UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, ~~2010~~2011

o¨ 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)

Nevada		01-0728141
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

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 þ 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 ~~March~~June 3130, 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 (1433,~~107,843~~620 shares on ~~March~~June 3130, 2011, based on an assumed market value per share of $1.0038) was $1435,~~112,053~~268. 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.

As of ~~March~~April 3113, ~~2011~~2012, there were 34,~~418~~016,~~648~~ 380 shares of the Registrant’s Common Stock issued and outstanding.

Master Silicon Carbide Industries, Inc.

Form 10-K

Table of Contents

			Page	~~Page~~
PART I
Item 1.	Business	~~Business~~	3	3
Item 2.	Description of Properties	~~Description of Properties~~	8	8
Item 3.	Legal Proceedings	~~Legal Proceedings~~	8	8
Item 4.	Mine Safety Disclosures	~~Removed and Reserved~~	8
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	8	8
Item 6.	Selected Financial Data	~~Selected Financial Data~~	9	9
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~	9	9
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~	14	15
Item 8.	Financial Statements and Supplementary Data	~~Financial Statements and Supplementary Data~~	14	15
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	15	15
Item 9A(T).		Controls and Procedures		15
Item 9A.	Controls and Procedures		15
Item 9B.	Other Information	~~Other Information~~	16	15
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~Directors, Executive Officers and Corporate Governance~~	16	15
Item 11.	Executive Compensation	~~Executive Compensation~~	20	18
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	21	19
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~Certain Relationships and Related Transactions, and Director Independence~~	22	20
Item 14.	Principal Accounting Fees and Services	~~Principal Accounting Fees and Services~~	23	21
PART IV
				21
Item 15.	Exhibits, Financial Statement Schedules		24
Item 15.		Exhibits, Financial Statement Schedules
Signatures			26
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 and anticipated financial 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 ability to obtain necessary financing; 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) Yili Carborundum USA, Inc. (“ Yili US ”); (iii) C3 Capital, Limited (“ C3 Capital ”); ~~and~~ (iv) Yili Master Carborundum Production Co., Ltd. (“ Yili China ”) and (v) Beijing Master Consulting Co., Ltd. (“Master Consulting”).

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 March 2928, ~~2011~~2012, US$1.00 = 6.~~56195~~3002 yuan; 1 yuan=US $0.~~15239~~158725.

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. and later changed its name into “Master Silicon Carbide Industries, Inc.” on November 12, 2008. It was reincorporated to the State of Nevada on November 2, 2009. The Company is currently quoted on the OTC-BB under the symbol “MAST.” Through a series of transactions in 2008 described immediately below, the Company acquired substantially the business and assets of Yili Master Carborundum Production Co., Ltd. (“Yili China”), a manufacturer of silicon carbide in People’s Republic of China (the “PRC”).

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

3* On August 7, 2008, C3 Capital entered into an agreement to purchase 90% of the equity interests in Ehe China from Mr. Zhigang Gao for RMB900,000. Such purchase price has not been paid as of the date hereof. The remaining 10% of the equity interest of Ehe China is owned by Changchun Master Industries Co., Ltd, which is controlled by Zhigang Gao.

** OnThe ~~August~~Company 7,used ~~2008, C3 Capital entered into an agreement~~ to ~~purchase~~own 90100% ~~of the equity~~ interests inof ~~Ehe~~Paragon ~~China~~Semitech USA ~~from Mr. Zhigang Gao for RMB900~~Incorporated,~~000. Such~~ ~~purchase~~a ~~price~~New ~~has~~Jersey ~~not~~corporation ~~been~~(“Paragon ~~paid as of the date of this Annual Report~~NJ”). ~~The~~On ~~remaining~~March ~~10% of the equity interest of Ehe China is owned by Changchun Master Industries Co.~~26, ~~Ltd~~2009, ~~which~~the isCompany ~~controlled~~authorized byto ~~Zhigang~~dissolve ~~Gao~~Paragon NJ.

** Pursuant to a certain memorandum of understanding among C3 Capital, Mr. Zhigang Gao and Mr. Ping Li, dated August 25, 2008, C3 Capital is entitled to acquire 100% of Quartz Mine China, an entity to be formed in China (the “Option”). Such Option is to be effective upon the completion of the registration of Quartz Mine China with its local Industry and Commerce Bureau in China and shall expire on the earlier date 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 purchase through Quartz Mine China the mining rights for a quartz mine in Wenquan County of Xinjiang Uygur Autonomous Region of the PRC.3

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.

Yili China was formed in April 2005 and commenced production in January 2006. ~~Its~~It has a total of three production lines with its present ~~SiC~~aggregate SiC production capacity isof 25,500 tons per annum. The Company, through Yili China, sold an aggregate of 10 11,~~337~~214 tons of green SiC and 226 ~~295~~ tons of black SiC during the fiscal year ended December 31, ~~2010~~2011 and an aggregate of 1 10,~~205~~337 tons of green SiC and ~~1,044~~295 tons of black SiC during the fiscal year ended December 31, ~~2009~~2010.

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 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. The PRC’s current annual demand for SiC is approximately 535,000 tons and currently available supply within the PRC is less than 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 SiC is man-made. We produce SiC by smelting 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. SiC can be further processed into fine powders sotherefore ~~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.

Facilities

Yili China currently owns and operates three SiC production lines with transformer capacity of 480,~~600~~000 kilovolt-amperes input and 110 kilovolt output with corollary established production equipment and infrastructure at Yining County, Kazak Autonomous Prefecture, Xinjiang Uygur Autonomous Region of the PRC.

In addition, the Company owns production lines with an aggregate production capacity of SiC of 25,500 tons per year in Yili Hasake Autonomous State of Xinjiang Autonomous Region. The construction of the first, second, and third production lines were finished in November of 2009 and March and November of 2010, respectively. The three new lines commenced operating in May and June of 2010 and January of 2011, respectively. Subject to further approval of the Board of Directors of the Company, we may plan to construct a powder production line and a granulation workshop in Yili.

4The 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.

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.4

Principal Suppliers and Sources of Raw Materials

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

Silicon is the principal component of SiC and is extracted from quartz. The Company purchases quartz in the form of quartz-silicon pebbles from local suppliers and from local farmers and peasants who collect the pebbles from the bed of the Erchis River in Xinjiang. Because the pebbles are collected without the permission of the PRC Government, we are seeking to complete the purchase of the equity interests of Quartz Mine China, which has 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 May 2012~~. It currently costs approximately $10.00 to mine one 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 oil field, one of the four major oil fields in China, with approximately 5 million tons of annual petroleum coke 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.

The 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~~305 RMB/kwh for hydropower, while the average cost for coal-generated electricity paid by the Company’s competitors is not less than 0.~~38RMB~~40 RMB/kwh.

	Item	Percentage of Such Type of Raw Material
Yihe Hydro Center	Electricity	100%
Xinjiang Jufeng Trading Co., Ltd	Petrol coke	35%
Xinjiang Huayu Energy Co., Ltd.	Petrol coke	84.7%
Altay Zhengxin mine Co., Ltd	Quartz	100%
Altay Zhengxin Mining Co., Ltd	Quartz	100%

Principal Customers

The following table sets forth our five largest customers, in terms of revenues of the aggregate of green SiC and black SiC we sold to them during the fiscal years ended December 31, ~~2010~~2011 and ~~2009~~2010. Our five largest customers accounted for an aggregate of 6170.53% in the products we sold in ~~2010~~2011. The Company currently does not have any overseas customers.

Fiscal Year ~~2010~~2011:

Customer’s Name	Revenues		Percent in Total Products We Sold
Jiangsu Dayang Silicon Powder Co., Ltd		2,664,676		20.6	%
Xinjiang Xinlubiao Photovoltaic Materials Co., Ltd.	$	4,323,578		27.1	%
Guiqing Silicon Powder Co., Ltd	$	13,~~539~~147,~~393~~720		1119.97	%
Henan Kangtai Silicon Powder Co., Ltd	$	1,~~528~~717,~~450~~477		1110.8	%
Jiangsu Jinsha Silicon Powder Co., Ltd		1,157,219		8.9	%
Zaozhuang Xinfa Grinding Co., Ltd	$	1,268,786		8.0	%
Zaozhuang Xinfa Grinding Co., Ltd		1,067,742		8.3	%
Henan Huarui Shuangzi Technology Development Co., Ltd.	$	749,183		4.7	%
Total	$	711,~~957~~206,~~481~~744		6170.53	%

5Fiscal Year 2010:

Fiscal Year 2009:

Customer’s Name	Revenues		Percent in Total Products We Sold
Jiangsu Dayang Silicon Powder Co., Ltd	$	3,349,906		25.9	%
Guiqing Silicon Powder Co., Ltd	$	1,935,253		14.9	%
Henan Kangtai Silicon Powder Co., Ltd	$	1,921,496		14.8	%
Jiangsu Jinsha Silicon Powder Co., Ltd	$	1,454,801		11.2	%
Zaozhuang Xinfa Grinding Co., Ltd	$	1,342,315		10.4	%
Total	$	10,003,771		77.2	%

Customer’s Name	Revenues		Percent in Total Products We Sold
Urumqi Tianlide Industry and Trading Co., Ltd		232,762		13.1	%
Zhoucun Silicon Carbide Co., Ltd		183,253		10.3	%
Shuangyashan Poly Silicon Carbide Co., Ltd		145,806		8.2	%
Xuchang Dongfang Grinding Co., Ltd		141,136		7.9	%
Tengzhou grinding medium Co., Ltd		118,577		6.7	%
Total		821,534		46.3	%

Marketing

The Company established a marketing department after it began to expand its SiC production capacity since 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 business is not subject to seasonal trends.

Backlogs

As of December 31, ~~2010~~ 2011, the Company had no order or supply backlogs.

Competition

There are over 100 manufacturers of SiC in China. The Company believes that Xinjiang Kuitun Longhai ~~Silicon~~Technology ~~Carbide~~Development Co., Ltd (“Longhai”) located in the Xinjiang province of the PRC and Gui Qiang Silicon Carbide Co., Ltd. (“Gui Qiang”) located in Qinghai Province, are the Company’s major competitors. Longhai and Gui Qiang are, respectively, the largest and the second largest green SiC producers in China, with respective market share of approximately 20% and 15% for the fiscal year 2010. In fiscal year 2011, however, Longhai’s market share dropped to approximately 15% of the national market and Gui Qiang stopped manufacturing.

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, 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. Second, recent implementation of new environmental regulatory measures has made government approval of new construction difficult to obtain.

SiC production is an industry with high barriers to entry, and therefore, is relatively exclusive. The Company principally faces competition from companies such as Longhai and Gui Qiang, but does not anticipate competition from new companies in the near 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

As set forth above, the three main cost components of SiC production are (in 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.~~265~~305 RMB/kwh represents an approximate 30% discount to that of the Company’s main competitor, Gui Qiang. Last, 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 Zhigang Gao and 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.

6Intellectual Capital / Technology

~~Intellectual~~The ~~Capital~~Company /has ~~Technology~~an experienced team of management and technical staff. 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.

The Company has an experienced team of management and technical staff. 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.6

~~Support~~Product ~~from local government and businesses~~Feature

~~Through~~An ~~Yili~~important ~~China~~feature of the Company’s ~~maintains~~SiC aproducts ~~meaningful~~that ~~relationship~~outstands ~~with~~from ~~local~~other ~~government~~competitor ~~and business in Xinjiang Province, PRC. Yili China~~ is ~~the first business entity~~ that ~~operated~~our inSiC ~~the~~products ~~Yining~~are ~~East~~usually ~~Industrial~~separated into ~~Park~~very ofdetailed ~~Xinjiang~~classes ~~Uygur~~in ~~Autonomous~~terms ~~Region~~ of ~~the~~sizes ~~PRC,~~ and ~~the~~quality, ~~Company’s~~which ~~management~~is ~~team~~easier ~~has~~for ~~been~~our ~~closely~~customers ~~working~~to ~~with~~purchase ~~the local government since 2005. The Company has received support~~ and ~~assistance~~utilize ~~from~~according ~~local businesses. Yili China has already obtained permission~~ to their ~~construct~~different ~~its proposed SiC processing facility in Xinjiang~~purposes. ~~Further,~~Such ~~the~~separation ~~Company’s~~of ~~relatively~~SiC ~~remote~~products ~~location~~usually inrequires ~~Xinjiang~~time ~~Province~~and ~~coupled~~skillful ~~with~~workers. ~~such~~We ~~Province’s~~have ~~low~~received ~~population~~very ~~density~~positive feedback ~~reduces~~from ~~the~~our ~~risk~~customers offor ~~potential~~this ~~regulatory constraints impeding the Company’s further expansion in the future~~feature.

~~Intellectual~~Support ~~Property~~from local government and businesses

~~Patents~~Through Yili China the Company maintains a meaningful relationship with local government and business in Xinjiang Province, 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 Xinjiang. Further, the Company’s relatively remote location in Xinjiang Province coupled with such Province’s low population density reduces the risk of potential regulatory constraints impeding the Company’s further expansion in the future. We have also received several subsidies from the Xinjiang local government to facilitate our manufacturing recycling and to support our research and development, etc.

~~The~~Intellectual 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 chosen not to apply for a patent or patents regarding such technology.Property

~~Trademarks~~Patents

The Company ~~presently~~believes that ~~does~~it ~~not~~has ~~have~~proprietary ~~any~~know-how ~~trademarks,~~regarding ~~although~~the itconstruction ~~intends~~and operation of furnaces that will enable it to ~~apply~~reduce ~~for~~costs aand ~~trademark~~increase productivity in the ~~PRC~~smelting ~~regarding~~process ~~its~~through ~~name~~waste heat recovery, effluent recycling and ~~logo~~exhaust reduction techniques. The Company does not believe that it would be advantageous to it to disclose such technology and has therefore chosen not to apply for a patent or patents regarding such technology.

~~Research and Development~~Trademarks

~~Please~~The ~~refer~~Company topresently does ~~the~~not ~~“Intellectual~~have ~~Capital~~any /trademarks, ~~Technology”~~although ~~under~~it ~~the~~intends ~~Section~~to ~~“Competition”~~apply ~~herein~~ for ~~details~~a oftrademark in the ~~Company’s~~PRC ~~research~~regarding ~~and development activities. The Company has no expenses for~~ its ~~research~~name and ~~development for the years ended December 31, 2010 and 2009~~logo.

~~Government~~Research ~~Regulation~~and Development

~~The~~Please ~~Company~~refer ~~is or will be subject~~ to ~~laws, rules and regulations of~~ the “Intellectual ~~PRC~~Capital ~~and~~/ ~~local~~Technology” ~~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~~Section ~~Catalogue~~“Competition” herein for ~~the~~details ~~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’s research ~~plans~~and todevelopment ~~expand~~activities.

~~Environmental~~Government ~~Compliance~~Regulation

The Company ~~always~~is ~~adopts~~or will anbe ~~environmentally~~subject ~~friendly~~to ~~strategy~~laws, inrules ~~its~~and ~~production~~regulations of the PRC and ~~development.~~local ~~The~~governments ~~Company’s~~regarding ~~production~~the discharge of waste materials into the environment, the operation of its mining operations and the quality of its products. Although SiC smelting and manufacturing is ~~supported~~not bya ~~hydropower~~restricted ~~plants,~~industry ~~which are~~under ~~more~~the ~~cost-effective~~PRC Catalogue for the Guidance of Foreign Investment Industries (the “Catalogue) yet other relevant regulations in China controls and ~~less~~restricts ~~pollutant~~the ~~than~~annual ~~most~~production or exportation of ~~the~~SiC ~~coal~~cannot ~~burning~~exceed ~~power~~an ~~plants~~approved amount. The ~~Company~~micro-powder ~~has~~production ~~also~~industry ~~developed a~~(purity ~~technique~~> ~~that~~99%; ~~can~~and ~~capture~~dia. ~~carbon~~< ~~monoxide~~1μm), ~~created~~however, ~~during~~belongs to the ~~smelting~~encouraged ~~process~~category under the Catalogue. Currently, we have approved amount of 30,000 tons each year and ~~use~~we itmay be able to ~~reduce~~apply for an increase in the approved amount if the Company plans to expand. The Company currently does not export its ~~fuel~~products ~~costs~~to areas or regions outside China.

~~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 permissible levels, and we have not violated any environmental regulations.Compliance

~~Employees~~The Company always adopts an environmentally friendly strategy in its production and 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.

AsOur current production facilities have passed the environmental protection review by the Environmental Protection Bureau of ~~March~~Yining 17County 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 SO 2 (i.e. sulfur dioxide) and CODcr (i.e. chemical oxygen demand) to each of the manufacturers under its jurisdiction. So far, ~~2011~~the Company has controlled its emission of SO 2 and CODcr below permissible levels, and we ~~had~~have ~~365~~not ~~employees~~violated any environmental regulations. The local environmental protection agency, ofhowever, ~~whom~~has 77not ~~were~~inspected ~~executive~~on ~~and~~the ~~administrative~~constructed ~~personnel~~new production lines that we completed construction in 2011, and ~~288~~the ~~were~~Company has ~~manufacturing~~not ~~personnel~~otherwise been found in violation of any such environmental regulation.

7The Company has built into its current production lines part of the waste gas recycle system mentioned above. Around RMB 22 million will be required for installing the waste gas recycle system on our present three production lines, and an additional RMB 4 million will be required for installing such production line on each new production line that the Company plans to build. The Company is also in the process of building a waste water treatment station and we plan to install a “sulfur filtering” system and a spraying machine to reduce the amount of dust.

~~ITEM 2. DESCRIPTION OF PROPERTIES~~7

~~Our~~As ~~operating facilities are located at Zone A, Industry Zone~~ of ~~Yining~~March ~~County of Yili Hasake Autonomous State under Xinjiang Uygur Autonomous Region of the PRC. On October 28~~31, ~~2008~~2012, ~~the~~we ~~Company~~had ~~paid~~185 ~~$790~~employees,~~934 to obtain the land use right for fifty years for nearly 107,214 square meters~~ of ~~land~~whom ~~where~~70 ~~our~~were ~~operating~~executive ~~facilities are located. In this location we have built three new production lines, each line is composed of 6 furnaces,~~ and weadministrative ~~have~~personnel constructed factory buildings covering an area of approximately 32,000 square meters, as well as an employee’s dormitory building with a construction area of 3,751 square meters. Our office building of 4,167 square meters is still under construction. We also own and ~~keep~~115 inwere ~~the~~manufacturing ~~facility new equipment for our new production lines, which include the following:~~personnel.

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

ITEM 2.

DESCRIPTION OF PROPERTIES

~~ITEM~~We 3lease our office space at both 558 Lime Rock Road, Lakeville, Connecticut and 420 Lexington Avenue, Suite 860, New York, NY from Kuhns Brothers, Inc. ~~LEGAL~~ ~~PROCEEDINGS~~and its affiliates (“Kuhns Brothers”). Our Chairman and CEO Mr. Kuhns, is a controlling shareholder, President, CEO, a director and Chairman of Kuhns Brothers. The lease is for one year with an annual rental rate of $7,500, which will be automatically extended for a year unless otherwise notified by either party in writing.

AsOur operating facilities are located at Zone A, Industry Zone of ~~the~~Yining ~~date~~County of ~~this~~Yili ~~Report~~Hasake Autonomous State under Xinjiang Uygur Autonomous Region of the PRC. On October 28, 2008, the Company ~~was~~paid ~~not~~$862,442 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 ~~party~~construction toarea ~~any~~of ~~pending~~350 orsquare ~~threatened~~meters. ~~legal~~The ~~proceeding~~land on which all the buildings are located has an area of approximately 33,333 square meters. We also own and keep in the facility new equipment for our new production lines, which include the following:

ITEM 4. REMOVED AND RESERVED

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

~~PART~~ITEM II3. LEGAL PROCEEDINGS

~~ITEM~~As ~~5. MARKET~~of ~~FOR~~the ~~REGISTRANT’S~~date ~~COMMON~~of ~~EQUITY~~this Report, ~~RELATED~~the ~~STOCKHOLDER~~Company was ~~MATTERS~~not ~~AND~~a ~~ISSUER~~party ~~PURCHASES~~to OFany ~~EQUITY~~pending ~~SECURITIES~~or threatened legal proceeding.

~~Market~~ITEM ~~Information~~4. MINE SAFETY DISCLOSURES.

As Not ~~of the date of this Annual Report, we had three classes of equity securities: (i) Common Stock, par value $~~applicable.001 per share, 3,418,648 shares of which were outstanding as of March 31, 2011; (ii) Series A Convertible Preferred Stock, par value $.001 per share, 996,186 shares of which were outstanding as of March 31, 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.

~~Stockholders~~PART II

AsITEM of5. ~~March~~MARKET ~~31,~~FOR ~~2011,~~REGISTRANT’S ~~there~~COMMON ~~were~~EQUITY, ~~approximately~~RELATED 43STOCKHOLDER ~~holders~~MATTERS ofAND ~~record~~ISSUER ofPURCHASES ~~our~~OF ~~Common~~EQUITY ~~Stock.~~ SECURITIES

~~Dividends~~Market Information

As of the date of this Annual Report, we had three classes of equity securities: (i) Common Stock, par value $.001 per share, 4,016,380 shares of which were outstanding; (ii) Series A Convertible Preferred Stock, par value $.001 per share, 996,186 shares of which were outstanding; and (iii) Series B Convertible Preferred Stock, par value $.001 per share, 920,267 shares of which were outstanding. We also had warrants to purchase 2,490,465 shares of common stock issued and outstanding. 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.

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.Stockholders

~~Series~~As Aof ~~Convertible~~the ~~Preferred~~date of this Annual Report, there were approximately 47 holders of record of our Common Stock.

Pursuant to the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated August 18, 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 the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2008.

~~As of December 31, 2010, we issued to the Series A Stock holders a total of 1,243,615 shares of our~~ Common Stock~~. As of the date of this Report, the Company has issued an aggregate of 1,393,048 shares of Common Stock as dividends to the holders of Series A Stock.~~

8We 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 BA Convertible Preferred Stock

~~Holders~~Pursuant to the Certificate of ~~our~~Designation, Preferences and Rights of Series BA Convertible Preferred Stock, ~~are~~filed ~~not~~on August 18, 2009 (which replaces certain Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated September 8, 2008 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 ~~pursuant~~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 ~~Designations~~Designation of Series BA Stock is incorporated herein by reference to Exhibit E to the Company’s Information Statement on Schedule 14C filed with the Securities and Exchange Commission on October 13, 2009.

~~Securities Authorized for Issuance under Equity Compensation Plans~~8

~~The~~As ~~Company~~of ~~does~~December ~~not~~31, 2011, ~~have~~we ~~any~~issued ~~equity~~to ~~compensation~~the ~~plans~~Series ~~under~~A ~~which~~Stock ~~our~~holders ~~securities~~a ~~may~~total beof ~~issued~~1,841,347 asshares of our Common Stock. As of the date of this Report, the Company has issued an aggregate of 1,990,780 shares of Common Stock as dividends to the holders of Series A Stock.

~~ITEM~~Series 6.B ~~SELECTED~~Convertible ~~FINANCIAL~~Preferred ~~DATA~~Stock

~~Not~~Holders ~~applicable~~of our Series B Stock are not entitled to dividends pursuant to the Certificate of Designations of Series B Stock.

~~ITEM~~Securities 7.Authorized ~~MANAGEMENT'S~~for ~~DISCUSSION~~Issuance ~~AND~~under ~~ANALYSIS~~Equity ~~OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Compensation Plans

The ~~following~~Company ~~discussion~~does ofnot have ~~our~~any ~~financial~~equity ~~condition~~compensation ~~and~~plans ~~results~~under ofwhich ~~operations should be read in conjunction with~~ our ~~audited~~securities ~~consolidated~~may ~~financial~~be ~~statements~~issued ~~and~~as of the ~~notes~~date toof ~~those financial statements appearing elsewhere in~~ this ~~Annual~~ Report ~~on Form 10-K~~.

~~Certain~~ITEM ~~statements in this Report, and the documents incorporated by reference herein, constitute forward-looking statements~~6. ~~Such~~SELECTED ~~forward-looking~~FINANCIAL 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.DATA

~~The~~Not 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.applicable

~~The~~ITEM ~~"Company", "we," "us," and "our," refer to (i) Master Silicon Carbide Industries, Inc~~7. ~~(formerly~~MANAGEMENT'S ~~Paragon~~DISCUSSION ~~SemiTech~~AND ~~USA,~~ANALYSIS ~~Inc.);~~OF ~~(ii)~~FINANCIAL ~~Yili~~CONDITION ~~Carborundum~~AND ~~USA,~~RESULTS ~~Inc.~~OF ~~(“Yili US”); (iii) C3 Capital, Limited (“C3 Capital”); and (iv) Yili Master Carborundum Production Co., Ltd. (“Yili China”).~~OPERATIONS

~~Overview~~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.

~~Through~~Certain ~~our~~statements ~~indirectly~~in ~~wholly~~this Report, and the documents incorporated by reference herein, constitute forward-~~owned~~looking ~~operating~~statements. ~~subsidiary~~Such ~~Yili~~forward-looking ~~China~~statements include statements, wewhich ~~produce~~involve risks and ~~sell~~uncertainties, inregarding, ~~China~~among ~~high~~other ~~quality~~things, ~~“green”~~(a) ~~silicon~~our ~~carbide~~projected sales, profitability, and ~~lower-quality~~cash flows, ~~“black”~~(b) ~~silicon~~our ~~carbide~~growth ~~(together~~strategy, ~~hereinafter~~(c) ~~referred~~anticipated totrends asin ~~“SiC”~~our industry, (d). ~~SiC~~our isfuture ~~a non-metallic~~financing ~~compound~~plans, ~~that~~and ~~has~~(e) ~~special~~our ~~chemical~~anticipated needs ~~properties~~for, and ause ~~level~~of, working capital. They are generally identifiable by use of ~~hardness~~the ~~that~~words is“may,” ~~similar~~“will,” “should,” to“anticipate,” ~~diamonds~~“estimate,” is“plan,” ~~produced~~“potential,” by“project,” “continuing,” ~~smelting~~“ongoing,” (“expects,” “management believes,” “we believe,” “we intend,” or the ~~process~~negative of ~~extracting~~these awords ~~metal~~or ~~from~~other ~~its~~variations ~~ore)~~on ~~quartz~~these ~~sand~~words ~~and~~or ~~refinery~~comparable ~~coke~~terminology. atIn ~~temperatures~~light of ~~ranging~~these ~~from~~risks ~~approximately~~and 1uncertainties,~~600~~ tothere ~~2,500~~can ~~degrees~~be ~~centigrade~~no assurance that the forward-looking statements contained in athis ~~graphite~~filing ~~electric~~will ~~resistance~~in fact ~~furnace~~occur. You should not place undue reliance on these forward-looking statements.

The ~~Company’s~~forward-looking ~~present~~statements ~~SiC~~speak only ~~production~~as ~~capacity~~of isthe ~~25,500~~date ~~tons~~on ~~per~~which ~~annum.~~they ~~The~~are ~~construction~~made, ofand, ~~the~~except ~~three~~to ~~new~~the ~~production~~extent ~~lines~~required ~~was~~by ~~finished~~federal insecurities ~~2010.~~laws, ~~Two~~we ~~lines~~undertake ~~began~~no ~~production~~obligation to ~~during~~update ~~2010,~~any ~~and~~forward-looking ~~the~~statements ~~third~~to ~~line~~reflect ~~began~~events ~~trial~~or ~~production~~circumstances atafter the ~~end~~date ofon ~~2010.~~which ~~The~~the ~~capacity~~statements ofare ~~each~~made ~~line~~or to isreflect ~~8,500~~the ~~tons~~occurrence ~~per~~of ~~annum~~unanticipated events.

9The "Company", "we," "us," and "our," refer to (i) Master Silicon Carbide Industries, Inc. (formerly Paragon SemiTech USA, Inc.); (ii) Yili Carborundum USA, Inc. (“ Yili US ”); (iii) C3 Capital, Limited (“ C3 Capital ”); (iv) Yili Master Carborundum Production Co., Ltd. (“ Yili China ”) and (v) Beijing Master Consulting Co., Ltd. (“Master Consulting”).

~~Results of Operations for the Fiscal Years ended December 31, 2010 and 2009~~Overview

~~The~~Through ~~following~~our ~~tables~~indirectly wholly-owned operating subsidiary Yili China, we produce and ~~analysis~~sell ~~show~~in ~~the~~China ~~operating~~high ~~results~~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 ~~the~~hardness ~~Company~~that ~~for~~is similar to diamonds, is produced by smelting (the ~~fiscal~~process ~~years~~of ~~ended~~extracting ~~December~~a ~~31,~~metal from ~~2010~~its ore) quartz sand and ~~2009~~refinery coke at temperatures ranging from approximately 1,600 to 2,500 degrees centigrade in a graphite electric resistance furnace.

	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%)

The Company’s present SiC production capacity is 25,500 tons per annum. We have three production lines and the capacity of each line is 8,500 tons per annum.

~~Net~~Recent ~~Revenues~~ Development

WeOn ~~generated~~July ~~sales~~14, ~~revenues~~2011, ofBeijing ~~$12~~Master Consulting Co.,~~948,096~~ ~~and~~Ltd. ~~$1,775,559~~(“Master ~~for~~Consulting”) was incorporated in the ~~fiscal~~People’s ~~years~~Republic ~~ended~~of ~~December~~China 31(“PRC”), ~~2010~~which was ~~and~~wholly ~~2009~~owned by Master Silicon Carbide Industries, ~~respectively~~Inc. ~~The~~Master ~~total~~Consulting ~~revenues~~represents ofour ~~fiscal~~representative ~~years~~office ~~2010~~in Beijing. This office is engaged in providing further management support and ~~2009~~business ~~include~~development ~~the~~to ~~following:~~Yili China.

Item	Fiscal Year Ended December 31, 2010	Fiscal Year Ended December 31, 2009	Percentage change
Green silicon:
Selling volume (ton)	10,337	1,205	758%
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%

~~The~~Results ~~Company~~of ~~added~~Operations ~~three~~for ~~new 8,500-ton production lines in 2010. The construction of~~ the ~~three~~Fiscal ~~lines~~Years ~~was~~ended ~~finished in November of 2009~~December 31, ~~March~~2011 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.

~~Compared~~The tofollowing ~~the~~tables ~~same period last year, the market prices of green SiC~~ and ~~black~~analysis ~~SiC~~show ~~have increased due to~~ the operating ~~recovery~~results of the ~~silicon~~Company ~~carbide~~for ~~industry from~~ the ~~global economic recession in 2009. The market prices of green SiC and black SiC increased by 34% and 8% in~~ years ~~2010~~ended ~~and~~December ~~2009~~31, ~~respectively.~~2011 ~~The market prices of green SiC were $1,261~~ and ~~$1,275 per ton in January and February of 2011, respectively~~2010. ~~Based on this data, management believes that the price of SiC will be stable in 2011.~~

	For the Year Ended December 31, 2011			For the Year Ended December 31, 2010		Percentage change
Revenues	$	15,942,618		$	12,948,096		23	%
Cost of revenues		14,103,491			9,803,074		44	%

Gross profit (loss)		1,839,127			3,145,022		(42	)%

General and administrative expenses		4,142,449			2,935,460		41	%

Total operating expenses		4,142,449			2,935,460		41	%

Profit (loss) from operations		(2,303,322	)		209,562		(1,199	)%

Interest income		52,044			101,186		(49	)%
Interest (expense)		(909,642	)		-		N/A
Other income (expenses)		19,821			7,386		168	%

Total other income (expenses)		(837,777	)		108,572		(872	)%

Profit (loss) before income taxes		(3,141,099	)		318,134		(1,087	)%

Income tax provision		-			85,155		N/A

Net profit (loss)	$	(3,141,099	)	$	232,979		(1,448	)%

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.Revenues

~~Cost~~We generated sales revenues of ~~Goods~~$15,942,618 for ~~Sold~~the year ended December 31, 2011, compared to $12,948,096 for the same period in 2010, representing an increase of $2,994,522, or 23%. A breakdown of total revenues is set forth in the following table:

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.

Item	For the Year Ended December 31, 2011		For the Year Ended December 31, 2010		Percentage change
Green silicon:
Selling volume (ton)		11,214		10,337		8	%
Average price in US dollars		1,404.62		1,232.78		14	%
Subtotal		15,751,372		12,743,283		24	%

Black silicon:
Selling volume (ton)		226		295		(23	)%
Average price in US dollars		846.22		694.28		22	%
Subtotal		191,246		204,813		(7	)%

Total		15,942,618		12,948,096		23	%

During ~~2010,~~ the ~~construction~~first quarter of ~~our~~2011, ~~three~~we ~~new~~had all three 8,500-ton production lines ~~was~~in ~~finished~~operation. ~~and~~Due ~~two of our new lines began~~ to ~~produce~~some ~~green~~technical ~~SiC~~issues, inincluding ~~2010 and~~ the ~~third~~breakdown ~~line~~of ~~began~~the ~~producing~~raw inmaterial ~~January~~feeding system, ~~2011.~~we ~~Even~~conducted ~~though~~an itinspection ~~took~~and atests ~~few~~on ~~months~~two ~~for~~of ~~trial~~our ~~production and technical improvement~~lines, ~~the~~therefore ~~Company~~causing ~~still~~these ~~produced~~two ~~nearly~~lines ~~12,083~~not ~~tons~~to ofreach ~~SiC~~their infull ~~2010,~~production capacity. ~~compared~~At tothe ~~roughly~~same 2time,~~375~~ ~~tons~~our ofthird ~~SiC~~line ~~produced~~operated ~~in 2009~~well. ~~Because~~During wethe ~~apply~~second ~~advanced~~quarter ~~technology~~of ~~to these new lines~~2011, ~~the~~in ~~efficiency~~order ~~and~~to ~~effectiveness~~replace ofsome ~~new~~corroded parts ~~lines~~in ~~has~~our ~~been~~facility ~~greatly~~and ~~improved.~~to ~~For~~repair the ~~new~~feeding ~~lines~~system, awe ~~unit~~suspended ofthe ~~SiC~~operation ~~only~~of ~~consumes~~Line ~~approximately~~No. 1.8 ~~tons~~in ofApril ~~quartz~~ and ~~1.54 tons of petrol coke~~May, ~~whereas~~and ~~the~~Lines ~~old~~No. 2 ~~lines~~and ~~would require roughly 2~~No.21 ~~tons~~3 ~~and~~in 1May.82 ~~tons,~~Starting ~~respectively.~~from ~~Therefore~~June, ~~the~~all ~~average~~three ~~production~~lines ~~costs~~resumed infull ~~year~~production ~~2010~~capacity ~~are~~and ~~nearly 15% lower than~~ the ~~same~~purity ~~period~~level ~~last~~of ~~year,~~our ~~even~~products ~~though~~has greatly ~~the~~improved ~~price~~above ofcurrent ~~petrol~~market ~~coke,~~standards ~~one~~after ofthis ~~the~~repair ~~raw~~and ~~materials,~~inspection ~~increased~~that bywe ~~20%~~conducted in ~~2010~~April and May.

~~Gross~~However, ~~Profit~~during the third and fourth quarter of 2011, due to the European sovereign crisis, the global market demand for solar energy dropped dramatically, which adversely affected the market price of SiC, the essential abrasive material for manufacturing solar panels. Since the market demand decreased, the Company decided to strategically control and reduce the production in order to decrease the operation costs since the third quarter of 2011.

~~During~~For the ~~fiscal~~ year ended December 31, ~~2010~~2011, we ~~had~~produced 12,830 ~~gross~~tons ~~profit~~ of ~~$3,145,022~~green SiC and ~~the~~154 ~~gross~~tons ~~profit~~of ~~margin~~black ~~was approximately 24~~SiC.~~29%.~~ InDuring the same period of last year, we only had atwo ~~gross~~8,500-ton ~~loss~~production oflines in ~~$66,277~~operation. The ~~increase~~total output of ~~our profit is mainly due to~~ the ~~following~~same ~~three~~period ~~reasons:~~of ~~(1)~~2010 ~~the~~was ~~Company~~12,204 ~~produced~~tons ~~and sold more SiC; (2) the selling price~~ of green SiC ~~increased by a significant amount in the fiscal year of 2010;~~ and ~~(3)~~317 ~~the~~tons ~~quantity~~ of ~~the~~black ~~consumed raw materials per unit of~~ SiC ~~manufactured was much lower than the comparable period in 2009~~.

~~General and Administrative Expenses~~10

~~Our~~During ~~operating~~the year of 2011, the average market prices of green SiC and ~~administrative~~black ~~expenses~~SiC ~~consist~~increased ~~primarily~~compared to the same period of ~~freight~~last year. Since the output of our SiC increased substantially, even ~~related~~with ~~salaries~~the crisis, ~~professional~~the ~~fees~~Company still sold 11,214 ~~depreciation~~tons of green SiC and ~~travel~~226 ~~expenses.~~tons ~~Operating~~of ~~and~~black ~~administrative~~SiC ~~expenses~~during ~~were~~this $2year,~~935,460~~ ~~for~~whereas during the ~~fiscal~~same ~~year~~period ~~ended~~of ~~December~~last 31year, ~~2010,~~the asCompany ~~compared~~only tosold $110,~~646,794~~337 ~~for~~tons ~~the~~of ~~prior~~green ~~year,~~SiC anand ~~increase~~295 tons of ~~$1,288,666~~black SiC. ~~This~~The ~~increase~~sales ~~was~~volume ~~mainly~~of ~~due~~green SiC toduring the year of 2011 increased ~~operating~~by ~~expenses~~nearly ~~such~~8% ascompared ~~new~~to ~~employee~~the same period last year. The Company’s ~~salaries~~revenue ~~and~~reached ~~welfare~~$15,942,618, or increased ~~freight~~by ~~fees~~23%, ~~and~~compared ~~travel~~to ~~expenses~~the revenue of $12,948,096 during the year ended December 31, 2010. The increase of the revenue is mainly due to ~~Yili~~the ~~China’s~~increase ~~expanding~~of ~~production~~average ~~and~~unit ~~sales~~selling price.

	Fiscal Year Ended December 31, 2010		Fiscal Year Ended December 31, 2009		Percentage change
G&A
Stock-based compensation	$	-	$	74,700		(100	%)
Shipping and outbound freight fee		1,045,042		188,383		455	%
Professional fees		153,092		208,047		(26	%)
Travel expenses		109,347		59,176		85	%
Products tax and related taxes		47,131		99,544		(53	%
Welfare and benefits		710,634		429,737		65	%
Social insurance		33,233		32,774		1	%
Depreciation expenses		39,504		25,052		58	%
Amortization expenses		25,148		28,759		(13	%)
Public Relations expenses		50,334		42,886		17	%
Motor car expenses		52,206		37,328		40	%
Office expenses		403,813		226,612		78	%
Interest		56,750		-
Provision for bad debts		52,290		50,245		4	%
Others		156,936		143,551		9	%
Total	$	2,935,460	$	1,646,794		78	%

Cost of Goods Sold

11Cost 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 years ended December 31, 2011 and 2010 were $14,103,491 and $9,803,074, respectively.

Operating Profit

Item	For the Year Ended December 31, 2011		For the Year Ended December 31, 2010		Percentage change
Green silicon:
Production volume (ton)		12,830		12,204		5	%
Average cost in US dollars		1,057.77		921.11		15	%
Subtotal		13,571,213		11,241,274		21	%

Black silicon:
Production volume (ton)		154		317		(51	)%
Average cost in US dollars		950.49		867.15		10	%
Subtotal		146,375		274,886		(47	)%

Total production cost		13,717,588		11,516,160		19	%

~~Our~~During ~~operating~~the ~~profit~~year ~~was~~ended ~~$209~~December 31,~~562~~ ~~for~~2011, the Company produced nearly 12,830 tons of SiC, compared to roughly 12,204 tons of SiC produced in the ~~fiscal~~same period last year. ~~ended~~During the ~~December~~fiscal ~~31,~~year ~~2010~~of 2011, asour ~~compared~~new tolines aconsumed ~~loss~~approximately 1.77 tons of $quartz, 1.54 tons of petrol coke and 7,~~713~~889 KW of electricity,~~071~~ respectively, for ~~2009,~~producing anone ~~increase~~unit of $SiC. In the same period of last year when we had only two lines, we consumed even more raw materials per unit: roughly 1.84 tons of quartz,~~922,633~~ 1.58 ~~Our~~tons ~~increase~~of inpetrol ~~operating~~coke ~~profits~~and ~~for~~8,269 ~~the~~KW ~~fiscal~~of ~~year~~electricity. ~~ended~~Since ~~December~~our 31productivity has been enhanced, ~~2010~~we ~~was~~saved ~~mainly~~6% of costs per ton due to ~~revenues~~the ~~generated~~lower ~~from~~consumption of raw materials. However, the ~~sales~~purchasing prices of ~~our~~petrol ~~product~~coke ~~that~~and ~~was~~electricity ~~produced~~increased during the fiscal year of 2011 by 2% and 20%, respectively. Therefore, the ~~new~~average production ~~lines~~costs during the year ended December 31, 2011 were nearly 12% higher than the same period last year.

~~Income~~Gross ~~Taxes~~Profit

~~Our~~During ~~business~~the ~~operations~~year ~~are~~ended ~~solely~~December ~~conducted~~31, by2011, ~~our~~we ~~subsidiaries~~had ~~incorporated~~a ingross ~~the~~profit of ~~PRC~~$1,839,127 and wethe ~~were~~gross ~~governed~~profit bymargin ~~the~~was ~~PRC~~approximately ~~Enterprise~~11.5%. ~~Income~~In ~~Tax~~the ~~Laws. PRC~~same ~~enterprise~~period ~~income~~last ~~tax~~year, iswe ~~calculated~~had ~~based~~a ongross ~~taxable~~profit ~~income~~of ~~determined~~$3,145,022 and ~~under~~a ~~PRC~~gross ~~GAAP.~~profit Inmargin ~~accordance~~of ~~with~~24.3%. ~~the~~The ~~Income~~decrease ~~Tax~~of ~~Laws,~~our agross ~~PRC~~profit ~~domestic~~margin ~~company~~ is ~~subject~~mainly due to ~~enterprise income tax at~~ the ~~rate~~increase of ~~25%~~our ~~and~~average ~~value~~unit ~~added~~production cost, ~~tax~~which atwas more than the ~~rate~~increase of ~~17%~~our ~~for~~average ~~most~~unit ofselling ~~the goods sold~~price.

~~Incorporated~~General inand ~~Xinjiang~~Administrative ~~province in 2005, Yili China is subject to enterprise income tax at the rate of 25%. Income tax provision for Yili China during the 2010 fiscal year was $85,155.~~Expenses

~~Net~~Our ~~Profit~~operating and administrative expenses consist primarily of freight fee, related salaries, professional fee, depreciation and traveling expenses. Operating and administrative expenses were $4,142,449 for the year ended December 31, 2011, as compared to $2,935,460 for the same period of 2010, an increase of $1,206,989. This increase was mainly due to the increased operating expenses such as (1) new employees’ salaries and welfare as a result of Yili China’s expansion. (2) Since the new facility started to be recorded into “fixed assets” during the fourth quarter of 2010, the depreciation during the fiscal year of 2011 was much higher than the same period of 2010. (3) Provision for loss on inventory.

Net profit for the fiscal year ended December 31, 2010 was $232,979, compared to a loss of $1,688,056 for 2009. Such increase of net profit of $1,921,035 is a result of the increase in the revenues generated by the Company for the fiscal year of 2010 exceeding the aggregate increase of expenses and costs. Since two new 8,500-ton production lines were in full capacity production in 2010, the production cost of green SiC was lower 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 new lines has greatly improved our cost savings. Due to our newly expanded production and sales, the general and administrative expenses have increased. The Company made a small net profit for the fiscal year ended December 31, 2010 compared to a net loss for the same period last year.

	For the Year Ended December 31, 2011		For the Year Ended December 31, 2010		Percentage change
G&A
Shipping and outbound freight fee		968,519		1,045,042		(7	)%
Professional fees		237,698		153,092		55	%
Travel expenses		136,952		109,347		25	%
Products tax and related taxes		18,024		47,131		(62	)%
Welfare and benefits		1,098,255		710,634		55	%
Social insurance		52,166		33,233		57	%
Depreciation expenses		140,807		39,504		256	%
Amortization expenses		46,931		25,148		87	%
Public relations expenses		78,951		50,344		57	%
Motor car expenses		53,826		52,206		3	%
Office expenses		299,433		403,813		(26	)%
Provision for bad debts		51,718		52,290		(1	)%
Others		959,169		213,676		349	%
Total	$	4,142,449	$	2,935,460		41	%

~~Liquidity and Capital Resources~~11

AsOperating of December 31, 2010, we had cash and cash equivalents of $1,987,041. Compared to 2009,cash and cash equivalents decreased by $4,207,006, most of which most was used for the construction and the purchase of equipment for the three new production lines.Loss

~~The~~Our ~~following~~operating ~~table~~loss ~~sets~~was ~~forth~~$2,303,322 for the year ended December 31, 2011, as compared to a ~~summary~~profit of ~~our~~$209,562 ~~cash~~for ~~flows~~the comparable period of 2010, a decrease of $2,512,884. Our increase in operating loss for the ~~periods~~fiscal ~~indicated:~~year of 2011 was mainly due to increased sales not exceeding increased cost of goods sold as well as the increased G&A expenses.

	Fiscal Year Ended December 31, 2010			Fiscal Year Ended December 31, 2009			Percentage change
Net cash provided by (used in) operating activities	$	(795,894	)	$	(2,885,172	)		(72	%)
Net cash used in investing activities		(6,399,399	)		(9,194,698	)		(30	%)
Net cash provided by (used in) financing activities		2,969,200			11,454,297			(74	%)
Effect of exchange rate changes on cash		19,087			1,670			1,043	%
Net increase (decrease) in cash and cash equivalents		(4,207,006	)		(623,903	)		574	%
Cash and cash equivalents, beginning of period		6,194,047			6,817,950			(9	%)
Cash and cash equivalents, end of period	$	1,987,041		$	6,194,047			(68	%)

Income Taxes

12Our business operations 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 enterprise income tax at the rate of 25% and value added tax at the rate of 17% for most of the goods sold.

~~Operating~~Incorporated ~~Activities~~in Xinjiang province in 2005, Yili China is subject to enterprise income tax at the rate of 25%. Income tax provisions for Yili China amounted to zero and $85,155 during the years ended December 31, 2011 and 2010, respectively.

Net cash used in operating activities was $795,894 for the fiscal year ended December 31, 2010, compared to an amount of $2,885,172 net cash that was used in operating activities in 2009. The decrease of net cash used in operating activities was mainly due to the fact that the Company sold more green SiC than the same period last year, which resulted in more cash provided by operating activities. The Company spent more cash on the purchase of raw materials during the fiscal year of 2010, yet 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%.Loss

~~Investing~~Net ~~Activities~~loss for the year ended December 31, 2011 was $3,141,099, compared to a profit of $232,979 for the same period of 2010. Such increase of net loss of $3,374,078 was a result of revenues generated by the Company for the year ended December 31, 2011 not exceeding the aggregate increase of expenses and costs. During the first two quarters of 2011, we encountered some technical issues in two of our production lines. Therefore, we suspended the production and conducted inspections on the two lines for around 45 days during the first quarter. Our revenue was also impacted by the increased prices of raw materials, namely petrol coke and electricity. Furthermore, during the third quarter of 2011, the decreased market demand in the photovoltaic industry lead to fewer orders of our products, as a result we strategically reduced the production hence less gross revenue than when we could otherwise produce at full capacity. Therefore, the Company did not generate enough gross revenue to cover the increase in expenses.

~~Net~~Liquidity cash used in investing activities for the fiscal year ended December 31, 2010 was $6,399,399, compared to an amount of $9,194,698 net cash that was used in investing activities for 2009. On February 10, 2010, the Company made a loan of $1,000,000 to China Silicon Corporation (“CSC”) on an unsecured basis at an annual rate of 6% for a term of one year. On April 14, 2010, the Company extended another loan (the “Second Loan”) of $1,172,500 to CSC. The Second Loan was made to fund CSC’s working capital. The Second Loan is interest free and ~~was~~Capital 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 $1,000,000 loan made to CSC, the Company invested the rest of the money for the construction of the new lines. Since the 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 lines in 2010 and $10,054,126 in 2009.Resources

~~Financing~~As ~~Activities~~of December 31, 2011, we had cash and cash equivalents of $2,412,325. Compared to the same period of last year, cash and cash equivalents were increased by $425,284.

~~Net cash provided by financing activities for the fiscal year ended December 31, 2010 totaled $2,969,200, compared to $11,454,297 in 2009.~~ The ~~net~~following ~~cash~~table ~~provided~~sets byforth ~~financing activities for the fiscal year of 2010 was mainly attributable to~~ a ~~bank loan~~ summary of ~~$2,954,428~~our ~~that~~cash ~~the~~flows ~~Company~~for ~~received on January 4, 2010 from Bank of China. However, on November 12, 2009,~~ the ~~Company~~periods received gross proceeds of $10,000,000 by selling to China Hand Fund I, LLC and/or its successor and assigns a promissory convertible note, which was automatically converted into 920,267 shares of the Series B Convertible Preferred Stock of the Company.indicated:

Inventories

	For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			Percentage change
Net cash used in operating activities	$	(934,645	)	$	(795,894	)		17	%
Net cash provided by (used in) investing activities		1,367,024			(6,399,399	)		(121	)%
Net cash provided by (used in) financing activities		(41,028	)		2,969,200			(101	)%
Effect of exchange rate changes on cash		33,933			19,087			78	%
Net increase (decrease) in cash and cash equivalents		425,284			(4,207,006	)		(110	)%
Cash and cash equivalents, beginning of period		1,987,041			6,194,047			(68	)%
Cash and cash equivalents, end of period	$	2,412,325		$	1,987,041			21	%

~~Inventories~~Operating ~~consisted of the following as of December 31, 2010 and 2009:~~Activities

	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

Net cash used in operating activities was $934,645 for the year ended December 31, 2011, compared to an amount of $795,894 net cash that was used in operating activities during the same period of last year. The increase of net cash used in operating activities was mainly due to the facts that the Company had an operating loss caused by increased unit cost higher than increased unit selling price and increased other receivable, offset by less payment to acquire inventories and increased accounts payable and accrued expenses, which resulted in more cash used in operating activities. Therefore, the Company had $934,645 used in operating activities.

~~Our~~Investing 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.Activities

13Net cash provided by investing activities for the year ended December 31, 2011 was $1,367,024, compared to an amount of $6,399,399 net cash that was used in investing activities for the same period of last year. On February 10, 2010, the Company made a loan of $1,000,000 to China Silicon Corporation (“CSC”) on an unsecured basis at an annual rate of 6% for a term of one year. Besides the $1,000,000 loan made to CSC, the Company invested the rest of the money for the construction of the new lines. Since the construction of three new lines was finished in 2010, we had less cash used in investing activities during the fiscal year of 2011 than the same period of last year. The Company decreased $498,494 of deposit in building the new facility during the fiscal year of 2011 compared to spending $5,399,399 during the same time of 2010. Furthermore, CSC has paid off the loan of $1,000,000 on June 15, 2011. Therefore, the Company had cash of $1,367,024 provided by investing activities.

~~Property and Equipment~~12

~~The~~Financing ~~following is a summary of property and equipment at December 31, 2010 and 2009:~~Activities

	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

Net cash used in financing activities for the year ended December 31, 2011 totaled $41,028, compared to $2,969,200 provided by financing activities during the same period of 2010. The net cash provided by financing activities for the year ended December 31, 2010 was mainly attributable to a bank loan of $2,969,200 that the Company received on January 4, 2010 from Bank of China.

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 until August 31, 2010. On September 1, 2010, we extended the lease with the same rate of rent for another one year.Inventories

~~Our~~Inventories ~~operating~~consisted ~~facilities are located at Zone A, Industry Zone~~ of ~~Yining County of Yili Hasake Autonomous State under Xinjiang Uygur Autonomous Region of~~ the ~~PRC.~~following 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~~December ~~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~~31,~~333~~ ~~square~~2011 ~~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.~~2010:

Accounts Payable

	December 31, 2011			December 31, 2010
Raw materials	$	425,086		$	306,249

Finished goods		2,347,710			2,352,406

Work in progress		-			316,541

Provision for impairment		(315,408	)		-

Total	$	2,457,388		$	2,975,196

~~Accounts~~Our ~~payable~~raw ~~amounted~~materials tomainly ~~$2,586,381~~include quartz and $1petrol coke,~~257,657~~ aswhich ofaccount ~~December~~for ~~31,~~more ~~2010~~than ~~and~~95% ~~2009,~~of ~~respectively.~~total ~~Accounts~~raw ~~payable~~materials. ~~primarily~~Quartz ~~resulted~~comes from ~~our~~local ~~purchases~~mining ofcompanies ~~raw~~and ~~materials~~individual collectors. ~~and~~Quartz ~~equipment~~in Xinjiang province is 99.99% ~~The~~pure. ~~increase~~Petrol ofcoke ~~$1,328,724~~comes infrom ~~accounts~~the ~~payable~~Sinopec ~~was~~Group ~~mainly~~which ~~due~~is tothe ~~our~~biggest ~~increased~~petrol ~~purchase~~company in ofChina. ~~raw~~We ~~materials~~have not, ~~including~~in ~~quartz~~recent years, ~~petrol~~experienced ~~coke~~any significant shortages of manufactured raw materials and ~~electricity.~~normally ~~Also,~~do atnot carry ~~the~~inventories ~~same~~of ~~time,~~these ~~the~~items ~~prices~~in excess of ~~both~~what ~~petro~~is ~~coke~~reasonably required to meet our production and ~~electricity~~shipping ~~have~~schedules. ~~increased~~Compared with ~~more~~the ~~than~~amount ~~10%~~of inDecember 31, 2010., ~~Our~~the ~~biggest~~decrease ~~supplier~~of inventories is ~~Yihe~~mainly ~~Hydro~~attributable ~~Center,~~to the ~~payables~~decreased tofinished ~~which~~goods ~~accounted~~and ~~for~~work in ~~more~~process ~~than~~as ~~20%~~a result of the ~~total~~operation ~~amount~~ of ~~accounts~~our ~~payable~~three asnew ofproduction ~~December~~lines ~~31,~~during ~~2010~~the fiscal year of 2011.

~~Critical~~Property ~~Accounting Policies~~ and ~~Estimates~~Equipment

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~~following ~~financial~~is ~~statements~~a ~~reflect~~summary ~~the selection and application~~ of ~~accounting~~property ~~policies which require management to make significant estimates~~ and equipment ~~judgments.~~at ~~Management~~December ~~bases~~31, ~~its~~2011 ~~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.2010:

Revenue Recognition

	December 31, 2011			December 31, 2010
Buildings	$	11,151,772		$	6,480,400

Machinery and equipment		7,680,808			5,135,138

Motor vehicles		347,030			299,417

Office equipment		132,025			96,572

Less: accumulated depreciation		(1,991,068	)		(634,569	)

Property and equipment, net	$	17,320,567		$	11,376,958

~~Product~~We ~~sales~~lease ~~are~~our ~~recognized~~office ~~when~~space ~~the~~at ~~products~~both ~~are~~558 ~~shipped~~Lime Rock ~~and~~Road, ~~title~~Lakeville, ~~has~~Connecticut ~~passed. Sales~~and ~~revenue~~420 ~~represents~~Lexington ~~the~~Avenue, ~~invoiced~~Suite ~~value~~860, ofNew ~~goods~~York, ~~net~~NY offrom aKuhns ~~value~~Brothers, ~~added~~Inc. ~~tax~~and its affiliates (“~~VAT~~Kuhns Brothers”). ~~All~~Our ofChairman ~~the~~and ~~Company's~~CEO, ~~products~~Mr. ~~that~~Kuhns, ~~are~~is ~~sold~~a incontrolling ~~the~~shareholder, ~~PRC~~President, ~~are~~CEO ~~subject~~and toChairman aof ~~Chinese~~Kuhns Brothers. ~~VAT~~The atlease commenced on September 1, 2008 for a ~~rate~~term of ~~17%~~one year with a monthly rent of ~~the~~$7,500, ~~gross~~and ~~sales~~such ~~price. This~~lease ~~VAT~~was ~~may~~extended with bethe ~~offset~~same byrate ~~VAT~~of ~~paid~~rent byuntil ~~the~~August ~~Company~~31, on2011. ~~raw~~On ~~materials~~September ~~and~~1, ~~other~~2011, ~~materials~~we ~~included~~extended inthe lease with the ~~cost~~same rate of ~~producing~~rent ~~its~~for ~~finished~~another one ~~products~~year.

~~Property~~Our operating facilities are located at Zone A, ~~Plant~~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 $862,442 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 ~~Equipment~~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.

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.13

14Accounts Payable and Accrued Liabilities

~~Bad~~Accounts ~~Debts~~payable and accrued liabilities amounted to $4,486,153 and $2,586,381 as of December 31, 2011 and December 31, 2010, respectively. Accounts payable primarily resulted from our purchases of raw materials and equipment. The increase of $1,899,772 is mainly increase in accounts payable caused by increased unit price of raw materials, including quartz, petrol coke and electricity. Our biggest supplier is Yihe Hydro Center, the payables to which accounted for more than 50% of the total amount of accounts payable as of December 31, 2011. Our biggest supplier is Yihe Hydro Center, the payables to which accounted for more than 41% of the total amount of accounts payable as of December 31, 2010.

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.Warrants

~~Off~~According to the resolutions of Board of Directors, the Company extended the expiration date of the original warrants to September 1, 2012 in order to facilitate its future financing activities resulting in a one-~~Balance~~time ~~Sheet~~charge ~~Arrangements~~of $661,649 to interest expense. This extension also added a negative effect of $661,649 to our net loss.

~~The~~Critical ~~Company~~Accounting ~~has~~Policies ~~not~~and ~~engaged in any off-balance sheet transactions since its inception.~~Estimates

~~ITEM~~Management's 7Adiscussion 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. ~~QUANTITATIVE~~The ~~AND~~Company's ~~QUALITATIVE~~financial ~~DISCLOSURES~~statements reflect ~~ABOUT~~the ~~MARKET~~selection ~~RISK~~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.

~~Not~~Revenue ~~applicable.~~Recognition

~~ITEM~~Product 8sales are recognized when the products are shipped and title has passed. Sales ~~FINANCIAL~~revenue ~~STATEMENTS~~represents ~~AND~~the ~~SUPPLEMENTARY~~invoiced ~~DATA~~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.

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

~~ITEM~~Property, 9plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation ~~CHANGES~~and INamortization ~~AND~~are ~~DISAGREEMENTS~~recorded ~~WITH~~utilizing ~~ACCOUNTANTS~~the ONstraight-line method ~~ACCOUNTING~~over ~~AND~~the ~~FINANCIAL~~estimated ~~DISCLOSURE~~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.

~~None~~Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired.

~~ITEM~~Bad ~~9A (T). CONTROLS AND PROCEDURES EVALUATION OF INTERNAL CONTROLS AND PROCEDURES~~Debts

~~Not~~The ~~applicable~~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.

~~ITEM~~Off-Balance ~~9B.~~Sheet ~~OTHER INFORMATION~~Arrangements

~~None~~The Company has not engaged in any off-balance sheet transactions since its inception.

~~PART~~ITEM ~~III~~7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~ITEM~~Not 10applicable. ~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

~~The~~ITEM ~~following are the officers and directors of the Company as of March 31, 2011~~8. ~~Some~~FINANCIAL ofSTATEMENTS ~~our~~AND ~~directors~~SUPPLEMENTARY 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.DATA

Name	Age	Position/Title With the Company
John D. Kuhns	61	President, Chief Executive Officer and Director
Mary E. Fellows	49	Executive Vice President, Secretary and Director
Lin Han	40	Chief Financial Officer
James Tie Li	43	Director
Shadron Stastney	42	Director
Yousu Lin	58	Director
Zhigang Gao	41	Director

The Company's consolidated audited financial statements for the years ended December 31, 2011 and 2010, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1.

1514

~~The~~ITEM ~~business~~9. ~~background~~CHANGES ofIN ~~our~~AND ~~directors~~DISAGREEMENTS ~~and~~WITH ~~officers~~ACCOUNTANTS isON asACCOUNTING ~~follows:~~AND FINANCIAL DISCLOSURE

MrNone. 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.~~ITEM ~~Mary~~9A E. CONTROLS 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.AND PROCEDURES

~~Mr.~~Disclosure ~~Lin~~Controls Han, age 39, was appointed as the Company’s Chief Financial Officer on October 28, 2009. He is also currently 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.Procedures

Mr. ~~James~~John ~~Tie~~Kuhns, Liour Chief ~~has~~Executive ~~been~~Officer, ~~appointed~~evaluated asthe aeffectiveness ~~Company~~of ~~director~~the ~~since~~design ~~September~~and ~~26,~~operation ~~2008.~~of ~~Mr.~~our Lidisclosure ~~has~~controls ~~extensive investment banking~~ and ~~entrepreneur~~procedures, ~~experience~~as defined in ~~the~~Rules ~~U.S.~~13a-15(e) and ~~China.~~15d-15(e) Heunder ~~was~~ the ~~founder~~Exchange ~~and~~Act, ~~senior~~as ~~executive~~of ~~with~~the aend ~~number~~ of ~~start-up~~the ~~companies~~period incovered ~~China~~by ~~including~~this ~~China Hydroelectric Corporation~~Report. HeBased ~~has been a consultant to Kuhns Brothers, Inc., advising~~ on ~~corporate finance~~that evaluation, ~~valuation~~our ~~and~~officer ~~acquisition~~concluded ~~matters~~that ~~related~~due to the ~~firm’s~~material ~~China-related~~weaknesses ~~equity~~in ~~financing~~the ~~transactions~~internal ~~since~~control ~~2006.~~over Hefinancial ~~was~~reporting ~~also~~as ~~the~~discussed immediately ~~founder of Columbia China Capital Group~~below, aour ~~U.S.~~disclosure ~~based~~controls ~~boutique~~and ~~investment~~procedures ~~firm~~were ~~advising~~ineffective ~~Asian~~and ~~firms~~are innot ~~mergers~~adequately ~~and~~designed ~~acquisitions,~~to ~~public~~ensure ~~listing~~that ~~and~~the ~~growth~~information required ~~strategy~~to ~~since~~be ~~2002.~~disclosed ~~Mr.~~by Lius ~~obtained~~in ~~his~~the ~~Master~~reports ofwe ~~Business~~submit ~~Administration~~under ~~degree from~~ the ~~Columbia~~Exchange ~~University~~Act ~~Graduate~~is ~~School~~recorded, ofprocessed, ~~Business~~summarized and areported within ~~Bachelor~~the oftime ~~Science~~periods ~~degree~~specified in ~~accounting~~the ~~from~~applicable ~~City~~rules ~~University~~and offorms ~~New~~and ~~York.~~that Hesuch isinformation awas ~~Chartered~~accumulated ~~Financial Analyst~~ and acommunicated to ~~Certified~~our ~~Public~~Chief ~~Accountant~~Executive ~~licensed~~Officer, in ~~the~~a ~~State~~manner ofthat ~~New~~allowed ~~Jersey~~for timely decisions regarding required disclosure.

~~Mr.~~Management ~~Zhigang~~Report ~~Gao~~on ~~has~~Internal ~~been~~Control over ~~appointed~~Financial as a Company director since September 26, 2008. Mr. Gao has been the manager of Yili China, the chairman of Changchun Master Industries Co., Ltd. (“Changchun Master”), the controlling shareholder prior to the Company’s purchase (through C3 Capital) of Yili China, and the president of Xinjiang Ehe Mining and Metallurgy Co., Ltd. Mr. Gao has been engaged in the applied research of SiC, silicon, organic silicon and 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.Reporting

~~Dr.~~Our ~~Yousu~~management ~~Lin~~is responsible ~~has~~for ~~been~~establishing ~~appointed~~and asmaintaining aadequate ~~Company~~internal ~~director~~control ~~since~~over ~~September~~financial ~~26,~~reporting ~~2008.~~to ~~Dr.~~provide ~~Lin~~reasonable isassurance regarding anthe ~~accomplished~~reliability ~~financier~~ of ~~numerous~~our ~~government~~financial ~~projects~~reporting inand the ~~PRC~~preparation ~~and~~of ~~has been involved in the~~ financial ~~activities~~statements ~~of,~~for ~~and~~external ~~provided~~purposes ~~advice~~in ~~on,~~accordance with ~~the~~U.S. ~~construction~~generally ofaccepted ~~the~~accounting ~~Three~~principles. ~~Gorges~~Internal ~~Project,~~control ~~the~~over ~~largest~~financial ~~hydroelectric~~reporting ~~project~~includes inthose ~~the~~policies ~~world.~~and Inprocedures that ~~addition~~(i) pertain to the ~~Three~~maintenance ~~Gorges~~of ~~Project,~~records ~~Dr.~~that ~~Lin~~in ~~has~~reasonable ~~also~~detail ~~consulted~~accurately onand ~~the~~fairly ~~Xiaolangdi~~reflect ~~Project,~~the atransactions ~~large~~and ~~hydroelectric~~dispositions of ~~project on~~ the ~~Yellow~~assets ~~River~~of ~~and~~ the ~~Wanjiazhai~~Company; ~~Project,~~(ii) aprovide ~~project~~reasonable toassurance ~~divert~~that ~~water~~transactions ~~from~~are ~~the~~recorded ~~Yellow~~as ~~River~~necessary ~~into~~to ~~Shanxi~~permit ~~Province.~~preparation of Hefinancial ~~has~~statements ~~also~~in ~~been~~accordance awith ~~consultant~~U.S. ingenerally ~~other~~accepted ~~governmental~~accounting ~~projects~~principles, ~~including~~and ~~the~~that ~~Tianjin~~receipts ~~Subway~~ and expenditures of the ~~Beijing~~Company ~~Olympics.~~are Inbeing ~~addition~~made toonly ~~these~~in ~~large~~accordance ~~government~~with ~~projects,~~authorizations ~~Dr.~~of ~~Lin~~management ~~has~~and ~~also~~directors ~~been~~of ~~involved~~the inCompany; ~~smaller~~and ~~scale~~(iii) ~~construction~~provide reasonable ~~projects~~assurance ~~with~~regarding ~~groups~~prevention ofor ~~private~~timely ~~investors.~~detection ~~Dr.~~of ~~Lin~~unauthorized ~~received~~acquisition, ~~his~~use, ~~Ph.D.~~or ~~and~~disposition ~~Master~~ of the ~~Arts~~Company’s assets ~~from~~that ~~Australian~~could ~~National~~have ~~University~~a ~~and~~material ~~his~~effect ~~Bachelor~~on of the ~~Arts~~financial ~~degree from Beijing Foreign Language University~~statements.

16An evaluation of the Company’s internal control over financial reporting was carried out under the supervision and with the participation of our 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.

~~Mr.~~During ~~Shadron~~the ~~Lee~~process of ~~Stastney~~reviewing ~~has~~and ~~been~~assessing ~~appointed~~the ~~as a~~ Company’s ~~director~~internal ~~since~~control ~~September~~over 26financial reporting, ~~2008.~~the ~~Since~~Company’s ~~June~~management ~~2004,~~concluded that ~~Mr.~~the ~~Stastney~~previously ~~has~~issued ~~been~~financial astatements ~~partner~~in atthe ~~Vicis~~Quarterly ~~Capital,~~Report ~~LLC,~~for anthe ~~investment~~period ~~management~~ended ~~firm.~~December ~~Vicis Capital~~31, ~~LLC~~2008 is(“2008 ~~the~~Second Quarter ~~managing~~10Q”) ~~partner~~should ofnot ~~Vicis~~be ~~Capital~~relied ~~Master~~upon ~~Fund,~~due ~~one~~to ofthe ~~our~~misclassification ~~principal~~of ~~shareholders.~~Series ~~From~~A ~~July~~Stock ~~2001~~as topermanent ~~May 2004, Mr~~equity. ~~Stastney~~The ~~served~~Company asintends to ~~Managing~~address ~~Director~~the ofreferenced ~~Victus~~misstatement ~~Capital,~~and ~~LP,~~to anrestate ~~investment~~such ~~management~~financial ~~firm.~~statements ~~Mr.~~in ~~Stastney~~the ~~holds~~2008 aSecond ~~Bachelor~~Quarter of10Q ~~Arts~~by ~~degree~~filing ~~from~~with the SEC ~~University~~an ofamendment ~~North~~to ~~Dakota~~such ~~and~~2008 aSecond ~~Juris~~Quarter ~~Doctor from the Yale Law School~~10Q.

~~Family~~A ~~Relationships~~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.

~~There~~The ~~are~~Company’s management noconsidered ~~family~~the ~~relationships~~impact ~~among~~of ~~any~~the foregoing accounting misstatements on the effectiveness of the Company’s ~~present~~internal control ~~directors~~over ~~and~~financial ~~officers,~~reporting ~~except~~and determined that ~~Hong~~they ~~Zhao,~~amounted ~~the~~to ~~former~~a ~~director~~material ~~and~~weakness. ~~the~~As ~~former~~a ~~Chief~~result, ~~Financial~~management ~~Officer~~concluded ~~and~~that the ~~Secretary~~Company's ofinternal ~~the~~controls ~~Company,~~over isfinancial ~~the~~reporting ~~wife~~were not effective as of ~~James~~December ~~Tie~~31, Li2011.

~~Committees~~Remediation ~~of the Company’s Board of Directors~~Initiative

WeIn doan ~~not~~effort ~~have~~to aremediate the ~~standing~~foregoing ~~nominating,~~deficiencies ~~compensation~~in orthe ~~audit~~Company’s ~~committee.~~internal ~~Rather~~control, the ~~board~~Company ofintends ~~directors~~to ~~performs~~take the ~~functions~~following ofactions: ~~these~~(i) ~~committees.~~to ~~James~~create positions ~~Tie~~in Lithe ~~qualifies~~accounting asdepartment aof ~~financial expert within~~ the ~~meaning~~Company ofto ~~Item~~segregate ~~407(d)(5)~~duties of ~~Regulation~~recording, ~~S-K.~~authorizing Weand dotesting; ~~not~~(ii) ~~believe~~to itincrease our isaccounting ~~necessary~~and ~~for~~financing ~~the~~personnel ~~board of directors to appoint such committees~~resources, ~~because~~by ~~the~~retaining ~~volume~~more ofU.S. ~~matters~~GAAP ~~that~~knowledgeable ~~come~~financial ~~before~~professionals; ~~the~~(iii) ~~board~~to ofprovide U.S. ~~directors~~GAAP ~~for~~training ~~consideration is sufficiently small so as~~ to ~~permit~~ our ~~directors~~staff toin ~~give~~the ~~sufficient~~accounting ~~time~~department; ~~and~~(iv) ~~attention~~ to ~~such~~establish ~~matters.~~an ~~The~~audit ~~Company~~committee ~~intends~~of tothe ~~establish~~Board ~~the~~of ~~referenced~~Directors ~~three~~of the ~~committees~~Company, inwith the ~~future~~responsibility toof ~~improve~~overseeing the ~~Company’s~~corporate ~~internal~~accounting ~~control~~ and ~~governance.~~financial ~~Mr.~~reporting ~~Shad~~process ~~Stastney~~and ~~would~~the ~~qualify~~internal asand external ~~“independent~~audits ~~directors”~~of ~~under~~the ~~NASDAQ~~financial ~~Stock~~statements ~~Market~~of ~~Rule~~the ~~5605(a)(2)~~Company.

WeThere dois ~~not~~no ~~currently~~assurance that ~~have~~our ~~procedures~~disclosure bycontrols ~~which~~or our ~~security~~internal ~~holders~~controls ~~may~~over ~~recommend~~financial ~~nominees~~reporting tocan ~~our~~prevent ~~Board~~all ~~of Directors~~errors. In ~~considering~~An ~~candidates~~internal ~~for~~control ~~membership~~system, no onmatter ~~the~~how ~~Board~~well ofdesigned ~~Directors~~and operated, ~~the~~has ~~Board~~inherent oflimitations, ~~Directors~~including ~~will~~the ~~take~~possibility ~~into~~of ~~consideration~~human ~~the~~error. ~~needs~~Because of the ~~Board~~inherent limitations ofin ~~Directors~~a cost-effective control system, misstatements due to error may occur and ~~the~~not ~~candidate’s~~be ~~qualifications~~detected. ~~The~~We ~~Board~~monitor ~~will~~our ~~request~~disclosure controls ~~such~~and ~~information~~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.

~~· The name and address of the proposed candidate;~~15

·Changes ~~The~~in ~~proposed~~Internal ~~candidate’s resume or a listing of his or her qualification to be director of the Company;~~Controls

·On ADecember ~~description~~1, of2011, Mr. ~~any~~Lin ~~relationship~~Han ~~that~~resigned ~~could~~from ~~affect~~his ~~such~~position ~~person qualifying~~ as anChief ~~independent~~Financial ~~director,~~Officer ~~including~~of ~~identifying~~the ~~all other public company board and committee memberships;~~Company.

·Except Afor ~~confirmation~~the ofabove, there ~~such~~were ~~person~~no changes in the Company’s ~~willingness~~internal tocontrol ~~act~~over asfinancial ~~director~~reporting ifthat ~~selected~~occurred byduring the ~~Board~~year ofended ~~Directors;~~December 31, ~~and~~2011 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

·ITEM ~~Any~~9B. ~~information~~OTHER ~~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.~~INFORMATION

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 furtherNone. Generally, if the person expresses a willingness to be considered 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~~PART 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.III

~~The~~ITEM ~~Company~~10. ~~does~~DIRECTORS, ~~not~~EXECUTIVE ~~currently~~OFFICERS ~~have~~AND aCORPORATE ~~process for security holders to send communications to the Board.~~GOVERNANCE

~~Section~~The 16following are the officers and directors of the Company as of the date of this Report. Some of our directors are residents of the People’s Republic of China (athe “PRC”). ~~Beneficial~~As ~~Reporting~~a ~~Compliance~~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.

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.

Name	Age	Position/Title With the Company

John D. Kuhns	62	President, Chief Executive Officer and Director

Mary E. Fellows	50	Executive Vice President, Secretary and Director

Chunli Liu	52	Chief Accounting Officer

James Tie Li	44	Director

Shadron Stastney	43	Director

Yousu Lin	59	Director

Zhigang Gao	42	Director

~~Below~~The isbusiness ~~the~~background ~~information with respect to failures~~ of our directors, and officers ~~and/or~~is ~~beneficial~~as ~~owners of more than ten percent of any class of equity securities of the Company to timely file reports under Section 16(a) during fiscal year 2010~~follows:

Name	Date of Reporting Event	Required Filing Date	Date of Filing
John D. Kuhns	7/1/2010	7/5/2010	3/9/2011
	10/1/2010	10/5/2010	3/9/2011
Mary E. Fellows	7/1/2010	7/5/2010	3/9/2011
	10/1/2010	10/5/2010	3/9/2011
Dr. Yousu Lin	7/1/2010	7/5/2010	3/9/2011
	10/1/2010	10/5/2010	3/9/2011

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. 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 is 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.

17Ms. 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. 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.

~~Code~~Mr. Chunli Liu was appointed as the Company’s Chief Accounting Officer on March 30, 2012 and he has been working as the accounting manager of ~~Ethics~~Yili China since January 2011, responsible for overseeing financial reporting, purchase of raw materials and sales. During the period from June 2007 through May 2010, Mr. Liu was serving as the CFO at Beijing Xi’anke Technology Co., Ltd., a wholly foreign owned entity in the IT industry in China. Prior to that, Mr. Liu was the CFO of Beijing Diren Holdings, Inc., a private company in China engaged in hotel management, real estate, etc. Mr. Liu graduated with a bachelor degree in Business Administration and a master degree in Trade and Economics from Renmin University of China in year 1985 and 1996, respectively.

~~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 December 31, 2011.~~16

~~ITEM~~Mr. 11James Tie Li has been appointed as a Company director since September 26, 2008. ~~EXECUTIVE~~He ~~COMPENSATION~~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. since 2006. He was also the founder of Columbia China Capital Group, a U.S. based boutique investment firm 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.

~~Executive~~Mr. ~~Compensation~~Zhigang Gao has been appointed as a Company director since September 26, 2008. Mr. Gao has been the manager of Yili China, the chairman of Changchun Master Industries Co., Ltd. (“Changchun Master”), the controlling shareholder prior to the Company’s purchase (through C3 Capital) of Yili China, and the president of Xinjiang Ehe Mining and Metallurgy Co., Ltd. Mr. Gao holds a bachelor’s degree and a master's degree in chemistry from Northeast Normal University in China.

~~The~~Dr. ~~following~~Yousu ~~Summary~~Lin has ~~Compensation~~been ~~Table~~appointed ~~sets~~as ~~forth~~a ~~the~~Company ~~compensation~~director since September 26, 2008. Dr. Lin is an accomplished financier of numerous government projects in the ~~named~~PRC ~~executive~~and ~~officers~~has been involved in the financial activities of, and provided advice on, the ~~Company~~construction ~~for~~of the ~~years~~ ~~ended~~Three Gorges ~~December~~Project, 31the largest hydroelectric project in the world. In addition to the Three Gorges Project, ~~2010~~Dr. Lin has also consulted on the Xiaolangdi Project, a large hydroelectric project on the Yellow River and ~~2009:~~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.

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 (1)	2010		175,000			-		-		-		-		-		175,000
	2009		175,000			-		-		-		-				175,000
Mary E. Fellows (2)	2010		100,000			-		-		-		-				100,000
	2009		100,000			-		-		-		-				100,000
Lin Han (3)	2010		52,941			-		-		-		-				52,941
	2009		52,941			-		-				-				52,941

Mr. Shadron Lee Stastney has been appointed as a Company director since 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.

~~(1)~~Director ~~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.~~Qualifications

~~(2)~~The MsCompany’s Board of Directors believes that each director’s experience, qualifications, attributes, or skills on an individual basis and in combination with those of other directors lead to the conclusion that each director should serve in such capacity. ~~Fellows~~Among the isattributes ~~currently~~or ~~Executive~~skills ~~Vice~~common ~~President~~to all of the directors are their ability to review critically and to evaluate, ~~Secretary~~question, and discuss information provided to them, to interact effectively with the other directors, officers and employees of the Company, as well as service providers, counsel, and the Company’s independent registered public accounting firm, and to exercise effective and independent business judgment in the performance of their duties as directors. The following is a discussion for each director of the specific experience, qualifications, attributes or skills that led the Board to conclude that the individual should be serving as a director of the Company.:

~~(3)~~Mr. John D. Kuhns has over 30 years of experience in the hydroelectric power, power technology and alternative energy industry. As early as 1981, Mr. ~~Han~~Kuhns isbuilt ~~currently~~Catalyst ~~Chief~~Energy, ~~Financial~~one ~~Officer~~of the first publicly traded independent power producers in the United States. Mr. Kuhns also has extensive experience in development and financing of energy industries in various countries such as hydroelectric projects in China as well as Argentina, Costa Rica and Mexico. Through Kuhns Brothers, Inc., an investment banking firm which Mr. Kuhns founded in 1986, he gained additional financing experience in power technology ventures, and, more recently, industrial and infrastructure companies operating within the ~~Company~~PRC. We believe that Mr. Kuhns’ qualifications and his experience in the energy industry provides our board with unique and valuable perspectives.

~~Employment~~Ms. ~~Agreements~~Mary E. Fellows has her investment banking experience dating back to 1997 and her merger and acquisition experience as early as 1996. Her leadership positions at Solar Electric Light Company and Distributed Power Company provide her with valuable insights in investments in solar information publications, including the photovoltaic industry's leading newsletter and market survey. We believe that Ms. Fellows is well suited to sit on our board based on her extensive business experience in various industries.

~~None~~Mr. James Tie Li has extensive investment banking and entrepreneur experience in the U.S. and China. He helped started up a number of ~~our~~companies in ~~employees~~China ~~was~~including ~~subject~~China toHydroelectric Corporation. As a ~~written~~consultant ~~employment~~to ~~agreement~~Kuhns ~~during~~Brothers, Inc., Mr. Li advises on corporate finance, valuation and acquisition matters related to the ~~year~~firm’s ~~ended~~China-related ~~December~~equity 31financing transactions. His U.S. based boutique investment firm, ~~2010~~Columbia China Capital Group, gained Mr. Li his extensive experience in advising Asian firms in mergers and acquisitions, public listing and growth strategy. With Mr. Li’s academic background and his expertise in finance and Asian transactions, we believe Mr. Li is well suited to serve as a director on our board.

~~Director~~Mr. ~~Compensation~~Zhigang Gao has been engaged in the applied research of SiC, silicon, organic silicon and 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. We believe that Mr. Gao’s qualification and expertise in silicon carbide industries in China offer the Company invaluable insight and experience for its business operations and development.

~~Our Directors do not receive compensation for serving as a Director, but they are entitled to reimbursement for their travel expenses.~~17

~~Grants~~Dr. Yousu Lin consulted and coordinated the financing and development of ~~Plan~~numerous government projects in China including hydroelectric projects such as the Three Gorges Project, the Xiaolangdi Project, the Wanjiazhai Project, other infrastructure construction projects as Tianjin Subway and the Beijing Olympics. Dr. Lin is fluent in both Chinese and English, which supplements the communication between the Chinese management and the U.S. board. His experience with both private investors and Chinese government in the big-~~Based~~scaled ~~Awards~~projects, especially in the energy industry, positions him well as a director on our board.

NoMr. ~~plan-based~~Shadron ~~awards~~Lee Stastney ~~were~~is ~~granted~~the tomanaging ~~any~~partner of one of our ~~named~~principal ~~executive~~shareholders ~~officers~~and ~~during~~he ~~the~~has ~~fiscal~~experience ~~year~~of ~~ended~~many ~~December~~years ~~31,~~in ~~2010~~investment management and financing. Mr. Stastney’s financial and legal background offers our board unique perspectives in capital market and financing projects.

~~Outstanding~~Family ~~Equity Awards at Fiscal Year End~~Relationships

NoThere ~~unexercised~~are ~~options~~no orfamily relationships ~~warrants~~among ~~were held by~~ any of ~~our~~the ~~named~~Company’s ~~executive~~present directors and officers, asexcept ~~of December~~that 31Hong Zhao, ~~2010.~~the Noformer ~~equity~~director ~~awards~~and ~~were~~the former ~~made~~Chief ~~during~~Financial ~~the~~Officer ~~fiscal~~and ~~year~~Secretary ~~ended~~of ~~December~~the 31Company, ~~2010~~is the wife of James Tie Li.

~~Pension~~Involvement ~~Benefits~~in Certain Legal Proceedings

NoNone ~~named~~of our directors, executive officers ~~received~~ or ~~held~~control ~~pension~~persons has ~~benefits~~been ~~during~~involved in any of the ~~fiscal~~events ~~year~~prescribed ~~ended~~by ~~December~~Item 401(f) 31of Regulation S-K during the past ten years, ~~2010.~~including:

~~Nonqualified~~1. ~~Deferred~~any ~~Compensation~~petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;

No2. ~~nonqualified~~any ~~deferred~~conviction ~~compensation~~in ~~was~~a ~~offered~~criminal proceeding or ~~issued~~being tonamed ~~any~~a ~~named~~subject ~~executive~~of ~~officer~~a ~~during~~pending ~~the~~criminal ~~fiscal~~proceeding ~~year~~(excluding ~~ended~~traffic ~~December~~violations ~~31,~~and ~~2010.~~other minor offenses);

~~Potential~~3. ~~Payments~~being ~~upon~~subject ~~Termination~~to any order, judgment, or ~~Change~~decree, innot ~~Control~~subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:

~~Our~~i. ~~executive~~acting ~~officers~~as ~~are~~a ~~not~~futures ~~entitled~~commission tomerchant, ~~severance~~introducing ~~payments~~broker, ~~upon~~commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the ~~termination~~Commodity Futures Trading Commission, or an associated person of ~~their~~any ~~employment~~of ~~agreements~~the foregoing, or ~~following~~as aan ~~change~~investment adviser, underwriter, broker or dealer in ~~control~~securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; ii. engaging in any type of business practice; or iii. engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

~~Compensation~~4. ~~Committee~~being ~~Interlocks~~subject ~~and~~to ~~Insider~~any ~~Participation~~order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;

~~During~~5. ~~the~~being ~~fiscal~~found ~~year~~by ~~ended~~a ~~December~~court ~~31,~~of ~~2010,~~competent wejurisdiction ~~did~~in ~~not have~~ a ~~standing~~civil ~~compensation~~action ~~committee.~~or ~~Our~~by ~~Board~~the ofSEC ~~Directors~~to ~~was~~have ~~responsible~~violated ~~for~~any ~~the~~Federal ~~functions~~or ~~that~~State ~~would~~securities ~~otherwise~~law, beand ~~handled by~~ the ~~compensation~~judgment ~~committee.~~in ~~All~~such ~~directors~~civil ~~participated~~action inor ~~deliberations~~finding ~~concerning~~by ~~executive~~the ~~officer~~Commission ~~compensation,~~has ~~including~~not ~~directors~~been ~~who~~subsequently ~~were~~reversed, ~~also~~suspended, ~~executive~~or ~~officers.~~vacated;

186. being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

~~ITEM 12~~7. ~~SECURITY~~being ~~OWNERSHIP~~subject OFto, ~~CERTAIN~~or ~~BENEFICIAL~~a ~~OWNERS~~party ~~AND~~to, ~~MANAGEMENT~~any ~~AND~~Federal ~~RELATED~~or ~~STOCKHOLDER~~State ~~MATTERS~~judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

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 groupi. ~~Unless~~any ~~otherwise~~Federal ~~noted,~~or ~~each~~State ~~person~~securities or ~~company~~commodities ~~named~~law ~~in the tables has sole voting and investment power with respect to the shares that he~~ or itregulation; 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.or

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	%

19ii. any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or iii. any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

~~(1)~~ 8. being ~~Pursuant~~subject to, or ~~Rule~~a ~~13d-3~~party ~~under~~to, ~~the~~any ~~Exchange~~sanction ~~Act~~or order, anot ~~person~~subsequently ~~has~~reversed, ~~beneficial~~suspended ~~ownership~~or vacated, of any ~~securities~~self-regulatory organization (as defined toin ~~which~~Section ~~such~~3(a)(26) ~~person,~~of ~~directly~~the orExchange ~~indirectly,~~Act ~~through~~(15 ~~any~~U.S.C. ~~contract~~78c(a)(26))), ~~arrangement,~~any ~~undertaking,~~registered ~~relationship~~entity or(as ~~otherwise~~defined ~~has~~in orSection ~~shares~~1(a)(29) of ~~voting~~the ~~power~~Commodity ~~and/or~~Exchange ~~investment~~Act ~~power~~(7 U.S.C. 1(a)(29))), or asany toequivalent ~~which~~exchange, ~~such~~association, ~~person~~entity ~~has~~or ~~the~~organization ~~right~~that tohas ~~acquire~~disciplinary authority ~~such~~over ~~voting~~its ~~and/~~members or ~~investment~~persons ~~power~~associated ~~within~~with 60a ~~days~~member.

~~(2)~~Committees ~~The percentage~~ of ~~beneficial ownership as to any person as of a particular date is calculated by dividing~~ the ~~number~~Company’s Board 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 3,418,648 shares.Directors

~~(3)~~We ~~Includes~~do ~~(i)~~not anhave ~~aggregate~~a ofstanding nominating, 1compensation or audit committee. Rather,~~710,277~~ ~~shares~~the board of ~~Common~~directors ~~Stock~~performs ~~issuable~~the ~~upon~~functions ~~conversion~~ of anthese ~~aggregate~~committees. ~~171,028~~James ~~shares~~Tie Li qualifies as a financial expert within the meaning of ~~Series~~Item A407(d)(5) ~~Stock~~of ~~which~~Regulation ~~are~~S-K. ~~immediately~~We ~~convertible~~do ~~into~~not ~~Common~~believe ~~Stock~~it atis necessary for the ~~option~~board of ~~New~~directors ~~World~~to ~~Power,~~appoint ~~LLC;~~such ~~and~~committees, ~~(ii)~~because ~~427,569~~the ~~shares~~volume of ~~Common~~matters ~~Stock~~that ~~issuable~~come ~~upon~~before ~~exercise~~the board of ~~immediately~~directors ~~exercisable~~for ~~warrants~~consideration is ~~held~~sufficiently bysmall ~~New~~so ~~World~~as ~~Power,~~to ~~LLC~~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. Mr. Shad Stastney would qualify as “independent directors” under NASDAQ Stock Market Rule 5605(a)(2).

~~(4)~~We ~~Mr.~~do ~~Kuhns~~not iscurrently have ~~the~~procedures ~~owner~~by ofwhich ~~100%~~our ofsecurity ~~the~~holders ~~membership~~may ~~interests~~recommend ~~and~~nominees ~~the~~to ~~sole~~our ~~manager~~Board of ~~New~~Directors. In ~~World~~considering ~~Power,~~candidates for ~~LLC~~membership ~~and~~on ~~therefore~~the ~~controls~~Board ~~such~~of ~~company and~~Directors, bythe ~~virtue~~Board of ~~such~~Directors ~~control,~~will ~~may~~take beinto ~~deemed~~consideration tothe ~~beneficially~~needs ~~own~~of ~~all~~the Board of Directors and the ~~Company~~candidate’s ~~securities~~qualifications. ~~that~~The ~~are~~Board ~~owned~~will byrequest ~~New~~such ~~World~~information ~~Power, LLC.~~as:

~~(5)~~· ~~Includes~~The ~~(i)~~name anand ~~aggregate~~address 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~~proposed ~~of Ms. Fellows~~candidate; ~~and (ii) 142,493 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Ms. Fellows.~~

~~(6)~~· ~~Includes~~The ~~(i)~~proposed ancandidate’s ~~aggregate~~resume ofor ~~569,971~~a ~~shares~~listing of ~~Common~~his ~~Stock~~or ~~issuable~~her ~~upon~~qualification ~~conversion~~to ofbe andirector ~~aggregate 56,997 shares~~ of ~~Series A Stock which are immediately convertible into Common Stock at~~ the ~~option of Dr. Lin~~Company; ~~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~~description ~~which are immediately convertible into Common Stock at the option~~ of ~~Vicis~~any ~~Capital~~relationship ~~Master~~that ~~Fund;~~could ~~(ii)~~affect ansuch ~~aggregate~~person ofqualifying ~~9,202,670~~as ~~shares of Common Stock issuable upon conversion of~~ an ~~aggregate~~independent ~~920~~director,~~267~~ ~~shares~~including ofidentifying ~~Series~~all Bother ~~Stock~~public ~~which~~company ~~are~~board ~~immediately convertible into Common Stock at the option of Vicis Capital Master Fund;~~ and ~~(iii)~~committee ~~1,764,982 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Vicis Capital Master Fund.~~memberships;

~~(8)~~· ~~The~~A ~~share~~confirmation ~~number~~of ~~disclosed~~such ~~herein~~person’s ~~does~~willingness ~~not~~to ~~include~~act ~~675,000~~as ~~shares~~director ofif ~~Common~~selected ~~Stock owned~~ by ~~Ms.~~the ~~Hong~~Board ~~Zhao, wife~~ of ~~James~~Directors; ~~Tie Li, who is our former CFO.~~and

~~(9)~~· ~~Includes~~Any ainformation ~~total~~about ofthe ~~925~~proposed candidate that would,~~000~~ ~~shares~~under ofthe ~~Common~~federal ~~Stock~~proxy ~~issued~~rules, be required to ~~Mr.~~be ~~Gao~~included in the Company’s proxy statement if such person were a nominee.

~~(10)~~Once ~~Includes~~a anperson ~~aggregate~~has been identified by the Board of ~~(i)~~Directors 1as a potential candidate,~~323,553~~ ~~shares~~the Board of ~~Common~~Directors ~~Stock~~may ~~that~~collect ~~have~~and ~~been~~review ~~issued;~~publicly ~~(ii)~~available information ~~2,850,219~~regarding ~~shares~~the ofperson ~~Common~~to ~~Stock~~assess ~~issuable~~whether ~~upon~~the ~~conversion~~person ofshould anbe ~~aggregate~~considered ~~285~~further. Generally,~~022~~ ~~shares~~if ofthe ~~Series~~person Aexpresses a ~~Stock~~willingness ~~which~~to ~~are~~be ~~immediately~~considered ~~convertible~~to ~~into~~serve ~~Common~~on ~~Stock~~the atBoard of Directors and the ~~option~~Board of ~~such~~Directors ~~persons;~~believes ~~and~~that ~~(iii)~~the ~~712~~candidate has the potential to be a good candidate,~~555~~ ~~shares~~the Board of ~~Common~~Directors ~~Stock~~would ~~issuable~~seek ~~upon~~to gather information from or about the ~~exercise~~candidate, ofincluding through ~~immediately~~one ~~exercisable~~or ~~warrants~~more ~~held~~interviews byas ~~such~~appropriate ~~persons.~~and ~~The~~review ~~shares~~his ~~disclosed~~or ~~herein~~her doaccomplishments ~~not~~and ~~include~~qualifications ~~675~~generally,~~000~~ ~~shares~~including in light of ~~Common~~any ~~Stock~~other ~~owned~~candidates bythat ~~Ms.~~the ~~Hong~~Board ~~Zhao,~~of ~~wife~~Directors may be considering. The Board of ~~James~~Directors’ ~~Tie~~evaluation ~~Li,~~process does ~~who~~not vary based on whether the candidate is ~~our~~recommended ~~former~~by ~~CFO~~a shareholder.

~~ITEM~~The ~~13.~~Board ~~CERTAIN~~of ~~RELATIONSHIPS~~Directors will, ~~AND~~from ~~RELATED~~time ~~TRANSACTIONS~~to time, ~~AND~~seek ~~DIRECTOR~~to ~~INDEPENDENCE~~identify potential candidates for director nominees and will consider potential candidates proposed by the Board of Directors and by management of the Company.

~~Certain~~The ~~Relationships~~Company ~~and~~does ~~Related~~not currently ~~Transactions~~have a process for security holders to send communications to the Board.

WeSection do16(a) ~~not~~Beneficial ~~have~~Reporting ~~an established policy regarding related transactions.~~Compliance

WeSection 16(a) ~~lease~~of ~~our~~the ~~office~~Securities ~~space~~Exchange Act atof ~~both 558 Lime Rock Road~~1934, ~~Lakeville,~~as ~~Connecticut and 420 Lexington Avenue~~amended, ~~Suite~~requires ~~860,~~the ~~New~~Company’s ~~York~~directors, NYexecutive ~~from~~officers ~~Kuhns Brothers, Inc.~~ and ~~its~~persons ~~affiliates~~who ~~(“Kuhns~~own ~~Brothers”).~~more ~~Our~~than ~~Chairman~~10% ~~and~~of ~~CEO,~~the ~~Mr.~~Company’s Common ~~Kuhns,~~Stock isto afile ~~controlling~~reports ~~shareholder,~~of ~~President,~~ownership ~~CEO, a director~~ and ~~Chairman~~changes ofin ~~Kuhns~~ownership ~~Brothers. The lease commenced~~ on ~~September~~Forms 13, ~~2008~~4 ~~for~~and a5 ~~term of one year~~ with athe ~~monthly~~Securities ~~rent of $7,500,~~ and ~~such~~Exchange ~~lease~~Commission (the ~~was~~“SEC”). ~~extended~~Directors, ~~for~~executive aofficers ~~year~~and ~~with~~greater ~~the~~than ~~same~~10% ~~rate~~stockholders ofare ~~rent~~required ~~until~~by ~~August~~SEC ~~31,~~rules ~~2010.~~to Onfurnish ~~September 1, 2010, we extended~~ the Company ~~lease~~ with ~~the~~copies ~~same rate~~ of ~~rent~~Section ~~for~~16(a) ~~another~~forms ~~one~~they ~~year~~file.

20The Company believes that all of its directors, executive officers and greater than 10% beneficial owners complied with all filing requirements applicable to them in the year ended December 31, 2011.

OnCode ~~January 1, 2010, the Company entered into a Management Service Agreement, where the Company shall pay 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 paid the total management fee of $150,000 in 2010.Ethics

OnWe ~~September~~have ~~17,~~not ~~2008,~~yet ~~Changchun~~adopted ~~Master~~a ~~Industries~~Code ~~Co.,~~of ~~Ltd.~~Ethics for ~~(“Changchun Master Company”) whose controlling stockholder is Zhigang Gao,~~ our ~~director,~~executive ~~made~~officers. aWe ~~loan~~intend to ~~Yili~~adopt ~~China~~a inCode ~~the amount~~ of ~~RMB~~Ethics ~~3,790,000~~applying ~~(or~~to ~~approximately~~such ~~$579,156.47~~persons ~~based~~during on the ~~exchange~~fiscal ~~rate~~year asending ~~of RMB1 = US$0.152812 on March~~ December 31, ~~2011) for the purpose of Yili China’s facility construction~~2012. 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.

Aside from the loan, Changchun Master Company also advanced approximately $307,592 to Yili China for certain operating expenses from September 2, 2008 through December 31, 2009. As a result, the Company owed Changchun Master Company $886,748 as of December 31, 2010.19

OnITEM ~~February 10, 2010, the Company signed a loan agreement with China Silicon Corporation, a Delaware corporation (“CSC”) to extend a loan of $1,000,000 to fund CSC’s working capital needs~~11. ~~The~~EXECUTIVE interest rate of this loan is six percent (6%) per annum. CSC agreed to pay to the Company the principal sum of $1,000,000 and interest on December 31, 2010, but had not yet done so as of the date of this Annual Report. The Company is currently in discussions with CSC to have the principal and the accrued interest of loan repaid as soon as possible. This is a related party transaction since the Company and CSC share a majority shareholder, certain officers and directors.COMPENSATION

OnCompensation ~~April~~Discussion ~~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.~~Analysis

~~Director~~Executive ~~Independence~~Compensation

WeThe dofollowing ~~not~~Summary ~~have~~Compensation aTable sets ~~standing~~forth ~~nominating,~~the compensation ~~or audit committee. Rather, the board~~ of ~~directors performs~~ the ~~functions~~named ofexecutive ~~these~~officers ~~committees. We do not believe it is necessary for the board~~ of ~~directors to appoint such committees, because~~ the ~~volume~~Company ~~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 years ~~Company’s~~ended ~~Common~~December ~~Stock is not currently listed for trading or quotation on a national securities exchange~~31, we2011 ~~are~~and not required to have such committees. Mr. Shad Stastney would qualify as an “independent director” under NASDAQ Stock Market Rule 5605(a)(2). 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.2010:

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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 (1)		2011		175,000			-		-		-		-		-		175,000
		2010		175,000			-		-		-		-				175,000
Mary E. Fellows (2)		2011		100,000			-		-		-		-				100,000
		2010		100,000			-		-		-		-				100,000
Lin Han (3)		2011		52,381			-		-		-		-				52,381
		2010		52,941			-		-				-				52,941

~~The~~(1) ~~following~~Mr. ~~lists~~Kuhns ~~the~~is ~~fees~~currently ~~billed~~Chief byExecutive ~~our auditors~~Officer, ~~Child,~~President and ~~Van~~a ~~Wagoner~~director &of ~~Bradshaw,~~the ~~PLLC,~~Company. ~~for~~He was appointed as the ~~years~~Company’s ~~ended~~interim ~~December~~Chief ~~31,~~Financial ~~2010~~Officer ~~and~~from ~~2009:~~09/02/2008 through October 28, 2008.

	Fiscal Year Ended December 31, 2010		Fiscal Year Ended December 31, 2009
Audit Fees	$	60,000	$	70,000
Audit Related Fees		21,000		14,000
Tax Fees		4,800		4,750
All Other Fees		--		--

(2) Ms. Fellows is currently Executive Vice President, Secretary and a director of the Company.

~~ITEM~~(3) 15Mr. ~~EXHIBITS~~Han resigned as Chief Financial Officer of the Company on December 1, 2011.

Number		Description
2.1		Agreement and Plan of Merger dated September 30, 2009. Incorporated by reference to Exhibit A to the Company’s Information Statement filed with the SEC on October 13, 2009 (the “Information Statement”);
3.1		Articles of Incorporation of the Company filed with the Nevada Secretary of State on June 26, 2009. Incorporated by reference to Exhibit C to the 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; *

Employment Agreements

21None of our employees was subject to a written employment agreement during the year ended December 31, 2011.

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”);
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;
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;
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;
4.5		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;
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;
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;
10.3		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.*

Director Compensation

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

22Grants of Plan-Based Awards

~~SIGNATURES~~No plan-based awards were granted to any of our named executive officers during the fiscal year ended December 31, 2011.

~~Pursuant~~Outstanding toEquity ~~the~~Awards ~~requirements~~at ofFiscal Year ~~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.~~End

	MASTER SILICON CARBIDE INDUSTRIES, INC.
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)

No unexercised options or warrants were held by any of our named executive officers as of December 31, 2011. No equity awards were made during the fiscal year ended December 31, 2011.

~~Pursuant~~Pension 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.Benefits

~~/s/~~No ~~John~~named D.executive officers ~~Kuhns~~received ~~John~~or D.held ~~Kuhns~~pension ~~Chief~~benefits ~~Executive~~during ~~Officer~~the ~~(Principal~~fiscal ~~Executive~~year ~~Officer)~~ended ~~and~~December ~~Director /s/ Mary E. Fellows Mary E. Fellows Executive Vice President~~31, ~~Secretary and Director /s/ Shad Stastney Shad Stastney Director /s/ Zhigang Gao Zhigang Gao Director~~2011.

23Nonqualified Deferred Compensation

~~PART~~No Inonqualified –deferred compensation ~~FINANCIAL~~was ~~INFORMATION~~offered or issued to any named executive officer during the fiscal year ended December 31, 2011.

~~Item~~Potential 1.Payments ~~Financial~~upon ~~Information~~Termination or Change in Control

~~Master~~Our ~~Silicon~~executive ~~Carbide~~officers are ~~Industries,~~not ~~Inc~~entitled to severance payments upon the termination of their employment agreements or following a change in control.

~~December~~Compensation ~~31,~~Committee ~~2010~~Interlocks and Insider Participation

~~Index~~During tothe ~~Consolidated~~fiscal year ~~Financial~~ended ~~Statements~~December 31, 2011, 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.

Contents	Page(s)
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations and Comprehensive Profit (Loss)	F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 to F-20

~~F-1~~ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To~~ The ~~Board~~following oftables set ~~Directors~~forth ~~and~~information ~~Stockholders~~regarding ~~of Master Silicon Carbide Industries, Inc. Connecticut, USA We have audited~~ the ~~accompanying~~beneficial ~~consolidated~~ownership ~~balance sheets~~ of ~~Master Silicon Carbide Industries, Inc. (~~the Company)’s asCommon ofStock ~~December~~as ~~31, 2010 and 2009, and the related consolidated statements~~ of ~~operations~~April ~~and comprehensive profit (loss)~~13, ~~changes~~2012 inby ~~stockholders’ equity~~ (~~deficit~~x), ~~and~~each ~~cash~~stockholder known ~~flows~~by ~~for~~ the ~~years~~Company ~~then~~to ~~ended.~~be ~~These~~the ~~consolidated~~beneficial ~~financial~~owner ~~statements~~of ~~are~~more ~~the~~than ~~responsibility~~5% of the Company'’s ~~management.~~Common ~~Our~~Stock, ~~responsibility~~(y) ~~is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with~~ the ~~standards~~executive officers of the ~~Public~~ Company ~~Accounting~~and ~~Oversight Board~~ (~~United States of America~~z). ~~Those~~the ~~standards~~directors ~~require that we plan~~ and ~~perform~~executive ~~the~~officers ~~audits~~of ~~to obtain reasonable assurance about whether~~ the ~~consolidated~~Company 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~~group. ~~for~~Unless ~~designing~~otherwise ~~audit procedures that are appropriate in the circumstances~~noted, ~~but~~each ~~not~~person ~~for~~or ~~the purpose of expressing an opinion on the effectiveness of the~~ company's named ~~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~~tables ~~statements,~~has ~~assessing~~sole ~~the~~voting ~~accounting principles used~~ and ~~significant~~investment ~~estimates~~power ~~made~~with byrespect ~~management,~~to ~~as well as evaluating~~ the ~~overall~~shares ~~financial statement presentation. We believe~~ that ~~our~~he ~~audits~~or ~~provide~~it abeneficially ~~reasonable basis for our opinion~~owns. InAs ~~our~~of ~~opinion,~~ the date ~~consolidated~~of ~~financial~~this ~~statements referred to above present fairly~~Report, inthere ~~all~~were ~~material~~outstanding ~~respects~~4, ~~the financial position of Master Silicon Carbide Industries~~016,380 ~~Inc.~~shares as of ~~December~~Common 31Stock, ~~2010 and 2009~~996,186 ~~and~~shares ~~the results~~ of ~~its~~Series ~~operations~~A ~~and its cash flows for the years then ended~~Stock, 920,267 ~~in conformity with accounting principles generally accepted in the United States~~ shares of ~~America.~~Series ~~The~~B ~~accompanying~~Stock 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~~warrants ~~suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability~~ to ~~continue~~purchase ~~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~~490,465 ~~PLLC~~shares ~~Salt~~of ~~Lake~~Common ~~City, Utah March 31, 2011~~Stock.

F-2

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		2,479,655	(3)		40.29	%
Common Stock	John D. Kuhns 558 Lime Rock Road Lime Rock, Connecticut 06039		2,479,655	(3)(4)		40.29	%
Common Stock	Mary E. Fellows 558 Lime Rock Road Lime Rock, Connecticut 06039		826,342	(5)		17.47	%
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)		23.03	%
Common Stock	Dr. Yousu Lin c/o 558 Lime Rock Road Lime Rock, Connecticut 06039		826,342	(6)		17.47	%
Common Stock	Vicis Capital Master Fund 126 East 56th St. 7th Fl, New York, NY 10022		19,438,445	(7)		88.18	%
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)		16.81	%
Common Stock	Chunli Liu Ping An International Financial Center No. 3 Xinyuan South Road, Suite 2105 Chaoyang District, Beijing China 100027		0			—
Common Stock	All officers and directors as a group (7 persons)		5,057,339	(10)		66.73	%

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	%

~~MASTER SILICON CARBIDE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In US Dollars)~~21

	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

(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.

~~See~~(2) ~~accompanying~~The ~~notes~~percentage of beneficial ownership as to ~~consolidated~~any ~~financial~~person ~~statements~~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 4,016,380 shares.

F-(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 1,710,277 shares of Common Stock at the option of New World Power, LLC; (ii) 427,569 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by New World Power, LLC and (iii) 341,809 shares of Common Stock in the name of New World Power, LLC.

~~MASTER~~(4) ~~SILICON~~Mr. ~~CARBIDE~~Kuhns ~~INDUSTRIES~~is the owner of 100% of the membership interests and the sole manager of New World Power, ~~INC.~~LLC ~~CONSOLIDATED~~and ~~STATEMENTS~~therefore OFcontrols ~~OPERATIONS~~such ~~AND~~company ~~COMPREHENSIVE~~and, ~~PROFIT~~by ~~(LOSS)~~virtue ~~(In~~of USsuch ~~Dollars)~~control, may be deemed to beneficially own all of the Company’s securities that are owned by New World Power, LLC.

	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

(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 569,971 shares of Common Stock at the option of Ms. Fellows; (ii) 142,493 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Ms. Fellows; and (iii) 113,878 shares of Common Stock in the name of Ms. Fellows.

~~See~~ (6) ~~accompanying~~Includes ~~notes~~(i) toan ~~consolidated~~aggregate ~~financial~~of 569,971 ~~statements~~shares of Common Stock issuable upon conversion of an aggregate 56,997 shares of Series A Stock which are immediately convertible into 569,971 shares of 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; and (iii) 113,878 shares of Common Stock in the name of Dr. Lin.

~~F-4~~(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; (iii) 1,764,982 shares of Common Stock issuable upon exercise of immediately exercisable warrants held by Vicis Capital Master Fund and (iv) 1,410,864 shares of Common Stock issued in the name of Vicis Capital Master Fund.

~~MASTER~~(8) ~~SILICON~~The ~~CARBIDE~~share ~~INDUSTRIES~~number disclosed herein does not include 675,000 ~~INC~~shares of Common Stock owned by Ms. ~~CONSOLIDATED~~Hong ~~STATEMENTS~~Zhao, OFwife ~~CHANGES~~of INJames ~~STOCKHOLDERS'~~Tie ~~EQUITY~~Li, ~~(DEFICIT)~~who ~~(In~~is USour ~~Dollars)~~former CFO.

	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	)

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

~~See~~(10) ~~accompanying~~Includes ~~notes~~an toaggregate ~~consolidated~~of ~~financial~~(i) ~~statements~~1,494,565 shares of Common Stock that have been issued; (ii) 2,850,219 shares of Common Stock issuable upon conversion of an aggregate 285,022 shares of Series A Stock which are immediately convertible into Common Stock at the option of such persons; and (iii) 712,555 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 CFO.

~~MASTER~~Certain ~~SILICON~~Relationships ~~CARBIDE~~and ~~INDUSTRIES,~~Related ~~INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In US Dollars)~~Transactions

	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			-

We do not have an established policy regarding related transactions.

~~See~~We lease ~~accompanying~~our ~~notes~~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, a director 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 until August 31, 2010. On September 1, 2010, we amended the lease to ~~consolidated~~be ~~financial~~automatically ~~statements~~extended each year with the same rate of rent unless either party provides a notice to terminate 120 days in advance.

FOn May 26, 2011, the Company signed an Engagement Agreement with Kuhns Brothers, for providing investment banking services for initially a one-6year period in potential mergers and acquisitions, private placement transactions, etc. For its financial advisory services, Kuhns Brothers will receive equity equals to 7% of the total financing value plus warrants to purchase the securities which have the value of 7% of total financing value.

~~Master Silicon Carbide Industries, Inc.~~22

~~December~~On 31January 1, 2010, the Company entered into a Management Service Agreement, where the Company shall pay 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 paid the total management fee of $150,000 in 2011.

~~Notes~~On 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 ~~Consolidated~~amount ~~Financial~~of ~~Statements~~RMB 3,790,000 (or approximately $601,568 based on the exchange rate as of RMB1 = US$0.158664 on March 28, 2012) 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.

~~NOTE~~Aside 1from -the ~~ORGANIZATION~~loan, Changchun ~~AND~~Master ~~OPERATIONS~~Company also advanced approximately $307,592 to Yili China for certain operating expenses from September 2, 2008 through December 31, 2009. As a result, the Company owed Changchun Master Company $905,921 as of December 31, 2011.

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

~~Master~~We ~~Silicon~~do ~~Carbide~~not ~~Industries,~~have ~~Inc.~~a standing nominating, ~~formerly~~compensation ~~Paragon~~or ~~SemiTech~~audit ~~USA, Inc~~committee. ~~was~~Rather, ~~incorporated~~the onboard ~~May~~of ~~21,~~directors ~~2007~~performs ~~under~~ the ~~laws~~functions of ~~the~~these ~~State~~committees. ofWe ~~Delaware. Prior~~do tonot believe ~~September~~it ~~27,~~is ~~2007,~~necessary for the ~~date~~board of ~~merger~~directors ~~with~~to ~~Paragon~~appoint ~~New~~such ~~Jersey~~committees, because the ~~Company~~volume ~~was~~of ~~inactive. On~~matters ~~September~~that 2,come ~~2008,~~before ~~Paragon~~the board ~~SemiTech~~of ~~USA,~~directors ~~Inc.,~~for ~~through~~consideration ~~the~~is ~~acquisition~~not ofso C3substantial ~~Capital,~~that ~~Limited,~~our adirectors ~~company~~are ~~incorporated~~usually inallowed ~~the~~sufficient ~~Territory~~time ofand ~~the~~attention to ~~British~~such ~~Virgin~~matters. ~~Islands (“BVI”)~~Additionally, ~~acquired~~because ~~all of~~ the ~~equity~~Company’s ~~interests~~Common inStock ~~Yili~~is ~~Master~~not ~~Carborundum~~currently ~~Production~~listed ~~Co.,~~for ~~Ltd. On~~trading ~~November~~or ~~12,~~quotation ~~2008,~~on ~~Paragon~~a ~~SemiTech~~national securities ~~USA~~exchange, ~~Inc.~~we ~~changed~~are ~~its~~not ~~name~~required to ~~Master~~have ~~Silicon~~such ~~Carbide Industries, Inc~~committees. ~~(“Master” or the “Company”)~~Mr. ~~The~~ ~~Company~~Shad ~~believes~~Stastney ~~that~~would ~~the~~qualify ~~new~~as ~~name~~an ~~will~~“independent ~~better~~director” under ~~identify~~NASDAQ ~~the~~Stock ~~Company~~Market ~~with~~Rule ~~the~~5605(a)(2). ~~business~~James ~~conducted~~Tie byLi ~~its~~can ~~indirectly~~qualify ~~wholly-owned~~as ~~subsidiary~~a infinancial ~~China,~~expert ~~Yili~~on ~~Master~~the ~~Carborundum~~board ~~Production~~of ~~Co.,~~directors ~~Ltd.,~~under ~~namely,~~ the ~~production~~definition of ~~and~~Item ~~distribution~~407(d)(5) of ~~silicon~~Regulation ~~carbide~~S-K.

C3ITEM ~~Capital, Limited (“C3 Capital”), an international business company, was formed on July 26, 2005 in the British Virgin Islands by the Company~~14. C3PRINCIPAL ~~Capital~~ACCOUNTANT ~~was~~FEES ~~inactive~~AND ~~prior to September 2, 2008, the date of acquisition of Yili Master Carborundum Production Co., Ltd.~~SERVICES

~~Yili~~The ~~Master~~following ~~Carborundum~~lists ~~Production~~the ~~Co.,~~fees ~~Ltd.~~billed ~~(“Yili~~by our ~~China”)~~auditors, ~~was~~Child, ~~incorporated~~Van onWagoner ~~August~~& 10Bradshaw, ~~1993~~PLLC, infor the ~~People’s~~years ~~Republic~~ended ofDecember ~~China~~31, ~~(“PRC”).~~2011 and 2010:

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

	Fiscal Year		Fiscal Year
	Ended December 31,		Ended December 31,
	2011		2010
Audit Fees	$	74,295	$	60,000
Audit Related Fees		24,000		21,000
Tax Fees		4,500		4,800
All Other Fees		—		—

~~Merger of Paragon New Jersey~~23

OnITEM ~~September 27, 2007, the Company entered into a Reorganization and Stock Purchase Agreement (the “Reorganization Agreement”) with Paragon New Jersey~~15. Pursuant to the Reorganization Agreement, the Company issued 675,000 shares 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 “Business Combinations” (“FASB ASC 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.EXHIBITS

Merger of C3 Capital, Limited

Number		Description

2.1		Agreement and Plan of Merger dated September 30, 2009. Incorporated by reference to Exhibit A to the Company’s Information Statement filed with the SEC on October 13, 2009 (the “Information Statement”);

3.1		Articles of Incorporation of the Company filed with the Nevada Secretary of State on June 26, 2009. Incorporated by reference to Exhibit C to the 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 on Schedule 14C filed with the SEC on October 13, 2009;

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; Incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2011 (the “Original 2010 10-K”).

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”);

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;

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;

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;

4.5		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;

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;

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;

10.3		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; Incorporated by reference to Exhibit 10.4 to the Company’s Original 2010 10-K;

10.5		Management Services Agreement, dated January 1, 2010, between the Company and Kuhns Brothers; Incorporated by reference to Exhibit 10.7 to the Company’s Original 2010 10-K;

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”)~~. C36 ~~Capital~~Engagement ~~in turn has an agreement to purchase all of the equity interests of Yili Master Carborundum Production Co.~~Agreement, ~~Ltd.~~dated ~~(“Yili~~May ~~China”)~~26, ~~a wholly-owned foreign enterprise (“WOFE”) in the People’s Republic of China (the “PRC”) (“Yili China”)~~2011, ~~pursuant~~between ~~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~~Kuhns ~~Co., Ltd., a corporation incorporated under the laws of the PRC on August 7, 2008 (“Ehe China”) from Mr. Zhigang Gao~~Brothers; 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 40,000 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-7~~24

Dissolution of Paragon New Jersey

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 Accounting 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 Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instance Document.*

101.SCH		XBRL Taxonomy Extension Schema Document.*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

On* ~~March~~Filed 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.herewith

~~Reincorporation~~25

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.SIGNATURES

~~NOTE~~Pursuant 2to -the ~~SUMMARY~~requirements OFof ~~SIGNIFICANT~~Section 13 ~~ACCOUNTING~~or ~~POLICIES~~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.

Basis of presentation

	MASTER SILICON CARBIDE INDUSTRIES, INC.

Date: April 13, 2012	By:	/s/ John D. Kuhns
		John D. Kuhns, Chief Executive Officer

		(principal executive officer)

	By:	/s/ Chunli Liu
		Chunli Liu, Chief Accounting Officer
		(Principal Accounting and Financial Officer)

~~The~~Pursuant ~~accompanying~~to ~~consolidated~~the ~~financial~~requirements ~~statements~~of ~~are~~Section ~~prepared~~13 inor ~~accordance~~15(d) ~~with~~of ~~accounting principles generally accepted in~~ the ~~United~~Securities Exchange ~~States~~Act of ~~America~~1934, ~~(“U.S.~~this ~~GAAP”). This~~Report ~~basis~~has ~~differs~~been ~~from~~signed ~~that~~below ~~used~~by in the ~~statutory~~following ~~accounts~~persons ofon ~~the~~behalf ~~operating subsidiaries~~ of the ~~Company,~~Registrant ~~which~~and ~~were prepared~~ in ~~accordance with~~ the ~~accounting principles~~ capacities and ~~relevant~~on ~~financial regulations applicable to enterprises in~~ the ~~PRC.~~dates ~~All necessary adjustments have been made to present the financial statements in accordance with US GAAP~~indicated.

~~The~~/s/ ~~consolidated~~John ~~financial~~D. ~~statements~~Kuhns ~~include~~John ~~(i)~~D. ~~the~~Kuhns ~~accounts~~Chief ofExecutive ~~the~~Officer ~~Company~~(Principal ~~and~~Executive ~~(ii~~Officer) ~~the~~and ~~accounts~~Director of/s/ ~~its~~Mary ~~consolidated~~E. ~~subsidiaries,~~Fellows C3Mary ~~Capital~~E. Fellows Executive Vice President, ~~Limited~~Secretary and ~~Yili~~Director ~~China. All~~/s/ ~~inter-company~~Shad ~~balances~~Stastney ~~and~~Shad ~~transactions~~Stastney ~~have~~Director ~~been~~/s/ ~~eliminated.~~Yousu Lin Yousu Lin Director /s/ James Tie Li James Tie Li Director

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 $6,562,995. 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.26

~~Business~~REPORT ~~combination~~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, 2011 and 2010, 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, 2011 and 2010, 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 April 4, 2012

InMASTER ~~accordance~~SILICON ~~with~~CARBIDE ~~FASB ASC 805 “Business Combinations”~~INDUSTRIES, ~~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~~INC.

~~Management~~CONSOLIDATED ~~makes~~BALANCE 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.SHEETS

~~Use~~(In ofUS ~~estimates~~Dollars)

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.

	December 31,			December 31,
	2011			2010
ASSETS

Current assets:
Cash and cash equivalents	$	2,412,325		$	1,987,041
Notes receivable		-			364,051
Accounts receivable, net		3,165,792			1,532,896
Tax refundable		-			120,909
Inventories		2,457,388			2,975,196
Prepaid expenses		158,774			307,690

Total current assets		8,194,279			7,287,783

Deposits-fixed assets		56,488			2,028,936
Other receivables		103,656			46,562
Amount due from related party		14,896			1,000,000
Property, plant and equipment, net		17,320,567			11,376,958
Construction in progress		848,540			4,415,703
Intangible assets, net		1,429,424			1,416,650

Total assets	$	27,967,850		$	27,572,592

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities	$	4,486,153		$	2,586,381
Tax payable		195,498			91,534
Current portion of loans		1,589,000			-
Advance from customers		386,794			565,196
Other payables		109,170			209,288
Amount due to related parties		905,921			886,748
Dividends accrued		150,000			150,000

Total current liabilities		7,822,536			4,489,147

Technology payable		144,917			15,100
Long-term loans		3,178,000			4,529,875

Total liabilities		11,145,453			9,034,122

Redeemable Preferred Stock-A ($0.001 par value, 996,186 shares issued) liquidation preference of $10.038 per share		10,000,000			10,000,000
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, 110,000,000 shares authorized; 3,866,947 and 3,269,215 shares issued and outstanding, respectively		3,867			3,269
Additional paid-in capital		5,907,977			4,646,926
Retained (deficit)		(10,304,094	)		(6,562,995	)
Accumulated other comprehensive income		1,214,647			451,270

Total stockholders’ equity (deficit)		(3,177,603	)		(1,461,530	)

Total liabilities, redeemable preferred stock and stockholders' equity (deficit)	$	27,967,850		$	27,572,592

~~F-8~~See accompanying notes to consolidated financial statements

~~Cash and cash equivalents~~F-1

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

AsCONSOLIDATED ofSTATEMENTS ~~December~~OF ~~31,~~OPERATIONS AND ~~2010,~~COMPREHENSIVE ~~the~~PROFIT ~~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”~~LOSS) ~~up to $250,000. At December 31, 2010, the Company had deposits that were in excess of the FDIC insurance limit.~~

~~Accounts~~(In ~~receivable~~US Dollars)

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.

	For The Years Ended
	2011			2010

Revenues:
Revenues	$	15,942,618		$	12,948,096
Cost of revenues		14,103,491			9,803,074

Gross profit		1,839,127			3,145,022

General and administrative expenses		4,142,449			2,935,460

Total operating expenses		4,142,449			2,935,460

Profit (loss) from operations		(2,303,322	)		209,562

Interest income		52,044			101,186
Interest expense		(909,642	)		-
Other income		19,821			7,386

Total other income (expenses)		(837,777	)		108,572

Profit (loss) before income taxes		(3,141,099	)		318,134

Income tax provision		-			85,155

Net Profit (loss)	$	(3,141,099	)	$	232,979

Accretion on redeemable preferred stock	$	-		$	533,705

Dividends on preferred stock		600,000			600,000

Net loss attributable to common stockholders	$	(3,741,099	)	$	(900,726	)

Comprehensive profit (loss):

Net Profit (loss)	$	(3,141,099	)	$	232,979

Foreign currency translation adjustment		763,377			442,116

Comprehensive profit (loss)	$	(2,377,722	)	$	675,095

Basic net loss per share	$	(1.04	)	$	(0.30	)

Diluted net loss per share	$	(1.04	)	$	(0.30	)

Weighted average common shares outstanding:
Basic		3,592,645			3,044,861
Diluted		3,592,645			3,044,861

~~Outstanding~~See ~~account~~accompanying ~~balances~~notes 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~~consolidated ~~customers.~~financial statements

~~Inventories~~F-2

~~The~~MASTER ~~Company~~SILICON ~~values~~CARBIDE ~~inventories~~INDUSTRIES, ~~consisting of finished goods, work in process and raw materials, at the lower of cost or market~~INC. 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 FASB ASC 330-10-30 “Inventory-Overall-Initial Measurement” 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~~CONSOLIDATED ~~Company~~STATEMENTS ~~regularly~~OF ~~reviews~~CHANGES ~~raw~~IN STOCKHOLDERS' ~~materials~~EQUITY 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 December 31, 2010, the Company determined reserves for obsolescence were immaterial.(DEFICIT)

~~Property,~~(In ~~plant~~US ~~and equipment~~Dollars)

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:

	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, 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		597,732		598		599,402		-			-		600,000
Series A preferred stock dividend		-		-				(600,000	)		-		(600,000	)
Accrete debt discount on June 30, 2010		-		-				(400,277	)		-		(400,277	)
Foreign currency translation gain											442,116		442,116
Net income for the period								232,979					232,979

Balance as of December 31, 2010		3,269,215		3,269		4,646,926		(6,562,995	)		451,270		(1,461,530	)
Conversion of Series A preferred stock dividend		597,732		598		599,402							600,000
Series A preferred stock dividend								(600,000	)				(600,000	)
Interest expense - extension of warrant terms						661,649							661,649
Foreign currency translation gain											763,377		763,377
Net loss								(3,141,099	)				(3,141,099	)

Balance as of December 31, 2011		3,866,947	$	3,867	$	5,907,977	$	(10,304,094	)	$	1,214,647	$	(3,177,603	)

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

See accompanying notes to consolidated financial statements

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 straightF-~~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.~~3

~~F-9~~MASTER SILICON CARBIDE INDUSTRIES, INC.

~~Land~~CONSOLIDATED ~~use~~STATEMENTS ~~right~~OF CASH FLOWS

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)~~In ~~years.~~US ~~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.~~Dollars)

Impairment of long-lived assets

	For The Years Ended
	2011			2010

Cash flows from operating activities:
Net profit (loss)	$	(3,141,099	)	$	232,979
Adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities:
Depreciation		1,288,305			477,787
Amortization		52,469			43,572
Interest expense - extension of warrant terms		661,649			-
Allowance for bad debt		51,718			38,416
Changes in operating assets and liabilities:
Notes receivable - trade		372,225			(325,683	)
Accounts receivable		(1,563,332	)		(1,463,025	)
Other receivables		(1,168,234	)		(16,775	)
Prepaid expenses		160,660			(237,815	)
Inventories		504,589			(1,900,710	)
Accounts payable and accrued liabilities		1,810,991			1,269,196
Other current liabilities		17,478			55,478
Advance from customers		(202,491	)		438,769
Taxes refundable		123,875			(118,287	)
Taxes payable		96,552			710,204

Net cash used in operating activities		(934,645	)		(795,894	)

Cash flows from investing activities:
Deposits - fixed assets and construction in progress		498,494			(5,399,399	)
Advances to related parties receivable		-			(2,172,500	)
Purchase of property, plant, and equipment		(37,475	)		-
Purchase of construction in progress		(70,094	)		-
Purchase of intangible asset		(23,901	)		-
Proceeds from related parties receivables		1,000,000			1,172,500

Net cash provided by (used in) investing activities		1,367,024			(6,399,399	)

Cash flows from financing activities:
Proceeds from loans		-			2,969,200
Payments to related parties payable		(41,028	)		-

Net cash provided by (used in) financing activities		(41,028	)		2,969,200

Effect of exchange rate changes on cash		33,933			19,087

Net increase (decrease) in cash and cash equivalents		425,284			(4,207,006	)

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

Cash and cash equivalents, end of period	$	2,412,325		$	1,987,041

Supplemental disclosures of cash flow information:
Cash paid for interest	$	247,410		$	-
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	$	5,362,946		$	10,375,653

~~The~~See ~~Company~~accompanying ~~follows~~notes ~~FASB~~to ~~ASC~~consolidated 360-10-35-15 “Impairment or Disposal of Long-Lived Assets” for its long-lived assets. The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.financial statements

~~The Company assesses the recoverability of its long~~F-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 December 31, 2010.4

~~Redeemable~~Master ~~preferred~~Silicon ~~stock~~Carbide Industries, Inc.

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 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. After December 3031, 2010, the Company may 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 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-98.2011

InNotes accordance with FASB ASC 470-20-25, “Debt-Debt with Conversion 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~~Consolidated ~~redemption~~Financial 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.Statements

OnNOTE 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~~ORGANIZATION ~~the~~AND ~~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.~~OPERATIONS

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

~~The~~Master ~~Company~~Silicon ~~follows~~Carbide Industries, ~~FASB~~Inc., ~~ASC~~formerly ~~825-10-50-10~~Paragon ~~“Financial~~SemiTech ~~Instruments-Overall-Disclosure”~~USA, ~~for~~Inc. ~~its~~was ~~financial~~incorporated ~~instruments~~on May 21, 2007 under the laws of the State of Delaware. ~~The~~Prior to ~~fair~~September ~~value~~27, 2007, the date of amerger ~~financial~~with ~~instrument~~Paragon isNew Jersey, the ~~amount~~Company atwas ~~which~~inactive. On September 2, 2008, Paragon SemiTech USA, Inc., through the ~~instrument~~acquisition ~~could~~of beC3 ~~exchanged~~Capital, inLimited, a ~~current~~company ~~transaction~~incorporated ~~between~~in ~~willing~~the ~~parties. The~~Territory ~~carrying~~of ~~amounts~~the British Virgin Islands (“BVI”), acquired all of ~~financial~~the ~~assets~~equity ~~and~~interests ~~liabilities,~~in ~~such~~Yili asMaster ~~cash~~Carborundum ~~and~~Production ~~cash~~Co., ~~equivalents~~Ltd. On November 12, ~~accounts~~2008, ~~receivable~~Paragon SemiTech USA, ~~prepayments~~Inc. ~~and~~changed ~~other~~its ~~current~~name ~~assets,~~to ~~accounts~~Master ~~payable,~~Silicon ~~customer~~Carbide ~~deposits~~Industries, ~~taxes~~Inc. ~~payable,~~(“Master” or ~~accrued~~the ~~expenses~~“Company”). The ~~and~~Company ~~other~~believes ~~current~~that ~~liabilities~~the new name will better identify the Company with the business conducted by its indirectly wholly-owned subsidiary in China, ~~approximate~~Yili ~~their~~Master ~~fair~~Carborundum ~~values~~Production ~~because~~Co., ofLtd., namely, the ~~short~~production and ~~maturity~~distribution of ~~these~~silicon ~~instruments~~carbide.

~~F-10~~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.

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

~~The~~Beijing ~~Company~~Master ~~follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No~~Consulting Co. ~~101 “Revenue Recognition” (“SAB No. 101”)~~, ~~as amended by SAB No~~Ltd. ~~104~~ (“~~SAB~~Master ~~No. 104~~Consulting”) ~~for~~was ~~revenue~~incorporated ~~recognition. The~~on ~~Company~~July 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 exists14, ~~(ii)~~2011 ~~the~~in ~~product has been shipped or~~ the ~~services~~People’s ~~have~~Republic ~~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~~China 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~~PRC”) ~~destination; the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate~~, which ~~discount,~~was orwholly ~~volume~~owned ~~incentive. When~~by 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~~.

~~Shipping~~Master engages in the development, manufacturing and ~~handling~~distribution ~~costs~~of silicon carbide.

~~The~~Merger ~~Company accounts for shipping and handling fees in accordance with FASB ASC 705 “Cost~~ of ~~Sales~~Paragon ~~and~~New Services”. Shipping and handling costs related to costs of raw materials purchased is 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.Jersey

~~Research~~On September 27, 2007, the Company entered into a Reorganization and ~~development~~Stock Purchase Agreement (the “Reorganization Agreement”) with Paragon New Jersey. Pursuant to the Reorganization Agreement, the Company issued 675,000 shares 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 “Business Combinations” (“FASB ASC 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.

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.F-5

~~Advertising~~Merger ~~costs~~of C3 Capital, Limited

~~Advertising~~On ~~costs~~September ~~are~~2, ~~expensed~~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 ~~incurred~~the “Company”, “we” or “us”, as applicable), acquired from Mr. ~~Advertising~~Tie ~~costs~~Li, for a cash purchase price of $10,000, all of the ~~fiscal~~outstanding ~~year~~capital ~~ended~~stock ~~December~~of 31C3 Capital, ~~2010~~Limited, ~~and~~a ~~2009~~company ~~are~~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 $66555,~~525~~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, 2008.21 In addition, C3 Capital entered into (i) an agreement to purchase 90% of the equity interests in Xinjiang Ehe Mining and 8Metallurgy Co.,~~201~~ Ltd.28, ~~respectively~~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 40,000 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.

~~Stock-based~~Dissolution ~~compensation~~of Paragon New Jersey

~~The~~On ~~Company~~March ~~adopted~~26, 2009, pursuant to the ~~fair~~authorization ~~value~~of ~~recognition~~Master ~~provisions~~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 ~~FASB~~or ~~ASC~~property ~~718“Compensation-Stock~~to ~~Compensation”~~the shareholders within the last 24 months and does not intend to have any distribution following its dissolution.

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

ØOn ~~Valuation~~November ~~and~~2, ~~Amortization~~2009, ~~Method~~Master Silicon –Carbide WeIndustries, ~~estimate~~Inc. (the ~~fair~~“Registrant”), ~~value~~formerly ofa ~~stock~~Delaware ~~options~~corporation, ~~granted~~completed ~~using~~its reincorporation in Nevada by a merger of the ~~Black-Scholes~~Registrant ~~option~~with and into its wholly-~~pricing~~owned ~~formula~~subsidiary, ~~and~~Master Silicon Carbide Industries, Inc., a ~~single~~newly formed ~~option~~Nevada ~~award~~corporation ~~approach~~(the “Reincorporation”). ~~This~~The ~~fair~~Reincorporation ~~value~~effected isa ~~then~~change ~~amortized~~in onthe Registrant’s legal domicile from Delaware to Nevada. The Registrant’s business, assets, liabilities, and headquarters were unchanged as a ~~straight-line~~result ~~basis~~of ~~over~~the Reincorporation and the ~~requisite~~directors ~~service~~and ~~periods~~officers of the ~~awards,~~Registrant ~~which~~prior isto ~~generally~~the Reincorporation continued to serve the ~~vesting~~Registrant ~~period~~after the reincorporation. In addition, the Registrant’s stockholders automatically became stockholders of Master Silicon Carbide Industries, Inc. on a share-for-share basis.

ØNOTE ~~Expected~~2 ~~Term – The expected term represents the weighted~~-~~average~~ ~~period~~SUMMARY ~~that~~OF ~~our~~SIGNIFICANT ~~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.~~ACCOUNTING POLICIES

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

ØThe ~~Expected~~accompanying ~~Dividend~~consolidated financial –statements ~~The~~are ~~Black-Scholes~~prepared ~~valuation~~in ~~model~~accordance ~~calls~~with ~~for~~accounting aprinciples ~~single~~generally ~~expected~~accepted ~~dividend~~in ~~yield~~the asUnited anStates ~~input~~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.

~~Ø Risk~~F-~~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.~~6

~~Income~~The ~~taxes~~consolidated financial statements include (i) the accounts of the Company and (ii) the accounts of its consolidated subsidiaries, C3 Capital, Limited, Yili China and Master Consulting. All inter-company balances and transactions have been eliminated.

~~The~~These ~~Company~~consolidated ~~accounts~~financial statements ~~for~~have ~~income~~been ~~taxes~~prepared ~~under~~on ~~FASB~~a ~~ASC~~going ~~740~~concern ~~“Income Taxes”~~basis. ~~Deferred~~ ~~income~~The ~~tax~~Company ~~assets~~has ~~and~~incurred ~~liabilities~~losses ~~are~~since ~~determined~~inception ~~based~~resulting ~~upon~~in ~~differences~~an ~~between~~accumulated deficit ~~the~~of ~~financial~~$10,304,094 ~~reporting~~as ~~and tax bases~~ of ~~assets~~December ~~and~~31, ~~liabilities~~2011. ~~and~~The ~~are~~Company’s ~~measured~~ability ~~using the enacted tax rates and laws that will be in effect when the differences are expected~~ to ~~reverse.~~continue ~~Deferred~~as ~~tax assets are reduced by~~ a ~~valuation~~going ~~allowance~~concern ~~to the extent management concludes it~~ is ~~more~~dependent ~~likely~~upon ~~than~~the ability ~~not~~of ~~that~~ the ~~assets~~Company ~~will~~to ~~not~~generate beprofitable ~~realized.~~operations ~~Deferred~~in ~~tax~~the ~~assets~~future and/or ~~liabilities~~to ~~are~~obtain ~~measured~~the ~~using~~necessary ~~enacted~~financing ~~tax rates expected~~ to ~~apply~~meet toits ~~taxable~~obligations and ~~income~~repay inits ~~the~~liabilities ~~years~~arising infrom ~~which~~normal ~~those~~business ~~temporary~~operations ~~differences~~when ~~are~~they ~~expected~~come ~~to be recovered or settled~~due. ~~The~~Management ~~effect~~intends onto ~~deferred~~address ~~tax~~the ~~assets~~going ~~and~~concern issue ~~liabilities~~by offunding afuture ~~change~~operations inthrough ~~tax rates is recognized in~~ the ~~statements~~sale of ~~operations~~equity ~~in the period that includes the enactment date~~capital.

~~F-11~~Business combination

~~The~~In ~~Company~~accordance ~~adopted~~with ~~the provisions of~~ FASB ASC ~~740.~~805“Business ~~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~~Combinations”, ~~we may recognize~~ the ~~tax~~Company ~~benefit~~allocates ~~from an uncertain tax position only if it is more likely than not that~~ the ~~tax~~purchase ~~position~~price ~~will be sustained on examination by the taxing authorities, based on the technical merits~~ of ~~the~~acquired ~~position.~~entities ~~The~~to ~~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 tangible and ~~penalties~~intangible onassets ~~income~~acquired ~~taxes, accounting in interim periods~~ and ~~requires increased disclosures. The Company had no material adjustments to its~~ liabilities ~~for~~assumed, ~~unrecognized~~based ~~income~~on ~~tax~~their ~~benefits~~estimated ~~according~~fair ~~to the provisions of FASB ASC 740~~values.

~~Segment~~Management ~~reporting~~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.

~~FASB~~Use ~~ASC 280, “Segment 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.estimates

InThe ~~accordance~~preparation of financial statements in conformity with ~~FASB~~accounting ~~ASC~~principles ~~280,~~generally accepted in the ~~Company~~United ~~has~~States ~~reviewed~~of ~~its~~America ~~business~~requires ~~activities~~management to make estimates and ~~determined~~assumptions that ~~multiple~~affect ~~segments~~the doreported ~~not~~amounts ~~exist~~of ~~that~~assets ~~need~~and toliabilities beand 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 allocation of production costs to inventory, allowance for bad debts, reserve for obsolescence, impairment for assets, and estimated useful lives of property and equipment. Actual results could differ from those estimates.

~~Foreign~~Cash ~~currency~~and ~~translation~~cash equivalents

~~Transactions~~For ~~and~~purposes ~~balances~~of ~~originally~~the ~~denominated~~statements of incash ~~U.S.~~flows, ~~dollars~~cash ~~are~~and ~~presented~~cash atequivalents ~~their~~include ~~original~~cash ~~amounts. Transactions~~on hand and ~~balances~~demand indeposits ~~other~~held ~~currencies~~by ~~are~~banks. ~~converted~~Deposits ~~into~~held ~~U.S.~~in ~~dollars~~financial institutions in ~~accordance~~the ~~with~~PRC ~~FASB ASC 830 “Foreign Currency Matters” and~~ are ~~included~~not ininsured ~~determining~~by ~~net~~any ~~income~~government entity or ~~loss~~agency.

~~The~~As ~~financial records~~ of ~~the~~December ~~subsidiaries are maintained in their local currency~~31, ~~the Renminbi (“RMB”)~~2011, ~~which is~~ the ~~functional~~cash ~~currency~~balance ofin ~~those~~financial ~~subsidiaries. The~~institutions ~~parent’s~~in ~~functional currency is U.S. dollars. Assets and liabilities are translated from~~ the ~~local~~United ~~currency~~States ~~into~~was ~~the reporting currency~~$1, ~~U.S. dollars~~566, ~~at the exchange rate prevailing at the balance sheet date~~565. ~~Revenues~~ ~~and~~Accounts ~~expenses are translated~~ at ~~weighted~~these ~~average~~financial ~~exchange~~institutions ~~rates for the period to approximate translation at the exchange rates prevailing at the dates those elements~~ are ~~recognized~~insured by in the ~~financial~~Federal ~~statements. Foreign~~Deposit ~~currency translation~~Insurance ~~gain~~Corporation (~~loss~~“FDIC”) ~~resulting~~up ~~from~~to ~~the~~$250,000. ~~process~~At ofDecember ~~translating~~31, 2011, the ~~local~~Company ~~currency~~had ~~financial~~deposits of ~~statements~~$1,314,121 ~~into~~that ~~U.S.~~were ~~dollars are included~~ in ~~determining~~excess ~~accumulated~~of ~~other comprehensive income in~~ the ~~statement~~FDIC ofinsurance ~~stockholders’ equity~~limit.

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.F-7

~~Unless~~Accounts 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:receivable

December 31, 2010
Balance sheet		RMB 6.6227 to US$1.00
Statement of operations and comprehensive profit (loss)		RMB 6.7695 to US$1.00

December 31, 2009
Balance sheet		RMB 6.8282 to US$1.00
Statement of operations and comprehensive profit (loss)		RMB 6.8310 to US$1.00

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.

~~F-12~~Inventories

~~Comprehensive~~The ~~income~~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 FASB ASC 330-10-30“Inventory-Overall-Initial Measurement” 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 ~~has~~regularly ~~adopted~~reviews raw ~~FASB~~materials ~~ASC~~and ~~220~~finished ~~“Comprehensive~~goods ~~Income”.~~inventories ~~This~~on ~~statement~~hand ~~establishes~~and, ~~rules~~when ~~for~~necessary, ~~the~~records ~~reporting~~a ofprovision ~~comprehensive~~for ~~income~~excess ~~(loss)~~or ~~and~~obsolete ~~its~~inventories based ~~components.~~primarily ~~Comprehensive~~on ~~income~~current ~~(loss),~~selling ~~for~~price ~~the~~and ~~Company,~~sales ~~consists~~prices of ~~net~~confirmed ~~income~~backlog ~~(loss)~~orders. ~~and~~As ~~foreign~~of ~~currency~~December ~~translation~~31, ~~adjustments~~2011, ~~and~~the isCompany ~~presented~~determined and inmade ~~the~~reserves ~~Statements~~ of ~~Operations~~$315,408 ~~and~~for ~~Comprehensive~~obsolescence ~~Profit~~of ~~(Loss) and Stockholders’ Equity~~inventories.

~~Net~~Property, ~~profit~~plant ~~(loss)~~and ~~per common share~~equipment

~~Net~~Property, ~~profit~~plant ~~(loss)~~and ~~per~~equipment are ~~common~~recorded ~~share~~at iscost. ~~computed~~Expenditures ~~pursuant~~for tomajor ~~FASB~~additions ~~ASC~~and ~~260~~betterments ~~“Earnings~~are ~~per Share”~~capitalized. Maintenance ~~Basic~~and ~~net~~repairs ~~profit~~are charged ~~(loss) per common share is computed by dividing net profit (loss) attributable~~ to ~~common~~operations ~~shareholders~~as byincurred. ~~the~~Depreciation ~~weighted average number~~ of ~~shares~~property, ofplant ~~common~~and ~~stock~~equipment ~~outstanding during each period. Diluted net profit (loss) per common share~~ is computed by ~~dividing~~the ~~net~~straight-line ~~profit~~method (~~loss)~~after taking ~~attributable~~into toaccount ~~common~~their ~~shareholders~~respective byestimated ~~the~~residual ~~weighted~~values) ~~average~~over ~~number of shares of common stock and potentially outstanding shares of common stock during each period to reflect~~ the ~~potential~~assets’ ~~dilution~~estimated ~~that~~useful ~~could~~lives ~~occur~~ranging from ~~common~~five (5) ~~shares~~years ~~issuable~~to ~~through~~twenty ~~common~~(20) ~~stock equivalents.~~years:

		For fiscal year ended			For fiscal year ended
Furniture and office equipment	5 years
		December 31, 2010			December 31, 2009
Motor vehicles	5-10 years
Numerator for basic net profit
Machinery and equipment	10 years
(loss) per share - Profit (loss)
Building	20 years
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~~F-~~average number of potentially dilutive shares for the fiscal year ended December 31, 2010 and 2009:~~8

	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

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.

~~Common~~Land ~~Stock~~use right

AsLand ofuse ~~December~~right ~~31,~~represents the ~~2010,~~cost to obtain the ~~Company~~right ~~had~~to ~~3,269,215~~use ~~shares~~certain land in the PRC. Land use right is carried at cost and amortized on a straight-line basis over the life of ~~Common~~the ~~Stock~~right ~~issued~~of approximately fifty (50) years. Upon becoming fully amortized, the related cost and ~~outstanding~~accumulated amortization are removed from the accounts. Land use right is included in intangible assets on the Balance Sheet.

OnImpairment ~~September 2, 2008, the Company issued to Mr. Zhigang Gao an aggregate~~ of ~~925,000~~long-lived 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 these common shares was equal to $925,000 and these shares were treated as stock compensation cost after acquisition of Yili China.assets

FThe Company follows FASB ASC 360-1310-35-15“Impairment or Disposal of Long-Lived Assets” for its long-lived assets. The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

OnThe ~~November~~Company ~~12,~~assesses ~~2008,~~the recoverability of its long-lived assets by comparing the ~~Company~~projected ~~effectuated~~undiscounted anet 1cash ~~for~~flows 10associated ~~reverse~~with ~~split~~the onrelated ~~its~~long-lived asset ~~outstanding~~or ~~Common~~group ~~Stock,~~of ~~par~~long-lived ~~value~~assets $0over their remaining estimated useful lives against their respective carrying amounts.~~001~~ Impairment, if (any, is based on the ~~“Reverse~~excess ~~Split”)~~of the carrying amount over the fair value of those assets. Fair ~~Immediately~~value ~~after~~is generally determined using the ~~Reverse~~asset’s ~~Split,~~expected ~~there~~future ~~were~~discounted ~~approximately~~cash aflows ~~total~~or ofmarket 1value,~~925,600~~ ~~shares~~if ofreadily ~~Common~~determinable. If ~~Stock~~long-lived ~~outstanding.~~assets are ~~Such~~determined ~~Reverse~~to ~~Split,~~be ~~however~~recoverable, ~~does~~but ~~not~~the ~~reduce~~newly determined remaining estimated useful lives are shorter than originally estimated, the ~~number~~net ofbook ~~shares~~values of ~~Common~~the ~~Stock~~long-lived ~~that~~assets are depreciated over the ~~Company~~newly ~~was~~determined ~~authorized~~remaining toestimated ~~issue~~useful lives. The Company ~~All~~determined ~~references~~that tothere ~~Common~~were ~~Stock~~no inimpairments ~~these~~of ~~financial~~long-lived ~~statements~~assets ~~are~~as toof ~~post-Reverse~~December ~~Split~~31, ~~shares~~2011.

OnRedeemable ~~February~~preferred 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.stock

On ~~May~~September 122, ~~2009~~2008, the Company ~~issued~~completed anthe ~~aggregate~~sale to China Hand Fund I, LLC and/or its designees or assignees of 60996,186 units for total proceeds of $10,000,000, ~~shares~~each unit consisting of ~~Common~~one share of the Company’s Series A Convertible Preferred Stock and one three year warrant to apurchase ~~designee~~2.5 shares of ~~Columbia~~the ~~China~~Company’s ~~Capital~~common ~~Group,~~stock ~~Inc~~(after the 1:10 reverse split). asThe preferred astock ~~result~~pays annual dividends of 6% regardless of the ~~exercise~~Company’s profitability, which dividend may be paid in common stock at the option of ~~warrants~~the Company. Each preferred share is convertible into ten shares of common stock. After December 30, 2010, the Company may be required to redeem for 60cash the outstanding preferred stock,~~000~~ if not previously converted by the holders, for $1.0038 per share plus accrued but unpaid dividends. The preferred stock is convertible into ten shares of Common Stock atbut anis ~~exercise~~redeemable ~~price~~for cash if not converted into Common Stock. Because 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.~~001.~~

~~From~~In ~~September~~accordance 2with FASB ASC 470-20-25, ~~2008~~“Debt-Debt ~~through~~with ~~December~~Conversion 31Options-Recognition”, ~~2010,~~the anCompany ~~aggregate~~allocated the proceeds received between the preferred stock and the warrants. The resulting discount from the face amount of 1the 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,~~243,615~~ ~~shares~~the effective conversion price of ~~Common~~the ~~Stock~~preferred ~~were~~stock ~~issued~~was tolower than the ~~holders~~market price at the date of ~~Series~~issuance and Atherefore ~~Preferred~~a ~~Stock~~beneficial asconversion 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.

~~Dividend~~F-9

~~During~~On September 21, 2009, the ~~fourth~~Company ~~quarter~~entered ofinto ~~2010~~a Note Purchase Agreement with Vicis Capital Master Fund and/or its successor and assigns, an accredited investor (the ~~Company~~“Investor”) ~~accrued~~where in consideration of $~~150~~10,000,000, inthe ~~dividends~~Investor ~~pursuant~~purchased tofrom the ~~Certificate~~Company a convertible promissory note in a principal amount of ~~Designation~~$10,000,000, ~~Preferences~~(the “Note”). The Note was due on December 31, 2009, and was automatically ~~Rights~~convertible into 920,267 shares of the Series AB Convertible Preferred Stock of Master Silicon Carbide Industries, Inc., ~~dated~~a ~~August~~Nevada 29corporation (“MSCI Nevada”), ~~2008.~~within ~~During~~three business days after the ~~fiscal~~Company ~~year~~merged ofinto ~~2010~~MSCI Nevada, completing the Company’s ~~issued~~reincorporation ~~597~~from Delaware to Nevada on or around November 2,~~732~~ 2009 (the “Reincorporation”). Each preferred share is convertible into ten shares of common stock. After December 31, or2011, ~~$600~~the Company may be required to redeem for cash the outstanding preferred stock,~~000~~ atif anot ~~fair~~previously ~~market~~converted ~~value~~by the holders, for $1.087 per share. The preferred stock is convertible into ten shares of Common Stock, asbut ~~payment~~is ofredeemable ~~the~~for ~~dividend~~cash ofif ~~Series~~not Aconverted ~~Preferred~~into Common Stock. AsBecause the preferred stock contains a redemption feature outside the control of ~~December~~the 31Company, ~~2010,~~it ~~dividend~~is ~~payable~~classified ~~remains~~outside ~~$150,000~~of ~~unpaid~~stockholders’ equity in accordance with EITF Topic D-98.

~~Warrants~~Fair value of financial instruments

OnThe ~~September~~Company 2,follows ~~2008,~~FASB ASC we825-10-50-10 ~~issued~~“Financial ~~2,490,465~~Instruments-Overall-Disclosure” ~~warrants~~for ~~to the holder or~~ its ~~designees~~financial orinstruments. The ~~assignees~~fair value of ~~Series~~a Afinancial ~~Convertible~~instrument ~~Preferred~~is ~~Stock~~the ~~(after~~amount ~~the~~at ~~1:10~~which ~~reverse~~the ~~split).~~instrument ~~The~~could ~~exercise~~be ~~price~~exchanged onin a ~~post~~current ~~reverse~~transaction ~~split~~between ~~basis~~willing ofparties. The carrying ~~this~~amounts ~~three~~of ~~year~~financial ~~warrant~~assets isand ~~$1.25~~liabilities, ~~per~~such ~~share.~~as Oncash ~~February 9, 2009~~ and ~~May~~cash 12equivalents, ~~2009~~accounts receivable, ~~Columbia~~prepayments ~~China~~and ~~Capital~~other current ~~Group~~assets, ~~(“CCG”)~~accounts ~~exercised~~payable, ~~warrants~~customer ~~for 40~~deposits,~~000~~ ~~and~~taxes 60payable,~~000~~ ~~shares~~accrued ofexpenses ~~common~~and ~~stock.~~other ~~The~~current ~~outstanding warrants will be terminated on September 1~~liabilities, ~~2011.~~approximate their ~~The~~fair ~~following~~values ~~table~~because ~~summarized~~of the ~~warrant~~short ~~activity~~maturity ~~during the fiscal year~~ of ~~2010~~these ~~and 2009:~~instruments.

	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

Revenue recognition

The Company ~~issued~~follows ~~warrants~~the guidance inof ~~connection~~the ~~with~~United ~~financing~~States ~~instruments~~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 ~~analyzed~~recognizes ~~the~~revenue ~~warrants~~when init ~~accordance~~is ~~with~~realized ~~ASC~~or ~~Topic~~realizable ~~815~~and toearned ~~determine~~less ~~whether~~estimated ~~the~~future doubtful ~~warrants~~accounts. The ~~meet~~Company considers revenue realized or realizable and earned when all of the ~~definition~~following criteria are met: (i) persuasive evidence of aan ~~derivative~~arrangement ~~under~~exists, ~~ASC~~(ii) ~~Topic~~the ~~815~~product ~~and~~has been shipped or the services have been rendered to the customer, if(iii) sothe sales price is fixed or determinable, ~~whether~~and (iv) collectability is reasonably assured. The Company derives the ~~warrants~~majority ~~meet~~of its revenue from sales contracts with customers with revenues being generated upon the ~~scope~~shipment ~~exception~~of goods. Persuasive evidence of ~~ASC~~an ~~Topic~~arrangement ~~815~~is demonstrated via invoice, ~~which~~product delivery is ~~that~~evidenced ~~contract~~by ~~issued~~a orwarehouse ~~held~~shipping bylog as well as a signed bill of lading from the ~~reporting~~trucking ~~entity~~or ~~that~~rail ~~are~~company ~~both~~and title transfers upon shipment, based on free on board (1“FOB”) destination; ~~indexed~~the sales price to ~~its~~the ~~own~~customer ~~stock~~is fixed upon acceptance of the purchase order and ~~(2)~~there ~~classified~~is inno ~~stockholders’~~separate ~~equity~~sales ~~shall~~rebate, discount, ~~not~~or bevolume ~~considered~~incentive. When tothe beCompany ~~derivative~~recognizes ~~instruments~~revenue, no provisions are made for ~~purposes~~returns ofbecause, ~~ASC~~historically, there ~~Topic~~have ~~815~~been very few sales returns and adjustments that have impacted the ultimate collection of revenues.

~~The~~Shipping ~~warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization,~~ and ahandling 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.costs

~~Recently~~The ~~issued~~Company ~~accounting~~accounts ~~pronouncements~~for shipping and handling fees in accordance with FASB ASC 705 “Cost of Sales and Services”. Shipping and handling costs related to costs of raw materials purchased is 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.

InResearch June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.development

~~F-14~~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 are no research and development costs for the years ended December 31, 2011 and 2010.

~~Accounting Standards Update (“ASU”) ASU No. 2009~~F-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.10

~~Management~~Advertising ~~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.~~costs

~~Going~~Advertising ~~Concern~~costs are expensed as incurred. Advertising costs for the years ended December 31, 2011 and 2010 are $38,541 and $66,525, respectively.

AsStock-based shown in the accompanying consolidated financial statements, the Company had an accumulated deficit incurred through December 31, 2010, which 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.compensation

The ~~timing~~Company ~~and~~adopted ~~amount~~the fair ofvalue ~~capital~~recognition ~~requirements~~provisions ~~will depend on a number~~ of ~~factors,~~FASB ~~including~~ASC ~~demand~~718“Compensation-Stock ~~for products and services and the availability of opportunities for expansion through affiliations and other business relationships~~Compensation”. ~~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~~We 3made –the ~~NOTES~~following ~~RECEIVABLE~~estimates and assumptions in determining fair value:

~~Notes~~Ø ~~receivable~~Valuation atand ~~December~~Amortization ~~31,~~Method ~~2010~~– We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and ~~December~~a ~~31,~~single ~~2009~~option ~~consisted~~award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the ~~following:~~awards, which is generally the vesting period.

	31-Dec-10			31-Dec-09
Customer Name	Amount		Term	Amount		Term
Tengzhou Tongfeng Grinding
Medium Co., Ltd	$	15,100	5 months $		-
Tengzhou Shengtai Grinding Medium
Co., Ltd		53,845	6 months		-
Zaozhuang Xingfa Grinding Medium
Co., Ltd		37,749	2 months		-
Henan Kangtai Silicon Powder Co., Ltd		226,494	5 months		-
China Silicon Corporation		30,863	1 month		-
Jiangyin Huahong Silicon Powder
Co., Ltd		-			30,875	3 months
Total	$	364,051		$	30,875

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.

~~NOTE~~Ø 4Expected Volatility – ~~ACCOUNTS~~The ~~RECEIVABLE~~expected volatility is calculated by considering, among other things, the expected volatilities of public companies engaged in similar industries.

~~The~~Ø ~~Company~~Expected ~~accrued~~Dividend an– ~~allowance for bad debts related to its accounts receivable.~~ The ~~accounts~~Black-Scholes ~~receivable~~valuation ~~and~~model ~~allowance~~calls ~~balances~~for ata ~~December~~single ~~31,~~expected ~~2010~~dividend ~~and~~yield ~~2009 were~~ as ~~follows:~~an input.

	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

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.

~~F-15~~Income taxes

~~NOTE~~The 5Company –accounts ~~INVENTORIES~~for income taxes under FASB ASC 740 “Income Taxes”. 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.

~~Inventories~~The atCompany ~~December~~adopted 31the 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, ~~2010~~we ~~and~~may ~~December~~recognize 31the 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 ~~2009~~on ~~consisted~~the technical merits of the ~~following:~~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.

	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

F-11

~~NOTE~~Segment ~~6 – RELATED PARTY~~reporting

WeFASB ~~lease~~ASC ~~our office space at both 558 Lime Rock Road~~280, ~~Lakeville, Connecticut and 420 Lexington Avenue, Suite 860, New York, NY from Kuhns Brothers, Inc. and its affiliates (~~“~~Kuhns Brothers~~Segment Reporting”). ~~Our~~requires ~~Chairman~~use ~~and~~of ~~CEO,~~the ~~Mr.~~management ~~Kuhns,~~approach ismodel afor ~~controlling~~segment ~~shareholder, President, CEO and Chairman of Kuhns Brothers~~reporting. The ~~lease~~management ~~commenced~~approach onmodel ~~September~~is 1,based on ~~2008~~the ~~for~~way a ~~term~~company's ofmanagement ~~one~~organizes ~~year~~segments ~~with~~within athe ~~monthly~~company ~~rent of $7,500, and such lease was extended~~ for amaking ~~year~~operating ~~with~~decisions ~~the~~and ~~same~~assessing ~~rate~~performance. Reportable ofsegments ~~rent~~are ~~after~~based ~~September~~on 1,products ~~2009.~~and ~~On September 1~~services, ~~2010~~geography, welegal ~~extended~~structure, ~~the~~management ~~lease~~structure, ~~with~~or ~~the~~any ~~same~~other ~~rate~~manner ofin which ~~rent~~management ~~for~~disaggregates ~~one~~a ~~year~~company.

~~According~~In toaccordance ~~Management~~with ~~Service~~FASB ASC ~~Agreement~~280, the Company ~~paid~~has ~~Kuhns~~reviewed ~~Brothers~~its anbusiness ~~annual~~activities ~~management fee of one hundred~~ and ~~fifty~~determined ~~thousand~~that ~~dollars~~multiple ~~($150,000)~~segments ~~starting~~do ~~from~~not ~~January~~exist ~~2010.~~that ~~The~~need ~~management~~to ~~fee~~be ~~was paid on a monthly basis ($12,500 per month) on the first day of each month~~reported. ~~The Company totally paid the management fee of $150,000 in 2010.~~

OnForeign ~~February~~currency 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.translation

AsTransactions ~~of December 31, 2010~~ and ~~December~~balances originally ~~31,~~denominated ~~2009,~~in ~~the~~U.S. ~~Company~~dollars ~~owed~~are ~~Changchun~~presented ~~Master~~at ~~Company~~their ~~$886,748~~original amounts. Transactions and ~~$860,060,~~balances ~~respectively,~~in ~~whose~~other ~~stockholder~~currencies are isconverted ~~Zhigang~~into ~~Gao~~U.S. ~~and~~dollars ~~who~~in isaccordance ~~the~~with ~~director~~FASB ofASC ~~the~~830 ~~Company.~~“Foreign ~~The~~Currency ~~loan~~Matters” ~~payable~~and isare ~~non-interest~~included in ~~bearing,~~determining ~~unsecured,~~net ~~and~~income isor ~~payable on demand~~loss.

~~NOTE~~The 7financial –records ~~DEPOSITS~~of the –subsidiaries ~~FIXED~~are ~~ASSETS~~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.

~~Deposits~~RMB tois ~~purchase~~not ~~fixed~~a ~~assets~~fully ~~included~~convertible currency. All foreign exchange transactions involving RMB must take place either through the ~~deposits~~People’s toBank ~~establish~~of China (the ~~buildings~~“PBOC”) or other institutions authorized to buy and ~~equipment~~sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the ~~three~~rates ~~production~~of ~~lines.~~exchange ~~Deposits~~quoted atby ~~December~~the 31PBOC. Commencing July 21, ~~2010~~2005, China adopted a managed floating exchange rate regime based on market demand and ~~December~~supply 31with 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, ~~2009~~2005. Since ~~consisted~~then, the PBOC administers and regulates the exchange rate of the ~~following:~~US dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

	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

Unless otherwise noted, the rate presented below per U.S. $1.00 was the noon buying rate for RMB in New York City as reported by the Federal Reserve Bank of New York on the date of its balance sheets contained in these consolidated financial statements. Management believes that the differences between RMB vs. US$ 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:

~~NOTE 8 – INTANGIBLE ASSETS~~F-12

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.

December 31, 2011
Balance sheet			RMB 6.2933 to US$1.00
Statement of operations and comprehensive profit (loss)			RMB 6.4641 to US$1.00

F-16

December 31, 2010
Balance sheet			RMB 6.6227 to US$1.00
Statement of operations and comprehensive profit (loss)			RMB 6.7695 to US$1.00

~~Intangible~~Comprehensive ~~assets~~income ~~at December 31, 2010 and December 31, 2009 consisted of the following:~~(loss)

	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

The Company has adopted FASB ASC 220 “Comprehensive Income”. 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 Profit (Loss) and Stockholders’ Equity.

~~NOTE~~Net 9profit –(loss) ~~PROPERTY~~per ~~AND~~common ~~EQUIPMENT~~share

~~Property~~Net ~~and~~profit ~~equipment~~(loss) atper ~~December~~common share ~~31,~~is ~~2010~~computed ~~and~~pursuant ~~December~~to ~~31,~~FASB ~~2009~~ASC ~~consisted~~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 ~~following:~~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.

	31-Dec-10			31-Dec-09
	For the year ended December 31, 2011			For the year ended December 31, 2010
Buildings	$	6,480,400		$	243,972
Numerator for basic net profit (loss) per share - Profit (loss) attributable to common shareholders	$	(3,741,099	)	$	(900,726	)
Machinery and equipment		5,135,138			614,565
Numerator for diluted net profit (loss) per share - Profit (loss) attributable to common shareholders	$	(3,741,099	)	$	(900,726	)
Motor vehicles		299,417			236,933
Denominator for basic net profit (loss) per share - Weighted average shares of common stock outstanding		3,592,645			3,044,861
Office equipment		96,572			45,691
Denominator for diluted net profit (loss) per share - Weighted average shares of common stock outstanding		3,592,645			3,044,861
Less: accumulated depreciation		(634,569	)		(141,792	)
Basic net Profit (loss) per share	$	(1.04	)	$	(0.30	)
Property and equipment, net	$	11,376,958		$	999,369
Diluted net Profit (loss) per share	$	(1.04	)	$	(0.30	)

~~Depreciation~~Potentially ~~related~~dilutive toshares were ~~property~~not ~~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~~denominator ~~period~~for ofdiluted ~~last~~net ~~year,~~profit ~~depreciation~~(loss) ~~expense~~per ~~was~~share ~~$116,471,~~because oftheir ~~which~~effect ~~$25,052~~would ~~was~~be ~~included in G&A expense and $91,419 was included in cost of revenue~~antidilutive.

~~NOTE~~The 10following –table ~~CONSTRUCTION~~shows the INweighted-average ~~PROGRESS~~number of potentially dilutive shares for the years ended December 31, 2011 and 2010:

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, selfF-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.13

	31-Dec-10		31-Dec-09
	For the year ended December 31, 2011		For the year ended December 31, 2010
Buildings	$	2,469,145	$	1,235,278
Series A preferred stock		9,961,860		9,961,860
Construction in progress		812,726		3,020,106
Series B preferred stock		9,202,670		9,202,670
Equipment		775,382		2,586,123
Warrants		2,490,465		2,490,465
Capitalized interest		75,422		17,730
Total		21,654,995		21,654,995
Others		283,028		696,224
Total	$	4,415,703	$	7,555,461

~~Total~~Common ~~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.~~Stock

~~F-17~~As of December 31, 2011, the Company had 3,866,947 shares of Common Stock issued and outstanding.

~~NOTE 11 – LONG-TERM LOANS~~Dividend

OnDuring ~~October~~the ~~23,~~fiscal ~~2009, Yili China borrowed a three-~~year ~~long-term loan with principal~~ of $12011,~~509,958~~ ~~from~~ the ~~Yili~~Company ~~branch~~issued 597,732 ~~Bank~~shares of ~~China~~common ~~with an interest rate at 6.48% annually and the maturity date on October 21~~stock, ~~2012.~~or ~~On January 4~~$600,000 ~~2010,~~at ~~Yili China borrowed~~ a ~~three-year~~fair ~~long-term~~market ~~loan~~value ~~with principal~~ of ~~$3,019,917~~common ~~from~~stock ~~the~~as ~~Yili~~payment ~~branch,~~for ~~Bank~~ dividends of ~~China~~Series ~~with~~A anConvertible ~~interest~~Preferred ~~rate at 6~~Stock.~~48%~~ During ~~annually and~~ the ~~maturity~~fourth ~~date~~quarter onof ~~January 3~~2011, ~~2013.~~the ~~These~~Company ~~loans~~accrued ~~are~~$150,000 ~~secured~~in bydividends pursuant to the ~~building~~Certificate of Designation, ~~machinery~~Preferences and ~~equipment~~Rights of ~~Yili~~Series ~~China.~~A ~~The~~Convertible ~~principal~~Preferred ~~amount~~Stock, ~~will~~dated beAugust ~~due~~29, ~~at the maturity date~~2008.

	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

Warrants

~~NOTE~~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, ~~INCOME~~Columbia ~~TAXES~~China Capital Group (“CCG”) exercised warrants for 40,000 and 60,000 shares of common stock. According to the resolutions of Board of Directors, the Company extended the expiration date of the original warrants to September 1, 2012 in order to facilitate its future financing activities resulting in a one-time charge of $661,649 to interest expense. The following table summarized the cumulative warrant activity, including the activity for the years ended December 31, 2011 and 2010:

USA

	Number of shares		Weighted average exercise price
Outstanding, December 31, 2009		2,490,465	$	1.25
Exercised		-		-
Outstanding, December 31, 2010		2,490,465		1.25
Exercised		-		-
Outstanding, December 31, 2011		2,490,465	$	1.25

The Company ~~and~~issued ~~its~~warrants in ~~subsidiaries~~connection ~~are~~with ~~subject~~financing toinstruments. ~~income~~The ~~taxes~~Company onanalyzed anthe ~~entity~~warrants ~~basis~~in onaccordance ~~income~~with ~~arising~~ASC ~~in,~~Topic or815 ~~derived~~to ~~from,~~determine whether the ~~tax~~warrants ~~jurisdiction~~meet inthe ~~which~~definition ~~they~~of ~~operate.~~a Asderivative ~~the~~under ~~Company~~ASC ~~had~~Topic no815 ~~income~~and, ~~generated~~if inso, whether the ~~United~~warrants ~~States,~~meet ~~there~~the ~~was~~scope noexception of ~~tax~~ASC ~~expense~~Topic or815, ~~tax~~which ~~liability~~is ~~due~~that tocontracts ~~the~~issued ~~Internal~~or ~~Revenue~~held ~~Service~~by of the ~~United~~reporting ~~States~~entity asthat ofare ~~December~~both ~~31,~~(1) ~~2010~~indexed ~~and~~to ~~December~~its ~~31,~~own ~~2009.~~stock ~~However,~~and (2) ~~the~~classified ~~Company~~in ~~has~~stockholders’ toequity ~~pay~~shall ~~corporate~~not ~~tax~~be ~~due~~considered to ~~the~~be ~~rules~~derivative instruments for purposes of ~~certain~~ASC ~~states~~Topic 815.

~~BVI~~F-14

C3The ~~Capital,~~warrants ancontain ~~international~~standard adjustment ~~business~~provisions ~~company~~upon stock dividend, ~~was~~stock ~~formed~~split, onstock ~~July~~combination, 26recapitalization, ~~2005~~and ina change of control transaction; the ~~British~~warrants ~~Virgin~~do ~~Islands~~not byhave ~~the~~“down-round ~~Company~~protection”. AsThe awarrants ~~BVI~~meet ~~company~~the conditions for equity classification pursuant to FASB ASC 815 “Derivatives and Hedging” and EITF 00-19, C3“Accounting ~~Capital~~for ~~does~~Derivative ~~not~~Financial ~~have~~Instruments ~~any~~Indexed to, ~~income~~and ~~tax~~Potentially Settled in, a Company’s Own Stock”. Therefore, these warrants were classified as permanent equity.

~~PRC~~Recently issued accounting pronouncements

~~Pursuant~~In June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the ~~PRC~~preparation ~~Income~~of ~~Tax~~financial ~~Laws,~~statements in accordance with generally accepted accounting principles in the ~~prevailing~~United ~~statutory~~States ~~rate~~(“GAAP”). Rules and interpretive releases of ~~enterprise~~the ~~income~~Securities ~~tax~~and isExchange ~~25%~~Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for ~~Yili~~SEC ~~China~~registrants. ~~The~~Existing ~~tax~~GAAP ~~provision~~ was ~~$85,155~~not ~~and~~intended ~~$39,526,~~to ~~respectively~~be changed as a result of the Codification, ~~for~~and accordingly the change ~~fiscal~~did ~~years~~not ~~ended~~impact ~~December~~our ~~31,~~financial ~~2010~~statements. ~~and~~The ~~December~~ASC ~~31,~~does ~~2009~~change the way the guidance is organized and presented.

FAccounting Standards Update (“ASU”) ASU No. 2009-182 through ASU No. 2011-12 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.

	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	%

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.

~~During~~Going 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%.Concern

~~During~~As ~~the~~shown ~~fiscal~~in ~~year~~the ofaccompanying consolidated ~~2009~~financial statements, the ~~United~~Company ~~States~~had ~~entity~~an ~~had~~accumulated adeficit ~~net~~incurred ~~operating~~through ~~loss~~December of31, ~~$642~~2011,~~667~~ ~~for~~ which noraises ~~benefit~~substantial doubt ~~was~~about ~~realized~~the ~~and~~Company’s aability ~~100%~~to ~~valuation~~continue ~~allowance~~as ~~was~~a ~~created~~going concern. The ~~valuation~~consolidated ~~allowance~~financial ~~ratio~~statements ~~for~~do ~~the~~not USinclude ~~side~~any adjustments ~~was~~relating ~~-9.7%.~~to At the ~~same~~recoverability ~~time,~~and ~~the~~classification ~~PRC entity had a net operating loss~~ of $1recorded assets,~~005,313~~ ~~for~~or ~~which~~the noamounts ~~benefit was realized~~ and aclassification ~~100%~~of ~~valuation~~liabilities that ~~allowance~~might ~~was~~be ~~created.~~necessary ~~The~~in ~~valuation~~the ~~allowance~~event ~~ratio for~~ the ~~Chinese~~Company ~~side~~cannot ~~was~~continue ~~-15~~in existence.~~3%.~~

NoThe ~~provision~~timing ~~for~~and ~~deferred~~amount ~~tax~~of capital ~~assets~~requirements orwill ~~liabilities~~depend ~~has~~on ~~been~~a ~~made,~~number ~~since~~of ~~the~~factors, ~~Company~~including ~~had~~demand nofor ~~material~~products ~~temporary~~and ~~differences~~services ~~between~~and the ~~tax~~availability ~~bases~~ of ~~assets~~opportunities for expansion through affiliations and ~~liabilities~~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 ~~their~~fully ~~carrying~~implement ~~amounts~~its business plan.

~~There~~NOTE is3 no– ~~material~~NOTES ~~unrecognized tax benefit as of December 31, 2010 and 2009.~~RECEIVABLE

~~Current~~Notes ~~tax~~receivable come from ~~of $85,155 for~~ the ~~fiscal~~sales ~~year~~of ~~ended~~our ~~December 31, 2010 was paid for PRC income tax~~products. ~~Income~~Notes ~~tax~~receivable ~~for~~at ~~the fiscal year ended~~ December 31, ~~2009~~2011 ~~was~~and ~~$39,526~~2010 ~~which~~consisted ~~was~~of ~~also~~the ~~paid for PRC income tax.~~following:

NOTE 13 – CUSTOMER CONCENTRATIONS

	December 31, 2011				December 31, 2010
Customer Name	Amount		Term		Amount		Term
Tengzhou Tongfeng Grinding Medium Co., Ltd	$	-		-	$	15,100		5 months
Tengzhou Shengtai Grinding Medium Co., Ltd		-		-		53,845		6 months
Zaozhuang Xingfa Grinding Medium Co., Ltd		-		-		37,749		2 months
Pingdingshan Zhongao Grinding Medium Co., Ltd		-		-		226,494		5 months
China Silicon Corporation		-		-		30,863		1 month
Total	$	-			$	364,051

~~Customers, those with sale~~F-~~percentages over 10%, have been listed as follows:~~15

	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	%

NOTE 4 – ACCOUNTS RECEIVABLE

~~F-19~~The Company accrued an allowance for bad debts related to its accounts receivable. The accounts receivable and allowance balances at December 31, 2011 and 2010 were as follows:

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

	December 31, 2011			December 31, 2010
Accounts receivable	$	3,268,221		$	1,579,750
Allowance for bad debts		(102,429	)		(46,854	)
Accounts receivable, net	$	3,165,792		$	1,532,896

	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 5 – INVENTORIES

~~NOTE~~Inventories 14at -December 31, ~~FOREIGN~~2011 ~~OPERATIONS~~and 2010 consisted of the following:

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.

	December 31, 2011			December 31, 2010
Raw materials	$	425,086		$	306,249
Finished goods		2,347,710			2,352,406
Work in progress		-			316,541
Provision for impairment		(315,408	)		-
Total	$	2,457,388		$	2,975,196

NOTE 156 – ~~SUBSEQUENT~~RELATED ~~EVENT~~PARTY

OnWe ~~January~~lease 1our office space at both 558 Lime Rock Road, ~~2011~~Lakeville, anConnecticut ~~aggregate~~and of420 ~~149~~Lexington Avenue,~~433~~ ~~shares~~Suite of860, ~~Common~~New ~~Stock~~York, ~~were~~NY ~~issued~~from toKuhns ~~the~~Brothers, ~~holders~~Inc. and ofits ~~Series~~affiliates A(“Kuhns ~~Preferred~~Brothers”). ~~Stock~~Our asChairman ~~dividends~~and CEO, Mr. Kuhns, is a controlling shareholder, President, CEO and Chairman of Kuhns Brothers. The ~~Company~~lease ~~has~~commenced ~~evaluated~~on ~~subsequent~~September ~~events~~1, ~~from~~2008 for a term of one year with a monthly rent of $7,500, and such lease was extended for two years with the ~~balance~~same ~~sheet~~rate ~~date~~of ~~through~~rent ~~when~~after September 1, 2009. On September 1, 2011, we extended the ~~report~~lease iswith ~~issued~~the same rate of rent for one year.

~~F-20~~According to the 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 during the year ended December 31, 2011.

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. CSC has paid off the note on June 15, 2011.

F-16

As of December 31, 2011 and 2010, the Company owed Changchun Master Company $905,921 and $886,748 whose stockholder is Zhigang Gao, who is a director of the Company. The loan payable is non-interest bearing, unsecured, and is payable on demand.

NOTE 7 – DEPOSITS

Deposits to purchase fixed assets included the deposits to establish the buildings and equipment for the three production lines. Deposits at December 31, 2011 and 2010 consisted of the following:

	December 31, 2011		December 31, 2010
Deposit for buildings	$	-	$	452,915
Deposit for equipment		-		1,576,021
Prepayment		56,488		-
Total	$	56,488	$	2,028,936

NOTE 8 – INTANGIBLE ASSETS

Intangible assets at December 31, 2011 and 2010 consisted of the following:

	December 31, 2011			December 31, 2010
Land use right	$	858,624		$	815,918
Production license		688,219			709,258
Software		36,679			11,530
Less: accumulated amortization		(154,098	)		(120,056	)
Total	$	1,429,424		$	1,416,650

NOTE 9 – PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2011 and 2010 consisted of the following:

	December 31, 2011			December 31, 2010
Buildings	$	11,151,772		$	6,480,400
Machinery and equipment		7,680,808			5,135,138
Motor vehicles		347,030			299,417
Office equipment		132,025			96,572
Less: accumulated depreciation		(1,991,068	)		(634,569	)
Property and equipment, net	$	17,320,567		$	11,376,958

F-17

Depreciation related to property and equipment used in production is reported in cost of revenues. Depreciation expense for the year ended December 31, 2011 was $1,288,305, of which $140,807 was included in G&A expense and $1,147,498 was included in cost of revenue. Depreciation expense for the 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.

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.

	December 31, 2011		December 31, 2010
Buildings	$	-	$	2,469,145
Construction in progress		-		812,726
Equipment		848,540		775,382
Capitalized interest		-		75,422
Others		-		283,028
Total	$	848,540	$	4,415,703

Total capitalized interest amounted to zero and $75,422 for the years ended December 31, 2011 and 2010, respectively.

NOTE 11 – LONG-TERM LOANS

On October 23, 2009, Yili China borrowed a three-year long-term loan with principal of $1,573,589 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 $3,147,178 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. The interest was paid on the quarterly basis.

	Interest			Maturity				Interest Expenses
	Rate			Date		Amount		2011		2012		2013
Yili branch, Bank of China		6.48	%		22-Oct-12	$	1,589,000	$	102,967	$	82,656	$	-

Yili branch, Bank of China		6.48	%		3-Jan-13		3,178,000		205,934		205,934		1,692

						$	4,767,000	$	308,901	$	288,590	$	1,692

F-18

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, 2011. 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. There is no tax provision for the year ended December 31, 2011. The tax provision was $85,155 for the fiscal year ended December 31, 2010.

Master Consulting was incorporated on July 14, 2011 in the People’s Republic of China by the Company. Since there is no revenue, Master Consulting does not have any income tax.

For the years ended December 31, 2011 and 2010, the local (United States) and foreign components of income (loss) before income taxes were comprised of the following:

	For the year ended December 31, 2011			For the year ended December 31, 2010
Income (loss) before income tax
United States	$	(1,285,131	)	$	(511,281	)
China		(1,855,968	)		829,415
Total	$	(3,141,099	)	$	318,134

Provision for income taxes
Current income tax	$	-		$	85,155
Deferred income tax		-			-
Total	$	-		$	85,155

F-19

USA

MSCI is registered in the State of Nevada and is subject to United States of America tax law. As of December 31, 2011, the operations in the United States of America incurred $8,145,911 of cumulative net operating losses which can be carried forward to offset future taxable income. The Company has provided for a full valuation allowance of $2,036,478 against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Yili China. A reconciliation of income (loss) before income taxes to the effective tax rate as follows:

	For the year ended December 31, 2011			For the year ended December 31, 2010
Income (loss) before income tax
Yili China	$	(1,855,968	)	$	829,415
Statutory income tax rate		25	%		25	%

Income tax expense at statutory rate		(463,992	)		207,354
Tax effect of accumulated loss		-			(122,199	)
Net operating loss		463,992			-
Income tax expense at effective rate	$	-		$	85,155

During the fiscal year of 2011, the United States entity had a net operating loss of $1,285,131 for which no benefit was realized and a 100% valuation allowance was created. At the same time, the Chinese entity had a net operating loss of $1,855,968. The tax provision amounted to zero and $85,155 for the year ended December 31, 2011 and 2010, respectively.

NOTE 13 - FOREIGN OPERATIONS

Substantially all of the Company’s operations are carried out and 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 14 – CONCENTRATION

For the year ended December 31, 2011, four customers accounted for 10% or more of sales revenues, representing 25%, 22%, 16% and 13%, respectively of the total sales. For the year ended December 31, 2010, three customers accounted for 10% or more of sales revenues, representing 21%, 12% and 12%, respectively of the total sales.

F-20

NOTE 15 – SUBSEQUENT EVENTS

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the reporting date, the date the financial statements were available to be issued.

In April 2012, the Company’s board approved issuance of 149,433 shares of Common Stock as dividends of Series A preferred stock.

F-21

Filing Compare · Master Silicon Carbide Industries, Inc.