vs. US$ exchange rate quoted by the PBOC and RMB vs. US$ exchange rate reported by the Federal Reserve Bank of New York were immaterial. Translations do not imply that the RMB amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars. Translation of amounts from RMB into United States dollars (“US$”) has been made at the following exchange rates for the respective periods:

June 30, 2009
December 31, 2010
Balance sheet	~~RMB 6.8319 to US$1.00~~	RMB 6.6227 to US$1.00
Statement of income and comprehensive income	RMB 6.8331 to US$1.00
Statement of operations and comprehensive profit (loss)		RMB 6.7695 to US$1.00
September 2, 2008
Balance sheet	RMB 6.8252 to US$1.00

June 30, 2008
December 31, 2009
Balance sheet	~~RMB 6.8591 to US$1.00~~	RMB 6.8282 to US$1.00
Statement of income and comprehensive income	RMB 7.2754 to US$1.00
Statement of operations and comprehensive profit (loss)		RMB 6.8310 to US$1.00

Comprehensive income (loss)

The Company has adopted Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive Income” (“SFAS No. 130”). This statement establishes rules for the reporting of comprehensive income (loss) and its components. Comprehensive income (loss), for the Company, consists of net income (loss) and foreign currency translation adjustments and is presented in the Statements of Operations and Comprehensive Income (Loss) and Stockholders’ Equity.

F-11

Net loss per common share

Net loss per common share is computed pursuant to Statement of Financial Accounting Standards No. 128 “Earnings Per Share” (“SFAS No. 128”). Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period to reflect the potential dilution that could occur from common shares issuable through common stock equivalents.

	For fiscal year ended			For fiscal year ended
	June 30, 2009			June 30, 2008
Numerator for basic and diluted net loss per share - Dificit from continuing operations	$	(4,213,936	)	$	(199,755	)
Denominator for basic and diluted net loss per share - Weighted average shares of common stock outstanding		1,931,584			913,495
Basic and diluted net loss per share	$	(2.18	)	$	(0.22	)

The following table shows the weighted-average number of potentially dilutive shares excluded from the diluted net loss per share calculation for the fiscal years ended June 30, 2009 and 2008:

	For fiscal year ended		For fiscal year ended
	June 30, 2009		June 30, 2008
Series A preferred stock		8,215,546		-
Warrants		75,734		74,045
Total		8,291,280		74,045

Related party transaction

Related party payable

As of June 30, 2009, the Company owed Changchun Master Industries Co., Ltd. $859,813 whose stockholder is Zhigang Gao, who is the director of the Company. The loan payable is non-interest bearing, unsecured, and is due on September 15, 2009.

Pro Forma Financial Information

The unaudited pro forma financial information presented below summarizes the combined operating results of the Company and Yili China for the fiscal year ended June 30, 2009 as if the acquisition had occurred on July 1, 2008.

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place on July 1, 2008. The unaudited pro forma combined statements of operations combine the historical results of the Company and the historical results of the acquired entity for the periods described above.

F-12

	Historical information of the Company (1) (Audited)			Historical information of the acquired entity (2)		Pro Forma (Unaudited)
Net sales	$	1,593,117		$	304,860	$	1,897,977
Net income (loss)		(4,213,936	)		47,377		(4,166,559	)
Basic and diluted net loss per share	$	(2.18	)			$	(2.16	)
Basic and diluted weighted average common shares outstanding		1,931,584					1,931,584

Comprehensive income (loss)

~~Note:~~The Company has adopted FASB ASC 220 “Comprehensive Income”. This statement establishes rules for the reporting of comprehensive income (1loss) ~~The~~ ~~historical~~and ~~operating~~its ~~results~~components. ofComprehensive income (loss), for the Company, ~~were~~consists ~~based~~of onnet ~~the~~income ~~Company’s audited~~(loss) ~~financial~~and ~~statements~~foreign ~~for~~currency translation adjustments and is presented in the ~~year~~Statements ~~ended~~of ~~June~~Operations ~~30,~~and ~~2009~~Comprehensive Profit (Loss) and Stockholders’ Equity.

Net profit (2loss) ~~The~~ ~~historical~~per ~~information~~common ~~of Yili China was derived from the books and the records of Yili China for the two months ended August 31, 2008.~~share

Net profit (loss) per common share is computed pursuant to FASB ASC 260 “Earnings per Share”. Basic net profit (loss) per common share is computed by dividing net profit (loss) attributable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Diluted net profit (loss) per common share is computed by dividing net profit (loss) attributable to common shareholders by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period to reflect the potential dilution that could occur from common shares issuable through common stock equivalents.

	For fiscal year ended			For fiscal year ended
	December 31, 2010			December 31, 2009
Numerator for basic net profit
(loss) per share - Profit (loss)
attributable to common	$	(900,726	)	$	(2,821,768	)
shareholders
Numerator for diluted net profit
(loss) per share - Profit (loss)	$	232,979		$	(1,688,056	)
attributable to common
shareholders
Denominator for basic net profit
(loss) per share - Weighted		3,044,861			2,421,047
average shares of common stock
outstanding
Denominator for diluted net
profit (loss) per share -
Weighted average shares of		22,209,391			12,408,728
common stock outstanding
Basic net Profit (loss) per share	$	(0.30	)	$	(1.17	)
Diluted net Profit (loss) per share	$	(0.30	)	$	(1.17	)

The following table shows the weighted-average number of potentially dilutive shares for the fiscal year ended December 31, 2010 and 2009:

	For fiscal year ended		For fiscal year ended
	December 31, 2010		December 31, 2009
Series A preferred stock		9,961,860		9,961,860
Series B preferred stock		9,202,670		-
Warrants		-		25,821
Total		19,164,530		9,987,681

Common Stock

As of ~~June~~ 30December 31, ~~2009~~2010, the Company had 23,~~372~~269,~~617~~215 shares of Common Stock issued and outstanding.

On September 2, 2008, the Company issued to Mr. Zhigang Gao an aggregate of 9 925,~~250,~~000 shares of Common Stock ~~(925,000 shares after the Reverse Split)~~ as an inducement for Mr. Gao’s entry into an employment agreement with either the Company or Yili China, as the case may be, to serve as an executive officer of Yili China. The fair value of these common shares was equal to $925,000 and these shares were treated as ~~the~~ stock compensation cost after acquisition of Yili China.

On November 12, 2008, the Company effectuated a 1 for 10 reverse split on its outstanding Common Stock, par value $0.001 (the “Reverse Split”). Immediately after the Reverse Split, there were approximately a total of 1,925,600 shares of Common Stock outstanding. Such Reverse Split, however, does not reduce the number of shares of Common Stock that the Company was authorized to issue.

On February 10, 2009, the Company issued an aggregate of 40,000 shares of Common Stock to a designee of Columbia China Capital Group, Inc. as a result of the exercise of warrants for 40,000 shares of Common Stock (or 400,000 shares prior to the Reverse Split) at an exercise price of $.001.

On May 12, 2009, the Company issued an aggregate of 60,000 shares of Common Stock to a designee of Columbia China Capital Group, Inc as a result of the exercise of warrants for 60,000 shares of Common Stock (or 600,000 shares prior to the Reverse Split) at an exercise price of $.001.

During the fiscal year ended June 30, 2008, an aggregate of 347,017 shares of Common Stock were issued to the holders of Series A Preferred Stock as the dividends.

Redeemable Preferred Stock

As of June 30, 2009, the Company had 996,186 shares of Redeemable Series A Preferred Stock issued and outstanding.

On September 2, 2008, the Company completed the sale to China Hand Fund I, LLC and/or its designees or assignees of 996,186 units for total proceeds of $10,000,000, each unit consisting of one share of the Company’s Series A Convertible Preferred Stock and one warrant to purchase twenty-five shares of the Company’s common stock. The preferred stock pays annual dividends of 6% regardless of the Company’s profitability. Each preferred share is convertible into ten shares of common stock. Upon December 30, 2010, the Company is required to redeem for cash the outstanding preferred stock, if not previously converted by the holders, for $10.038 per share plus accrued but unpaid dividends. Because the Company is required to redeem the preferred stock on December 30, 2010, if it has not been previously converted by the holders, in accordance with EITF Topic D-98, the preferred stock is classified outside of stockholders’ equity.

F-13

~~In accordance~~On ~~with~~November ~~Accounting Principles Board (“APB”) No. 14~~12, ~~“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants~~2008,” the Company ~~allocated~~effectuated ~~the proceeds~~a ~~received~~1 ~~between~~for ~~the~~10 ~~preferred~~reverse ~~stock~~split ~~and~~on ~~the~~its ~~warrants.~~outstanding ~~The~~Common ~~resulting discount~~Stock, ~~from~~par ~~the~~value ~~face~~$0.001 ~~amount of~~ (the ~~preferred~~“Reverse ~~stock~~Split”). isImmediately ~~being~~after ~~amortized using~~ the ~~effective~~Reverse ~~interest~~Split, ~~method~~there ~~over~~were ~~the~~approximately ~~period to the required redemption date. After allocating~~ a ~~portion~~total of ~~the proceeds to the warrants~~1,925,600 ~~the~~shares ~~effective conversion price~~ of ~~the~~Common ~~preferred~~Stock ~~stock~~outstanding. ~~was~~Such ~~lower~~Reverse ~~than~~Split, ~~the~~however, ~~market~~does ~~price~~not atreduce the ~~date~~ number of ~~issuance~~shares ~~and~~of ~~therefore~~Common aStock ~~beneficial~~that ~~conversion~~the ~~feature~~Company was ~~recorded.~~authorized ~~The dividends~~to onissue. ~~the~~All ~~preferred~~references ~~stock,~~to ~~together~~Common ~~with~~Stock ~~the~~in ~~periodic~~these ~~accretion~~financial ofstatements ~~the preferred~~are ~~stock~~ to ~~its~~post-Reverse ~~redemption~~Split ~~value, are charged to retained earnings~~shares.

On February 9, 2009, the Company issued an aggregate of 40,000 shares of Common Stock to a designee of Columbia China Capital Group, Inc. as a result of the exercise of warrants for 40,000 shares of Common Stock at an exercise price of $.001.

On May 12, 2009, the Company issued an aggregate of 60,000 shares of Common Stock to a designee of Columbia China Capital Group, Inc. as a result of the exercise of warrants for 60,000 shares of Common Stock at an exercise price of $.001.

From September 2, 2008 through December 31, 2010, an aggregate of 1,243,615 shares of Common Stock were issued to the holders of Series A Preferred Stock as dividends.

Dividend

During the ~~year~~fourth quarter of 2010, the Company accrued $~~498~~150,~~333~~000 ~~dividend~~in dividends pursuant to the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated August 29, 2008. During the fiscal year of 2010, the Company issued ~~347~~597,~~017~~ 732 shares of common ~~stocks~~stock, inor ~~the~~$600,000 ~~amount~~at a fair market value of ~~$348~~Common Stock,~~333~~ as payment of the dividend of ~~the~~ Series A ~~Convertible~~ Preferred Stock. As of ~~June~~December 3031, ~~2009~~2010, dividend payable remains $150,000 unpaid.

Warrants

On September 2, 2008, we issued 2,490,465 warrants to the holder or its designees or assignees of Series A Convertible Preferred Stock (after the 1:10 reverse split). The exercise price on a post reverse split basis of this three year warrant is $1.25 per share. On February 9, 2009 and May 12, 2009, Columbia China Capital Group (“CCG”) exercised warrants for 40,000 and 60,000 shares of common stock. The outstanding warrants will be terminated on September 1, 2011. The following table summarized the warrant activity during the fiscal year of 2010 and 2009:

	Number of shares			Weighted average
				exercise price
Outstanding, December 31, 2008		2,590,465		$	1.20
Exercised		(100,000	)		0.01
Outstanding, December 31, 2009		2,490,465			1.25
Exercised		-			-
Outstanding, December 31, 2010		2,490,465		$	1.25

The Company issued warrants in connection with financing instruments. The Company analyzed the warrants in accordance with ASC Topic 815 to determine whether the warrants meet the definition of a derivative under ASC Topic 815 and, if so, whether the warrants meet the scope exception of ASC Topic 815, which is that contract issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC Topic 815.

The warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction; the warrants do not have “down-round protection”. The warrants meet the conditions for equity classification pursuant to FASB ASC 815 “Derivatives and Hedging” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Therefore, these warrants were classified as permanent equity.

Recently issued accounting pronouncements

In ~~April 2008~~June 2009, the FASB ~~issued~~established ~~FASB~~the ~~Staff~~Accounting ~~Position~~Standards Codification (“~~FSP~~Codification”) ~~No.~~or ~~SFAS~~“ASC”) ~~142-3,~~as ~~Determination of~~ the ~~Useful~~source ~~Life~~ of ~~Intangible~~authoritative ~~Assets~~accounting ~~(“FSP~~principles ~~SFAS~~recognized ~~142-3”).~~by ~~FSP SFAS 142-3 amends~~ the ~~factors~~FASB ~~that~~to ~~should~~ be ~~considered~~applied inby ~~developing~~nongovernmental ~~renewal~~entities orin ~~extension assumptions used to determine~~ the ~~useful~~preparation ~~life~~ of afinancial ~~recognized~~statements ~~intangible~~in ~~asset under~~accordance ~~SFAS~~with ~~No.~~generally ~~142,~~accepted ~~Goodwill~~accounting ~~and~~principles ~~Other~~in ~~Intangible~~the ~~Assets~~United States (“~~SFAS 142~~GAAP”). ~~The intent~~Rules ofand ~~FSP~~interpretive ~~SFAS~~releases ~~142-3~~of ~~is to improve~~ the ~~consistency~~Securities ~~between~~and ~~the~~Exchange ~~useful~~Commission ~~life of~~(“SEC”) aissued ~~recognized intangible asset~~ under ~~SFAS~~authority ~~142 and the period~~ of ~~expected~~federal ~~cash flows~~securities ~~used~~laws toare ~~measure~~also ~~the~~sources ~~fair value~~ of ~~the~~GAAP ~~asset~~for ~~under~~SEC ~~SFAS No~~registrants. ~~141R~~Existing ~~(revised 2007),~~GAAP ~~Business~~was ~~Combinations~~not ~~and~~intended ~~other~~to ~~applicable~~be ~~accounting~~changed ~~literature.~~as ~~FSP SFAS~~a ~~142-3~~result isof ~~effective~~the ~~for financial statements issued for fiscal years beginning after December 15~~Codification, ~~2008~~ and ~~must~~accordingly bethe ~~applied~~change ~~prospectively~~did ~~to intangible~~not ~~assets~~impact ~~acquired~~our ~~after~~financial ~~the effective date~~statements. The ~~adoption~~ASC ofdoes ~~this statement~~change isthe ~~not~~way ~~expected~~the toguidance ~~have~~is aorganized ~~material~~and ~~impact on our consolidated financial position or results of operations~~presented.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect that the adoption of SFAS No. 161 will have a material impact on its consolidated results of operations or financial position.

In February 2008, the FASB issued Staff Position No. FAS 157-2, which provides for a one-year deferral of the effective date of SFAS No. 157, Fair Value Measurements, for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is evaluating the impact of this standard as it relates to the Company’s financial position and results of operations.

On June 12, 2009 the FASB issued two statements that amended the guidance for off-balance-sheet accounting of financial instruments: SFAS No. 166, Accounting for Transfers of Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 166 revised SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. The statement eliminates the concept of a qualifying special-purpose entity, changes the requirements for the derecognition of financial assets, and calls upon sellers of the assets to make additional disclosures about them.

SFAS No. 167 amends FASB Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, by altering how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity’s purpose and design and the parent company’s ability to direct the entity’s actions. The standards will be effective at the start of the first fiscal year beginning after November 15, 2009.

The FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. Once it’s effective, it will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 replaces SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standards Codification.

F-14

Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and Various other ASU’s No. 2009-2 through ASU No. 2011-01 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Going Concern

As shown in the accompanying consolidated financial statements, the Company had ~~minimum working capital and~~ an accumulated deficit incurred through ~~June~~December 3031, ~~2009~~2010, which ~~raise~~ raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships. Management intends to seek new capital from new equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.

NOTE 3 -– ~~ACQUISITION~~NOTES RECEIVABLE

~~On September~~ Notes 2,receivable ~~2008,~~at ~~pursuant~~December to31, a2010 ~~Stock Purchase Agreement entered into by the parties~~ and ~~consummated~~December ~~on such date~~31, ~~Yili~~2009 USconsisted ~~acquired from Mr. Tie Li, for a cash purchase price~~ of ~~$10,000, all of~~ the outstanding capital stock of C3 Capital, Limited (“C3 Capital”). C3 Capital in turn has an agreement to purchase all of the equity interests of Yili Master Carborundum Production Co., Ltd., a wholly-owned foreign enterprise (“WOFE”) in the People’s Republic of China (the “PRC”) (“Yili China”), pursuant to which the Company paid $555,096 in cash for the acquisition of the equity interests of Yili China. The acquisition of Yili China was accounted for using the purchase method of accounting in accordance with SFAS No. 141 “Business Combinations” by allocating the purchase price over the assets acquired, including intangible assets, and liabilities assumed, based on their estimated fair values at the date of acquisition. The purchase price has been allocated to the assets and liabilities as followsfollowing:

Cash	$	23,226
	31-Dec-10				31-Dec-09
Accounts receivable		1,208
Customer Name	Amount			Term	Amount		Term
Inventory		298,640
Tengzhou Tongfeng Grinding
assets		195,017
Medium Co., Ltd	$	15,100		5 months $		-
Preperty, plant and equipment		787,554
Tengzhou Shengtai Grinding Medium
Software		846
Co., Ltd		53,845		6 months		-
Production license		688,214
Zaozhuang Xingfa Grinding Medium
Accounts payable		(843,040	)
Co., Ltd		37,749		2 months		-
Customer deposits		(170,859	)
Henan Kangtai Silicon Powder Co., Ltd		226,494		5 months		-
Taxes payable		(63,843	)
China Silicon Corporation		30,863		1 month		-
Accrued expenses and other		(92,871	)
Jiangyin Huahong Silicon Powder
Advances from stockholders		(268,996	)
Co., Ltd		-				30,875	3 months
Total purchase price	$	555,096
Total	$	364,051			$	30,875

~~A production~~NOTE ~~license~~4 ~~was~~– ~~issued~~ACCOUNTS by the Chinese government to permit Yili China to produce silicon carbide in China. The production license was assessed at $688,214 and will be amortized over the operating period of Yili China from September 2008 to April 2035. For each month, the amount of amortization is $2,151.RECEIVABLE

~~NOTE 4~~The –Company ~~INVENTORIES~~accrued an allowance for bad debts related to its accounts receivable. The accounts receivable and allowance balances at December 31, 2010 and 2009 were as follows:

Inventories at June 30, 2009 and June 30, 2008 consisted of the following:

	31-Dec-10			31-Dec-09

Accounts receivable	$	1,579,750		$	81,758
Allowance for bad debts		(46,854	)		(7,358	)
Accounts receivable, net	$	1,532,896		$	74,400

	Fiscal Year Ended		Fiscal Year Ended June
	June 30, 2009			30, 2008
Raw materials	$	58,583	$	-
Finished goods		537,031		-
Work in progress		124,416		-
Total	$	720,030	$	-

F-15

NOTE 5 – ~~INTANGIBLE ASSETS~~INVENTORIES

Inventories at December 31, 2010 and December 31, 2009 consisted of the following:

	31-Dec-10		31-Dec-09

Raw materials	$	306,249	$	471,690
Finished goods		2,352,406		462,314
Work in progress		316,541		67,281
Total	$	2,975,196	$	1,001,285

NOTE 6 – RELATED PARTY

We lease our office space at both 558 Lime Rock Road, Lakeville, Connecticut and 420 Lexington Avenue, Suite 860, New York, NY from Kuhns Brothers, Inc. and its affiliates (“Kuhns Brothers”). Our Chairman and CEO, Mr. Kuhns, is a controlling shareholder, President, CEO and Chairman of Kuhns Brothers. The lease commenced on September 1, 2008 for a term of one year with a monthly rent of $7,500, and such lease was extended for a year with the same rate of rent after September 1, 2009. On September 1, 2010, we extended the lease with the same rate of rent for one year.

According to Management Service Agreement, the Company paid Kuhns Brothers an annual management fee of one hundred and fifty thousand dollars ($150,000) starting from January 2010. The management fee was paid on a monthly basis ($12,500 per month) on the first day of each month. The Company totally paid the management fee of $150,000 in 2010.

On February 10, 2010, the Company (“Creditor”) signed a loan agreement with China Silicon Corporation, a Delaware corporation (“Debtor” or “CSC”) to extend a loan of One Million U.S. Dollars (US $1,000,000) to Debtor to fund working capital needs. The actual controlling shareholder of Creditor and Debtor is the same one. The interest rate of this loan is six percent (6%) per annum. Debtor promised to pay to Creditor the principal sum of One Million U.S. Dollars on December 31, 2010. However, CSC has not yet paid off the note. Debtor delivered a promissory note of US $1,000,000 to Creditor. On April 14, 2010, the Company extended another loan (the “Second Loan”) of $1,172,500 to Debtor. The Second Loan was made to fund CSC’s working capital. The Second Loan is interest free and was repaid on April 21, 2010.

As of December 31, 2010 and December 31, 2009, the Company owed Changchun Master Company $886,748 and $860,060, respectively, whose stockholder is Zhigang Gao and who is the director of the Company. The loan payable is non-interest bearing, unsecured, and is payable on demand.

NOTE 7 – DEPOSITS – FIXED ASSETS

Deposits to purchase fixed assets included the deposits to establish the buildings and equipment for the three production lines. Deposits at December 31, 2010 and December 31, 2009 consisted of the following:

	31-Dec-10		31-Dec-09

Deposit for buildings	$	452,915	$	1,469,348
Deposit for equipment		1,576,021		2,390,018
Total	$	2,028,936	$	3,859,366

NOTE 8 – INTANGIBLE ASSETS

On October 28, 2008, the Company entered into an agreement with the Chinese government, whereby the Company paid RMB 5,403,579 to acquire the land use right and obtained a certificate of the land use right until October 27, 2058. The purchase price is being amortized over the term of the right of approximately fifty (50) years beginning on November 1, 2008 and amortization expense used in production is reported in cost of revenues.

Intangible assets at June 30, 2009 and June 30, 2008 consisted of the following:

	Fiscal Year Ended			Fiscal Year Ended
	June 30, 2009			June 30, 2008
Land use right	$	790,934		$	-
Production license		688,214			-
Software		3,041			-
Less: accumulated amortization		(33,494	)		-
Total	$	1,448,695		$	-

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2009 and June 30, 2008 consisted of the following:

	Fiscal Year Ended			Fiscal Year Ended
	June 30, 2009			June 30, 2008
Buildings	$	243,455		$	-
Machinery and equipment		604,154			-
Motor vehicles		202,210			-
Office equipment		27,532			-
Less: accumulated depreciation		(78,184	)		-
Property and equipment, net	$	999,167		$	-

Depreciation related to property and equipment used in production is reported in cost of revenues.

NOTE 7 - FOREIGN OPERATIONS

Substantially all of the Company’s operations are carried out and all of its assets are located 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. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

NOTE 8 – SUBSEQUENT EVENT

There are no subsequent events. The Company has evaluated subsequent events from the balance sheet date through September 18, 2009.

F-16

Intangible assets at December 31, 2010 and December 31, 2009 consisted of the following:

	31-Dec-10			31-Dec-09

Land use right	$	815,918		$	790,934
Production license		709,258			688,214
Software		11,530			3,041
Less: accumulated amortization		(120,056	)		(54,111	)
Total	$	1,416,650		$	1,428,078

NOTE 9 – PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2010 and December 31, 2009 consisted of the following:

	31-Dec-10			31-Dec-09

Buildings	$	6,480,400		$	243,972
Machinery and equipment		5,135,138			614,565
Motor vehicles		299,417			236,933
Office equipment		96,572			45,691
Less: accumulated depreciation		(634,569	)		(141,792	)
Property and equipment, net	$	11,376,958		$	999,369

Depreciation related to property and equipment used in production is reported in cost of revenues. Depreciation expense for the fiscal year ended December 31, 2010 was $477,787, of which $39,504 was included in G&A expense and $438,283 was included in cost of revenue. During the same period of last year, depreciation expense was $116,471, of which $25,052 was included in G&A expense and $91,419 was included in cost of revenue.

NOTE 10 – CONSTRUCTION IN PROGRESS

Construction in progress consists of capitalized costs associated with the construction of production lines that are not yet in service and therefore not yet being depreciated. All facilities purchased for installation, self-made or subcontracted, are accounted for under construction-in-progress. Construction-in-progress is recorded at acquisition cost, including cost of facilities, installation expenses and the interest capitalized during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to fixed assets.

	31-Dec-10		31-Dec-09

Buildings	$	2,469,145	$	1,235,278
Construction in progress		812,726		3,020,106
Equipment		775,382		2,586,123
Capitalized interest		75,422		17,730
Others		283,028		696,224
Total	$	4,415,703	$	7,555,461

Total capitalized interest for the fiscal year ended December 31, 2010 was $325,511. For the same period of last year, total capitalized interest was $17,730.

F-17

NOTE 11 – LONG-TERM LOANS

On October 23, 2009, Yili China borrowed a three-year long-term loan with principal of $1,509,958 from the Yili branch, Bank of China with an interest rate at 6.48% annually and the maturity date on October 21, 2012. On January 4, 2010, Yili China borrowed a three-year long-term loan with principal of $3,019,917 from the Yili branch, Bank of China with an interest rate at 6.48% annually and the maturity date on January 3, 2013. These loans are secured by the building, machinery and equipment of Yili China. The principal amount will be due at the maturity date.

	Interest			Maturity			Interest payments
	Rate			Date	Amount		2010		2011		2012		2013
Yili branch, Bank of China		6.48	%	22-Oct-12	$	1,509,958	$	97,845	$	97,845	$	79,349	$	-
Yili branch, Bank of China		6.48	%	3-Jan-13		3,019,917		195,691		195,691		195,691		1,631
					$	4,529,875	$	293,536	$	293,536	$	275,040	$	1,631

NOTE 12 – INCOME TAXES

USA

The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. As the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of December 31, 2010 and December 31, 2009. However, the Company has to pay corporate tax due to the rules of certain states.

BVI

C3 Capital, an international business company, was formed on July 26, 2005 in the British Virgin Islands by the Company. As a BVI company, C3 Capital does not have any income tax.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Yili China. The tax provision was $85,155 and $39,526, respectively, for the fiscal years ended December 31, 2010 and December 31, 2009.

F-18

	For fiscal year ended			For fiscal year ended
	December 31, 2010			December 31, 2009
Income (loss) before income tax
United States	$	(509,355	)	$	(642,667	)
China	$	829,415		$	(1,005,313	)
Total		320,060			(1,647,980	)
Provision for income taxes
Current income tax	$	85,155		$	39,526
Deferred income tax		-			-
Total	$	85,155			39,526
Effective worldwide tax rate		26.6	%		-2.4	%
Reconciliation of effective income tax rate
Stautory U.S. tax rate		34.0	%		34.0	%
Tax rate difference		-9.0	%		-9.0	%
Valuation allowance - US only		39.8	%		-9.7	%
Valuation allowance - PRC only		-			-15.3	%
PRC NOL utilized		-38.2	%		-
Other, net		-			-2.4	%
Effective worldwide tax rate		26.6	%		-2.4	%

During the fiscal year of 2010, the United States entity had a net operating loss of $509,355 for which no benefit was realized and a 100% valuation allowance was created. The valuation allowance ratio for the US side was 39.8%. At the same time, the Chinese entity had a net income before income tax of $829,415. The PRC tax authority allowed part of the PRC NOL to be used when calculating income tax. The PRC NOL utilized ratio was -38.2%.

During the fiscal year of 2009, the United States entity had a net operating loss of $642,667 for which no benefit was realized and a 100% valuation allowance was created. The valuation allowance ratio for the US side was -9.7%. At the same time, the PRC entity had a net operating loss of $1,005,313 for which no benefit was realized and a 100% valuation allowance was created. The valuation allowance ratio for the Chinese side was -15.3%.

No provision for deferred tax assets or liabilities has been made, since the Company had no material temporary differences between the tax bases of assets and liabilities and their carrying amounts.

There is no material unrecognized tax benefit as of December 31, 2010 and 2009.

Current tax of $85,155 for the fiscal year ended December 31, 2010 was paid for PRC income tax. Income tax for the fiscal year ended December 31, 2009 was $39,526 which was also paid for PRC income tax.

NOTE 13 – CUSTOMER CONCENTRATIONS

Customers, those with sale-percentages over 10%, have been listed as follows:

	31-Dec-10			31-Dec-09
Jiangsu Dayang Silicon Powder Co., Ltd		20.6	%
Guiqing Silicon Powder Co., Ltd		11.9	%
Henan Kangtai Silicon Powder Co., Ltd		11.8	%
Urumqi Tianlide Industry and Trading Co., Ltd					13.1	%
Zhoucun Silicon Carbide Co., Ltd					10.3	%

F-19

Vendors, those with purchasing-percentages over 10%, have been listed as follows:

	31-Dec-10			31-Dec-09
Yihe Hydro Center		31	%		35	%
Xinjiang Jufeng Trading Co., Ltd		21	%
Xingjiang Huayu Energy Co., Ltd		15	%
Karamay Rongtai Chemical Co., Ltd					12	%

NOTE 14 - FOREIGN OPERATIONS

Substantially all of the Company’s operations are carried out and substantially most of its assets are located 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. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

NOTE 15 – SUBSEQUENT EVENT

On January 1, 2011, an aggregate of 149,433 shares of Common Stock were issued to the holders of Series A Preferred Stock as dividends. The Company has evaluated subsequent events from the balance sheet date through when the report is issued.

F-20

Filing Compare · Master Silicon Carbide Industries, Inc.