UNITED ~~STATES~~STATESSECURITIES ~~SECURITIES~~ AND EXCHANGE ~~COMMISSION Washington~~COMMISSIONWashington, D.C. ~~20549~~ 20549

FORM 10−-Q ~~(Mark One)~~

(Mark One)

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

For the quarterly period ended: ~~June~~September 30, 2011

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

For the transition period from ~~_____________~~____________to to _____________

Commission File Number: 000-52843

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. (Exact Name of Registrant as Specified in Its Charter)

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

Jun Yue Hua Ting, Building A 3rd Floor, Unit -1 #58 Xin Hua Road Guiyang, Guizhou 550002 People’s Republic of China (Address of principal executive offices, Zip Code)

(+86) 851-552-~~095~~ 0951(Registrant’s ~~telephone~~ telephone number, including area code)

~~____________________________________________________________________~~ CHINA FORESTRY INDUSTRY GROUP, INC.(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X x ] No [ ]

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 [X x ] No [ ]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ x ] (Do not check if a smaller reporting company) ~~Smaller reporting company [X]~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X x ]

The number of shares outstanding of each of the issuer’s ~~classes~~ classes of common stock, as of ~~August~~November 2217, 2011 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	30,000,000

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. Quarterly Report on Form 10-Q Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2011

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
PART I
Item 1.	Financial Statements	2
FINANCIAL INFORMATION
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 1.	Financial Statements	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 4.	Controls and Procedures	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
PART II OTHER INFORMATION
Item 4.	Controls and Procedures	10
Item 1.	Legal Proceedings	33
PART II
Item 1A.	Risk Factors	33
OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 1.	Legal Proceedings	11
Item 3.	Defaults Upon Senior Securities	34
Item 1A.	Risk Factors	11
Item 4.	(Removed and Reserved)	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 5.	Other Information	34
Item 3.	Defaults Upon Senior Securities	11
Item 6.	Exhibits	34
Item 4.	(Removed and Reserved)	11
Item 5.	Other Information	11
Item 6.	Exhibits	11

PART I FINANCIAL INFORMATION

~~FINANCIAL~~ITEM ~~INFORMATION~~1. FINANCIAL STATEMENTS.

~~ITEM~~ 1~~. FINANCIAL STATEMENTS.~~

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011 AND 2010

	Page(s)
Financial Statements		Page(s)
Financial Statements
	Condensed Consolidated Balance Sheets	F-2
Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income and Comprehensive Income	F-3
Condensed Consolidated Statements of Income and Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	F-4
Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	F-5
Notes to Condensed Consolidated Financial Statements	6-23

2 F-1

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30,		December
		September 30,		December 31,
				31,
		2011		2010
		(Unaudited)
ASSETS
Current assets:
Cash	$	272,~~183,418~~045	$	2362,~~334,910~~810
Accounts receivable, net of allowance of $- and $27,252, respectively		9,413,487		5,423,123
Restricted cash		4,695,938		1,972,100
Inventory		11,600,031		6,949,679
Accounts receivable, net of allowance of $- and $27,252, respectively		5,283,516		5,423,123
Deposits and prepaid expenses		9,343,552		10,557,660
Bills receivable		2,050,560		-
Other receivables		1,308,066		777,236
Inventory		12,886,170		6,949,679
Deposits and prepaid expenses		18,235,277		10,557,660
Other receivables		1,330,905		777,236
Due from related party		1,451,047		-
Taxes recoverable (Note 14)		622,506		2,452,407
Taxes recoverable (Note 7)		629,814		2,452,407
Total current assets		3546,~~922~~635,~~107~~272		28,495,015
Property, plant and equipment, net		6,~~456~~490,~~245~~679		6,352,289
Intangible assets, net		9,~~194~~224,~~488~~452		6,666,591
Construction in progress		5,~~409~~473,~~768~~278		5,304,348
Prepayment for property, plant and equipment		7,~~207~~570,~~505~~071		1,833,096
Total assets	$	6475,~~190~~393,~~113~~752	$	48,651,339
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short term loans	$	811,~~354~~583,~~607~~314	$	4,535,830
Accounts payable and bills payable		4,489,488		3,388,806
Accounts payable		1,265,058		658,206
Customer deposits		1,577,277		1,936,733
Bills payable		8,609,220		2,730,600
Other payables and accrued expenses		1,308,973		1,829,363
Customer deposits		1,553,063		1,936,733
Other payables and accrued expenses		1,415,233		1,829,363
Due to related party		-		1,527,080
Income tax payable		34,~~546~~293,~~227~~711		2,501,229
Total current liabilities		1928,~~276~~719,~~572~~599		15,719,041
Long term loans		7,~~890~~983,~~462~~095		-
Total liabilities		2736,~~167~~702,~~034~~694		15,719,041
Commitments and contingencies (Note 18)
Stockholders' equity
Preferred stock: 5,000,000 shares authorized of $0.001 par value none issued and outstanding		-		-
Common stock: 100,000,000 shares authorized of $0.001 par value 30,000,000 and 30,000,000 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively		30,000		30,000
Common stock: 100,000,000 shares authorized of $0.001 par value 30,000,000 and 30,000,000 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		30,000		30,000
Additional paid in capital – Stock and stock equivalents		17,988,805		17,988,805
Accumulated other comprehensive income		23,~~938~~341,~~831~~490		2,291,124
Retained earnings		1615,~~065~~730,~~443~~929		12,622,369
Total stockholders’ equity		37,023,079		32,932,298
Statutory reserve		1,599,834		-
Total liabilities and stockholders’ equity	$	64,190,113	$	48,651,339
Total stockholders’ equity		38,691,058		32,932,298
Total liabilities and stockholders’ equity	$	75,393,752	$	48,651,339

The accompanying notes are an integral part of the condensed consolidated financial statements

3 F-2

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ~~UNAUDITED~~ UNAUDITED

		Three months ended						~~Six~~Nine months ended
		June 30,						June 30,
		September 30,						September 30,
		2011			2010			2011			2010
Revenue	$	810,~~456~~711,~~935~~139		$	128,~~587~~771,~~353~~019		$	1829,~~899~~611,~~909~~048		$	1625,~~878~~696,~~352~~546
Cost of revenue		57,~~182~~342,~~847~~247			85,~~929~~848,~~127~~371			1219,~~047~~390,~~828~~075			1117,~~706~~085,~~000~~785
Gross profit		3,~~274~~368,~~088~~892			32,~~658~~922,~~226~~648			610,~~852~~220,~~081~~973			58,~~172~~610,~~352~~761
Operating expenses
Selling expenses		~~376~~269,~~637~~467			4227,~~882~~834			~~726~~995,~~232~~699			~~118~~146,~~317~~481
General and administrative expenses		~~531~~697,~~146~~341			~~483~~322,~~122~~625			~~904~~1,~~770~~602,111			~~702~~1,~~075~~062,610
Total operating expenses		~~907~~966,~~783~~808			~~526~~350,~~004~~459			12,~~631~~597,~~002~~810			~~820~~1,~~392~~209,091
Income from operations		2,~~366~~402,~~305~~084			32,~~132~~572,~~222~~189			57,~~221~~623,~~079~~163			47,~~351~~401,~~960~~670
Other income (expenses)
Interest income		~~14,576~~642			-			2324,~~575~~217			-
Interest expenses		(414,989	)		(27,709	)		(635,012	)		(49,057	)
Interest expense		(464,170	)		(173,244	)		(1,099,182	)		(231,761	)
Other (expenses) income		(81,~~513~~559	)		~~293~~-			(3031,~~364~~923	)		43,~~860~~988
Government grant		342			1,125,562			45,414			1,419,809
Value added tax refund		-			526,399			-			1,950,176
Total other income (expenses)		(408,584	)		1,098,146			(596,387	)		1,414,612
Government grant		31,184			-			76,598			-
Income before income taxes		1,957,721			4,230,368			4,624,692			5,766,572
Total other income (expenses)		(433,903	)		353,155			(1,030,290	)		1,762,403
Less: Provision for income taxes		605,751			906,513			1,181,618			1,217,396
Income before income taxes		1,968,181			2,925,344			6,592,873			9,164,073
Net income		1,351,970			3,323,855			3,443,074			4,549,176
Less: Income tax expense		702,862			791,257			1,884,480			2,012,055
Net income		1,265,319			2,134,087			4,708,393			7,152,018
Other comprehensive income
Foreign currency translation gain		~~543~~402,~~689~~659			91913,~~450~~206			~~647~~1,~~707~~050,366			~~183~~582,~~491~~678
Total comprehensive income	$	1,~~895~~667,~~659~~978		$	3,~~415~~047,~~305~~293		$	45,~~090~~758,~~781~~759		$	47,~~732~~734,~~667~~696
Earnings per share
- Basic	$	0.0504		$	0.1609		$	0.1116		$	0.2232
- Diluted	$	0.0504		$	0.1609		$	0.1116		$	0.2232
Weighted average shares outstanding
- Basic		30,000,000			2022,~~500~~590,~~000~~044			30,000,000			2022,~~500~~590,~~000~~044
- Diluted		30,~~001~~000,~~509~~000			2022,~~500~~590,~~000~~044			30,000,000			2022,~~500~~590,~~000~~044

The accompanying notes are an integral part of the condensed consolidated financial statements

4 F-3

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ~~UNAUDITED~~ UNAUDITED

		Six months ended
		Nine months ended
		June 30,
		September 30,
		2011			2010
Cash flows from operating activities
Net income	$	34,~~443~~708,~~074~~393		$	47,~~549~~152,~~176~~018
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		~~164~~299,~~532~~852			~~136~~208,~~778~~350
Amortization		~~118~~196,~~792~~512			~~108~~163,~~477~~170
Provision for bad debts		(27,469	)		-
Change in allowance for bad debts		(27,687	)		-
Changes in operating assets and liabilities:
Accounts receivable		(3,809,756	)		(6,555,165	)
Restricted cash		(2,620,060	)		(1,647,059	)
Inventory		(4,459,520	)		4,882,432
Accounts receivable		335,198			(2,898,226	)
Deposits and prepaid expenses		1,393,044			2,865,996
Bills receivable		(2,018,988	)		-
Other receivables		(509,377	)		60,935
Inventory		(5,627,167	)		3,139,283
Taxes recoverable		1,856,694			(352,775	)
Deposits and prepaid expenses		(7,250,752	)		(4,769,454	)
Accounts payable and bills payable		1,021,260			(7,989,168	)
Other receivables		(520,792	)		23,846
Customer deposits		(393,299	)		344,012
Taxes recoverable		1,871,431			(1,883,773	)
Other payables and accrued expenses		121,583			6,144,349
Accounts payable		576,869			(5,322,427	)
Income tax payable		188,127			960,532
Bills payable		5,702,484			1,647,059
Net cash (used in) provided by operating activities		(892,315	)		5,155,579
Customer deposits		(438,494	)		(106,241	)
Other payables and accrued expenses		(588,827	)		5,474,727
Income tax payable		1,686,453			1,563,159
Net cash (used in) provided by operating activities		(3,715,575	)		2,744,432
Cash flows from investing activities
Acquisition of property, plant and equipment and construction in progress		(5,~~418~~828,~~119~~086	)		(~~799~~214,~~815~~457	)
Acquisition of intangible assets		(2,~~486~~505,~~212~~946	)		(5,~~892~~988,000	)
Net cash used in investing activities		(78,~~904~~334,~~331~~032	)		(6,~~691~~202,~~815~~457	)
Cash flows from financing activities
Repayment of short term and long term debts		(3,058,151	)		(715,830	)
Net proceeds from issuance of common stock		-			356,958
Proceeds from short term and long term debts		14,541,507			3,667,770
Repayment of short term and long term loans		(3,082,424	)		(733,530	)
Repayment of due to related party		(2,877,296	)		-
Proceeds from short term and long term loans		17,739,350			3,727,530
Net cash provided by financing activities		8,606,060			2,951,940
Repayment of due to related party		(2,900,237	)		-
Effect of exchange rate changes in cash and cash equivalents		39,094			183,548
Net cash provided by financing activities		11,756,689			3,350,958
Net (decrease) increase in cash and cash equivalents		(151,492	)		1,599,252
Effect of exchange rate changes in cash and cash equivalents		2,153			329,050
Cash and cash equivalents, beginning of period		2,334,910			1,471,729
Net (decrease) increase in cash and cash equivalents		(290,765	)		221,983
Cash and cash equivalents, end of period	$	2,183,418		$	3,070,981
Cash and cash equivalents, beginning of period		362,810			748,493
Cash and cash equivalents, end of period	$	72,045		$	970,476
Supplemental Disclosures:
Cash paid during the period for:
Interest	$	~~635~~1,~~012~~099,182		$	49231,~~057~~761
Income taxes	$	~~197~~199,~~957~~528		$	12,~~217~~012,~~396~~055

The accompanying notes are an integral part of the condensed consolidated financial statements

5 F-4

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~

1. ORGANIZATION AND NATURE OF BUSINESS

~~China~~Silvan ~~Forestry Industry Group~~Industries, Inc. (formerly known as Exotacar, Inc. ~~and~~ , Phoenix Energy Resource Corporation (“PNXE”) and China Forestry Industry Group, Inc.) ( “the Company”, “we”, “us”, “our” or “CNFI”) was incorporated on June 3, 2005 in the State of Nevada. On June 25, 2008, the Company changed its business focus from the development of online exotic car sales and entered into the oil and natural gas industry towards identifying and pursuing options regarding the development of energy resources, and changed its name from Exotacar, Inc. to Phoenix Energy Resource Corporation. From June 25, 2008 through to the date of the reverse acquisition, the Company was a designated shell company with minimal operations. On January 7, 2011, the Company changed its name from Phoenix Energy ~~Resource~~ Resource Corporation to China Forestry Industry Group, Inc. to more accurately ~~reflect~~ reflect the new business operations. On October 3, 2011, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company with the Nevada secretary of State to change its name from China Forestry Industry Group, Inc. to Silvan Industries, Inc.

On November 1, 2010, the Company completed a reverse acquisition transaction pursuant to a share exchange agreement among the Company, China Bingwu Forestry Group Limited (“CBF”) and CBF’s sole stockholder, Ms. RenPing Tu, whereby the Company acquired 100% of the issued and outstanding capital stock of CBF in exchange for 20,500,000 shares of the Company’s stock, which constituted 68.33% of the Company’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the reverse acquisition. As a result of the acquisition of CBF, the Company now owns all of the issued and outstanding capital stock of CBF, which in turn owns Qianxinan Aosen Forestry Co., Limited (“QAF”) and Qianxinan Silvan Touch Flooring Co., Limited (“QSTF”). For accounting purposes, the share exchange transaction with CBF was treated as a reverse acquisition and recapitalization of CNFI, with CBF as the acquirer and CNFI as the acquired party. Upon completion of the exchange, CBF, QAF and QSTF became wholly owned subsidiaries of CNFI.

China Bingwu Forestry Group Limited (“CBF”) was incorporated under the Companies laws of the Hong Kong Special Administrative Region of the People’s Republic of China on April 9, 2010. It was principally established to serve as an investment holding company and its operations are carried out in Hong Kong.

On May 18, 2010, CBF entered into an Equity Ownership Transfer Agreement (the “Transfer Agreement”) with the existing stockholders of QAF, namely Mr. YuLu Bai, to acquire 100% equity interest of QAF for $2,488,471. This business combination was accounted for as entities under common control because the majority shareholders of CBF and QAF are the same people.

QAF is a private corporation, incorporated under the laws of the People’s Republic of China (“PRC”) on November 22, 2004. QAF’s principal activities are manufacturing and wholesaling of fiber boards, wood flooring, carpentry boards, wood products, furniture, and timber. F-5

OnSILVAN ~~October 22~~INDUSTRIES, ~~2007, QAF formed Qianxinan Silvan Touch Flooring Co~~INC., ~~Limited~~AND ~~(“QSTF”)~~SUBSIDIARIES ofNOTES ~~which~~TO ~~QAF~~CONDENSED ~~owned~~CONSOLIDATED aFINANCIAL 55% equity interest. On May 8, 2009, QAF acquired the remaining 45% equity interest in QSTF from the existing stockholder and QSTF became 100% wholly owned by QAF. QSTF’s principal activities are manufacturing and wholesaling of wood flooring, furniture and decorations. STATEMENTS

~~On March 29, 2011, QAF further invested $6,088,187 (RMB40,000,000) in QSTF~~1. ~~The~~ORGANIZATION ~~registered~~AND ~~capital~~NATURE ofOF ~~QSTF~~BUSINESS ~~increased~~- ~~to $9,132,281 (RMB60,000,000). QSTF is 100% wholly owned by QAF.~~ CONTINUED

AsQAF is a ~~result~~private ofcorporation, ~~the~~incorporated ~~reverse~~under ~~acquisition~~the oflaws ~~CBF,~~ of the ~~Company entered~~People’s ~~into~~Republic aof ~~new~~China ~~business.~~(“PRC”) ~~Through~~on ~~its~~November ~~Chinese subsidiaries~~22, ~~the~~2004. ~~Company~~QAF’s isprincipal ~~now~~ activities ~~engaged~~are ~~in the business of~~ manufacturing and wholesaling of fiber boards, wood flooring, carpentry boards, wood products, furniture, ~~timber~~ and ~~decorations.~~ timber.

On ~~March~~October 2422, ~~2011~~2007, ~~QSTF~~QAF formed aQianxinan ~~wholly owned subsidiary, Guiyang~~ Silvan Touch Flooring Co., Limited (“~~GSTF~~QSTF”) inof ~~the~~which ~~PRC~~QAF owned a 55% equity interest. ~~The~~On ~~total~~May 8, 2009, ~~paid-~~ QAF acquired the remaining 45% equity interest in ~~capital~~QSTF offrom ~~GSTF~~the ~~was~~existing stockholder ~~$3,044,094~~and ~~(RMB~~QSTF 20became ~~million)~~100% wholly owned by QAF. ~~GSTF~~QSTF’s principal activities are manufacturing and wholesaling of wood flooring, furniture and decorations.

~~The~~On ~~Company~~March is29, ~~headquartered~~2011, inQAF ~~the~~further ~~PRC~~invested $6,088,187 (RMB40,000,000) ~~and~~in ~~the~~QSTF. ~~principal location~~The ofregistered ~~operation~~capital of ~~the~~QSTF ~~Company~~increased isto ~~at Hexing Village~~$9, ~~Dingxiao Economic~~132,281 ~~Development Zone~~ (RMB60, ~~Xingyi City~~000,000). ~~Qianxinan,~~QSTF ~~Guizhou~~is ~~Province,~~100% ~~the~~wholly ~~People’s Republic~~owned ofby ~~China~~QAF.

6As a result of the reverse acquisition of CBF, the Company entered into a new business. Through its Chinese subsidiaries, the Company is now engaged in the business of manufacturing and wholesaling of fiber boards, wood flooring, carpentry boards, wood products, furniture, timber and decorations.

~~CHINA~~On ~~FORESTRY~~March ~~INDUSTRY~~24, ~~GROUP~~2011, ~~INC~~QSTF formed a wholly owned subsidiary, Guiyang Silvan Touch Flooring Co., ~~AND~~Limited ~~SUBSIDIARIES~~(“GSTF”) in the PRC. The total ~~NOTES~~paid-in TOcapital ~~CONDENSED~~of ~~CONSOLIDATED~~GSTF ~~FINANCIAL~~was ~~STATEMENTS~~$3,044,094 (~~UNAUDITED~~RMB 20 million). GSTF’s principal activity is the wholesaling of wood flooring, furniture and decorations.

2.The ~~SUMMARY~~Company OFis ~~SIGNIFICANT~~headquartered ~~ACCOUNTING~~in ~~POLICIES~~the PRC, and the principal location of operation of the Company is at Hexing Village, Dingxiao Economic Development Zone, Xingyi City, Qianxinan, Guizhou Province, the People’s Republic of China.

~~Basis of presentation~~ F-6

~~The~~SILVAN condensed consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of our subsidiaries in the PRCINDUSTRIES, ~~which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC~~INC. ~~All~~AND ~~necessary~~SUBSIDIARIES ~~adjustments~~NOTES ~~have~~TO ~~been~~CONDENSED ~~made to~~CONSOLIDATED ~~present~~FINANCIAL ~~the condensed consolidated financial statements in accordance with US GAAP.~~ STATEMENTS

The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Group, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission2. ~~Certain~~SUMMARY ~~information~~OF ~~and~~SIGNIFICANT ~~footnote~~ACCOUNTING disclosures normally included in condensed consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Group believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the financial statements of the Group for the year ended December 31, 2010 and notes thereto included in the Form 10K of China Forestry Industry Group, Inc. filed on April 15, 2011. The Group follows the same accounting policies in the preparation of interim reports. Results of operations for the interim periods are not indicative of annual results. POLICIES

~~Principle~~Basis of ~~consolidation~~ presentation

The condensed consolidated financial statements ~~include~~are ~~the~~prepared in ~~accounts~~ accordance ofwith ~~CNFI,~~the ~~CBF,~~accounting ~~QAF,~~principles ~~QSTF~~generally ~~and~~accepted ~~GSTF.~~in ~~All~~the ~~significant~~United States ~~intercompany~~of ~~balances and~~America ~~transactions~~(“US ~~have~~GAAP”). ~~been~~This ~~eliminated~~basis differs from that used in the statutory ~~consolidation.~~accounts ~~The~~of ~~condensed consolidated~~our ~~financial~~subsidiaries ~~statements~~in ~~included~~the ~~herein~~PRC, ~~presented~~which inwere prepared in accordance with ~~United~~ ~~States~~the ~~generally accepted~~ accounting principles and ~~stated~~relevant infinancial ~~US dollars,~~regulations ~~have~~ applicable ~~been~~to ~~prepared~~enterprises byin the ~~Company,~~PRC. ~~pursuant~~All necessary adjustments have been made to present the ~~rules~~condensed ~~and~~consolidated ~~regulations~~financial ofstatements ~~the Securities~~in ~~and~~accordance ~~Exchange~~with ~~Commission~~US GAAP.

~~Reclassification~~The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although theCompany believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the financial statements of the Group for the year ended December 31, 2010 and notes thereto included in the Form 10K of Silvan Industries, Inc. filed on April 15, 2011. The Company follows the same accounting policies in the preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

~~Prepayment~~Principle ~~for property, plant and equipment – Prepayment for property, plant and equipment~~ of ~~$1,833,096 as of December 31, 2010 has been reclassified from deposits and prepaid expenses to conform to current presentation.~~ consolidation

~~Due~~The tocondensed ~~related~~consolidated ~~party~~financial –statements ~~Amount~~include ~~due~~the accounts toof ~~related~~CNFI, ~~party~~CBF, ~~of $1~~QAF,~~527,080~~ asQSTF ofand ~~December~~GSTF. ~~31,~~All ~~2010~~significant ~~has~~intercompany balances and transactions have been ~~reclassified~~eliminated ~~from~~in ~~other~~the ~~payables~~consolidation. The condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, ~~accrued~~ have ~~expenses~~been toprepared ~~due~~by tothe ~~related~~Company, ~~party~~pursuant to ~~conform~~the torules ~~current~~and ~~presentation~~regulations of the Securities and Exchange Commission.

~~Other taxes payable – Other taxes payable of $789,252 as of December 31, 2010 has been reclassified from income tax payable to other payables and accrued expenses to conform to current presentation.~~ F-7

~~Use~~SILVAN ofINDUSTRIES, ~~estimates~~INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods2. ~~Actual~~SUMMARY ~~results~~OF ~~could~~SIGNIFICANT ~~differ~~ACCOUNTING ~~from~~POLICIES ~~those~~- ~~estimates.~~ CONTINUED

~~Significant~~Reclassification ~~Estimates~~

~~These~~Restricted ~~financial~~cash ~~statements~~– ~~include~~Restricted ~~some~~cash ~~amounts~~accounts ~~that~~totaled ~~are based~~$1,972,100 on that ~~management's~~serves ~~best~~as ~~estimates~~collateral ~~and~~for ~~judgments.~~bills ~~The~~payable ~~most~~as ~~significant estimates relate to depreciation~~ of ~~property,~~December ~~plant and equipment~~31, ~~allowance~~2010 ~~for~~has been ~~uncollectible~~ reclassified ~~accounts,~~from ~~and~~cash ~~impairment~~to ~~testing~~restricted ofcash ~~long-lived~~on ~~assets. It is reasonably possible that~~ the ~~above-mentioned~~consolidated ~~estimates~~balance ~~and~~sheet ~~others may be~~to ~~adjusted~~ conform asto ~~more~~ current ~~information becomes available, and any adjustment could be significant in future reporting periods~~presentation.

7Prepayment for property, plant and equipment – Prepayment for property, plant and equipment of $1,833,096 as of December 31, 2010 has been reclassified from deposits and prepaid expenses to prepayment for property, plant and equipment on the consolidated balance sheet to conform to current presentation.

~~CHINA~~Due ~~FORESTRY~~to ~~INDUSTRY~~related ~~GROUP~~party – Amount due to related party of $1,527,080 ~~INC.~~as ~~AND~~of ~~SUBSIDIARIES~~December 31, 2010 has been reclassified from other payables and ~~NOTES~~accrued TOexpenses ~~CONDENSED~~to ~~CONSOLIDATED~~due ~~FINANCIAL~~to ~~STATEMENTS~~related ~~(UNAUDITED)~~party on the consolidated balance sheet to conform to current presentation.

2.Other ~~SUMMARY~~taxes OFpayable ~~SIGNIFICANT~~– ~~ACCOUNTING~~Other ~~POLICIES~~taxes -payable ~~CONTINUED~~of $789,252 as of December 31, 2010 has been reclassified from income tax payable to other payables and accrued expenses on the consolidated balance sheet to conform to current presentation.

~~Revenue~~Use ~~recognition~~of estimates

~~The~~In ~~Company’s~~preparing ~~revenue~~financial ~~recognition~~statements ~~policies are~~ in ~~compliance~~ conformity with ~~ASC~~US ~~605~~GAAP, management ~~“Revenue~~is ~~Recognition”.~~required ~~Sales~~to ~~revenue~~make isestimates ~~recognized~~and ~~when~~assumptions ~~all~~that ofaffect the ~~following~~ reported ~~have~~amounts ~~occurred: (i) persuasive evidence~~ of anassets ~~arrangement~~and ~~exists,~~liabilities ~~(ii) delivery~~and ~~has occurred or services have been rendered, (iii)~~ the ~~price~~disclosure isof ~~fixed~~contingent or assets ~~determinable,~~ and ~~(iv)~~liabilities ~~the ability to collect is reasonably assured. These criteria are generally satisfied~~ at the ~~time~~date of ~~shipment~~the ~~when~~financial ~~risk~~statements ofand ~~loss~~revenues and ~~title~~ expenses ~~passes~~during to the ~~customer,~~reported ~~including the distributor and the end user~~periods. ~~No return~~Actual ~~allowance~~results iscould ~~made~~differ asfrom ~~products returns are insignificant based on~~those ~~historical experience~~ estimates.

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

~~Shipping~~These financial statements include some amounts that are based on management's best estimates and ~~handling~~judgments. The most significant estimates relate to depreciation of property, plant and equipment, amortization of intangible assets, allowance for uncollectible accounts, and impairment testing of long-lived assets. It is reasonably possible that the above-mentioned estimates and others may be adjusted as more current information becomes available, and any adjustment could be significant in future reporting periods.

Shipping and handling costs are included in cost of revenue and selling expenses which totaled $5,808 and $15,677 for the three months ended June 30, 2011 and 2010, respectively. Shipping and handling costs amounted to $28,316 and $62,963 for the six months ended June 30, 2011 and 2010, respectively. F-8

~~Advertising~~SILVAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Advertising costs are included in selling expenses which totaled $45,436 and $24,947 for the three months ended June 30, 2011 and 2010, respectively~~2. ~~Advertising~~SUMMARY ~~costs~~OF ~~amounted~~SIGNIFICANT toACCOUNTING ~~$104,470~~POLICIES ~~and $54,285 for the six~~- ~~months ended June 30, 2011 and 2010, respectively.~~ CONTINUED

~~Government~~Revenue ~~grants~~ recognition

~~Government~~The ~~grants~~Company’s ~~may~~revenue ~~represent~~recognition ~~local~~policies ~~authority~~are ~~grants~~in ~~to the~~compliance ~~company~~ with ~~for~~ASC ~~industry~~605 ~~development~~“Revenue ~~and~~Recognition”. ~~the~~Sales revenue is recognized onwhen ~~cash~~all ~~basis~~of the ~~when~~ following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the ~~local~~price ~~authority~~is ~~approves~~fixed or determinable, and (iv) the ~~grant~~ability to ~~the~~collect ~~Company.~~is ~~Government~~reasonably ~~grant~~assured. These ~~income~~ criteria ~~may~~are ~~also~~generally ~~consist~~satisfied ofat ~~value~~the ~~added~~time ~~tax~~of ~~refunds~~shipment orwhen ~~certain~~risk ~~other~~of loss and ~~reimbursements~~ title ~~from~~passes to the ~~government~~customer, including the distributor and the end user. No return allowance is made as products returns are insignificant based on historical experience.

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

~~Assets~~Shipping and liabilities of the Company with a functional currency other than US$ are translated into US$ using period end exchange rates. Income and expense items are translated at the average exchange rates in effect during the period. Foreign currency translation differences are included as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity. handling

~~The~~Shipping ~~exchange~~and ~~rates~~handling ~~used~~costs toare ~~translate~~included ~~amounts~~ in ~~RMB~~cost ~~into~~of ~~USD~~revenue and selling expenses which totaled $1,553 and $25,216 for the ~~purposes~~three ofmonths ~~preparing~~ended September 30, 2011 and 2010, respectively. Shipping and handling costs amounted to $29,869 and $88,355 for the ~~financial~~nine ~~statements~~months ~~were~~ended asSeptember ~~follows:~~30, 2011 and 2010, respectively.

	6/30/2011	6/30/2010
Period end RMB : USD exchange rate	6.46	6.79
Six months average RMB : USD exchange rate	6.54	6.82
	12/31/2010
Year end RMB : USD exchange rate	6.59
Average yearly RMB : USD exchange rate	6.76

Advertising

~~The~~Advertising ~~RMB~~costs isare ~~not~~included ~~freely~~in ~~convertible~~selling ~~into~~expenses ~~foreign~~which totaled ~~currency~~$50,635 and ~~all foreign~~$6,237 ~~exchange~~for ~~transactions~~the ~~must~~three ~~take~~months ~~place~~ended ~~through~~September ~~authorized~~30, ~~institutions.~~2011 and No 2010, ~~representation~~respectively. isAdvertising ~~made~~costs ~~that~~amounted ~~the~~to ~~RMB~~$155,105 ~~amounts~~and ~~could have been~~$60,673 orfor ~~could be,~~the ~~converted~~ nine ~~into~~months ~~USD~~ended atSeptember ~~the~~30, ~~rates~~2011 ~~used~~and in2010, ~~translation~~respectively.

8Government grants

~~CHINA~~Government ~~FORESTRY~~grants ~~INDUSTRY~~may ~~GROUP,~~represent ~~INC.~~local ~~AND~~authority ~~SUBSIDIARIES~~grants to the company for industry development and the revenue is recognized on cash basis ~~NOTES~~when TOthe ~~CONDENSED~~local ~~CONSOLIDATED~~authority ~~FINANCIAL~~approves ~~STATEMENTS~~the ~~(UNAUDITED)~~grant to the Company. Government grant income may also consist of certain other reimbursements from the government.

~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ F- ~~CONTINUED~~ 9

~~Credit~~SILVAN ~~risk~~INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The Company may be exposed to credit risk from its cash at bank~~2. AnSUMMARY ~~allowance~~OF ~~has~~SIGNIFICANT ~~been~~ACCOUNTING ~~considered~~POLICIES ~~for estimated irrecoverable amounts~~- ~~determined by reference to past default experience and the current economic environment. No allowance is considered necessary for the period.~~ CONTINUED

~~Accounts~~Foreign ~~receivable~~currency translation

~~The~~Assets ~~Company~~and ~~maintains~~liabilities ~~reserves~~of ~~for~~the ~~potential~~Company ~~credit~~with ~~losses~~a onfunctional ~~accounts~~ currency ~~receivable.~~other ~~Management~~than ~~reviews~~US$ ~~the~~are ~~composition~~translated ofinto ~~accounts~~US$ ~~receivable and~~using ~~analyzes~~period ~~historical~~end ~~bad~~exchange ~~debts,~~rates. Income ~~customer~~and ~~concentrations,~~expense ~~customer~~items ~~credit worthiness,~~are ~~current~~translated ~~economic~~at ~~trends~~the ~~and~~average ~~changes~~exchange rates in ~~customer payment patterns to~~effect ~~evaluate~~ during the ~~adequacy~~period. ofForeign ~~these~~currency ~~reserves.~~translation ~~Reserves~~differences are ~~recorded~~included ~~primarily~~as on a ~~specific~~ component ~~identification~~of ~~basis.~~Accumulated Other Comprehensive Income in Stockholders’ Equity.

The ~~standard~~exchange ~~credit~~rates ~~period~~used ~~for~~to ~~most~~translate ofamounts ~~the~~in ~~Company’s~~RMB ~~clients~~into isUSD ~~three~~ for ~~months. Management evaluates~~ the ~~collectability~~purposes of preparing the ~~receivables~~financial ~~at least~~statements ~~quarterly.~~were ~~The estimated average collection period was 90 days~~ as ~~of June 30, 2011 and December 31, 2010. Allowance for doubtful accounts as of June 30, 2011 and December 31, 2010 are $0 and $27,252, respectively.~~ follows:

Inventory

	9/30/2011	9/30/2010
Period end RMB : USD exchange rate	6.39	6.68
Nine months average RMB : USD exchange rate	6.49	6.80

	12/31/2010
Year end RMB : USD exchange rate	6.59
Average yearly RMB : USD exchange rate	6.76

~~Inventory~~The RMB is ~~valued~~not atfreely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the ~~lower~~RMB ofamounts ~~cost~~could ~~(determined~~have onbeen, aor could be, ~~weighted~~ converted ~~average~~into ~~method)~~USD ~~and~~at ~~net~~the ~~realizable~~rates ~~value.~~used in translation.

~~Costs incurred in bringing each product to its location and conditions are accounted for as follows:~~ F-10

-SILVAN ~~raw~~INDUSTRIES, ~~materials~~INC. –AND ~~purchase~~SUBSIDIARIES ~~cost~~NOTES onTO aCONDENSED ~~weighted~~CONSOLIDATED ~~average~~FINANCIAL basis; - manufactured finished goods and work-in-progress – cost of direct materials and labor and a portion of manufacturing overhead based on normal operating capacity but excluding borrowing costs; and - retail and wholesale merchandise finished goods – purchase cost on a weighted average basis.STATEMENTS

~~Net~~2. ~~realizable~~SUMMARY ~~value~~OF isSIGNIFICANT ~~the~~ACCOUNTING ~~estimated~~POLICIES ~~selling price in the~~- ~~ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.~~ CONTINUED

~~Property~~Credit ~~and equipment~~ risk

~~Property~~The ~~and~~Company ~~equipment~~may ~~are~~be ~~stated~~exposed to credit risk from its cash at bank. ~~cost~~An ~~less~~allowance ~~accumulated~~has been considered for estimated irrecoverable amounts ~~depreciation~~ determined ~~and~~by ~~any~~reference ~~accumulated~~to ~~impairment~~past ~~losses~~default experience and the current economic environment. No allowance is considered necessary for the period.

~~Depreciation~~Accounts ~~is calculated on a straight-line basis over the estimated useful lives of the assets.~~ receivable

Assets Classifications	Estimated Useful Lives
Buildings	30 years
Plant and machinery	3 to 50 years
Motor vehicles	5 to 10 years
Office equipment	3 to 10 years
Furniture and fixtures	4 to 30 years

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

AnThe ~~item~~standard ofcredit ~~property~~period ~~and~~for ~~equipment~~most isof ~~removed from~~ the ~~accounts upon~~Company’s ~~disposal~~clients ~~or when no future economic benefits are expected to arise from the~~is ~~continued~~ three ~~use of the asset~~months. ~~Any~~Management ~~gain~~evaluates ~~or loss arising on disposal of~~ the ~~asset (calculated~~collectability ~~as the difference between the net disposal proceeds and the carrying amount~~ of the ~~item)~~receivables ~~is included in the consolidated statements of income in the~~at ~~period~~ least ~~the item is disposed~~quarterly. ~~Expenditures~~The ~~for~~estimated ~~maintenance~~average ~~and~~collection ~~repairs~~period ~~are charged~~was to90 ~~expense~~days as ~~incurred, whereas major betterments are capitalized as~~of ~~additions~~ September to30, ~~property~~2011 and ~~equipment.~~December ~~The~~31, ~~Company~~2010. ~~reviews~~Allowance ~~its~~for ~~property~~doubtful ~~and equipment~~accounts ~~whenever~~as ~~events or changes in circumstances indicate that the carrying~~of ~~value~~ September of30, ~~certain~~2011 ~~assets~~and ~~might~~December ~~not be recoverable. In these instances~~31, ~~the Company~~2010 ~~recognizes an impairment loss when it is probable that the estimated cash flows~~ are ~~less~~$0 ~~than~~and ~~the carrying value of the asset. To date~~$27,252, ~~no such impairment losses have been recorded~~respectively.

9 Inventory

~~CHINA~~Inventory ~~FORESTRY~~is ~~INDUSTRY~~valued ~~GROUP,~~at ~~INC.~~the ~~AND~~lower ~~SUBSIDIARIES NOTES~~of TOcost ~~CONDENSED~~(determined ~~CONSOLIDATED~~on ~~FINANCIAL~~a weighted ~~STATEMENTS~~average ~~(UNAUDITED~~method) and net realizable value.

2.Costs ~~SUMMARY~~incurred OFin ~~SIGNIFICANT~~bringing ~~ACCOUNTING~~each ~~POLICIES~~product -to ~~CONTINUED~~its location and conditions are accounted for as follows:

~~Construction~~Raw inmaterials ~~progress~~– purchase cost on a weighted average basis;

~~Construction~~Manufactured infinished ~~progress~~goods ~~represents the direct cost of~~and ~~construction~~ work-in-progress ~~and~~– cost of ~~plant~~direct materials and ~~machinery~~labor ~~installed as well as acquisition cost~~ and ~~design~~a ~~fees~~portion ~~incurred. Capitalization~~ of ~~these costs ceases and the~~ ~~construction~~ manufacturing inoverhead ~~progress~~based ison ~~transferred~~normal tooperating ~~property~~capacity ~~and~~but ~~equipment when~~excluding ~~substantially~~ borrowing ~~all~~costs; ~~the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction in progress is completed~~ and ~~the asset is ready for its intended use.~~

~~Intangible~~Retail ~~assets~~and wholesale merchandise finished goods – purchase cost on a weighted average basis.

~~Intangible~~Net ~~assets~~realizable ~~consist~~value ofis ~~land~~the ~~use~~estimated ~~rights~~selling ~~which~~price ~~represent~~in the ~~acquisition~~ ordinary course of ~~land~~business, ~~use~~less ~~rights~~estimated costs of ~~agriculture~~completion ~~land from farmers~~ and ~~are amortized on~~ the ~~straight line basis over their respective lease periods. The~~ ~~lease~~ estimated ~~period~~costs ofnecessary ~~agriculture land ranges from 30 years~~ to 60make ~~years.~~the sale.

~~Impairment of long – lived assets and intangible assets~~ F-11

InSILVAN ~~accordance with ASC 360~~INDUSTRIES, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverableINC. ~~The~~AND ~~Company~~SUBSIDIARIES ~~reviews~~NOTES ~~the~~TO ~~carrying~~CONDENSED ~~amount of~~CONSOLIDATED ~~its~~FINANCIAL long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of June 30, 2011 and December 31, 2010, the Company determined no impairment charges were necessary. STATEMENTS

~~Income~~2. ~~taxes~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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

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

~~Deferred~~The ~~income~~Company ~~taxes~~changed ~~are calculated at~~ the ~~tax~~estimated ~~rates~~maximum ~~that~~useful ~~are expected~~life toof ~~apply to~~ the ~~period when the asset is realized or the liability is~~ ~~settled.~~ machinery ~~Deferred~~and ~~tax~~equipment isfrom ~~charged~~30 oryears ~~credited in the income statement, except when it related~~ to ~~items~~15 ~~credited~~years orand ~~charged~~that ~~directly~~of tofurniture ~~equity, in which case~~and ~~the~~ fixtures ~~deferred~~from ~~tax~~30 isyears ~~also~~to ~~dealt~~5 ~~with in equity~~years. ~~Deferred~~The ~~tax~~change ~~assets~~in ~~and liabilities~~estimate ~~are~~is ~~offset~~accounted ~~when they relate to income taxes levied by the same~~for ~~taxation~~ prospectively ~~authority~~beginning ~~and~~ the ~~Company~~quarter ~~intends~~ended toSeptember ~~settle~~31, ~~its current tax assets and liabilities on a net basis~~2011.

~~ASC~~Depreciation ~~740~~is ~~also~~calculated ~~prescribes~~on a ~~more~~straight-~~likely-than-not~~line ~~threshold~~basis ~~for~~over the ~~financial~~ estimated ~~statement~~useful ~~recognition~~lives ~~and measurement~~ of athe ~~tax position taken, or expected to be taken, in a tax return~~assets. ASC 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

Assets Classifications	Estimated Useful Lives
Buildings	30 years
Machinery and equipment	3 to 15 years
Motor vehicles	5 to 10 years
Office equipment	3 to 10 years
Furniture and fixtures	4 to 5 years

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

~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ F- ~~CONTINUED~~ 12

~~Trade~~SILVAN ~~and~~INDUSTRIES, ~~other~~INC. ~~payables~~AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Trade payables and other payables are carried at cost and represent liabilities for goods and services provided to the Company prior to the end of the period that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services2. ~~Trade~~ ~~payables~~SUMMARY ~~are~~OF ~~non-interest~~SIGNIFICANT ~~bearing~~ACCOUNTING ~~and~~POLICIES ~~are normally settled on 7 to 60 day~~- ~~terms.~~ CONTINUED

~~Product~~Construction ~~warranties~~in progress

~~Substantially~~Construction ~~all~~in ofprogress represents the ~~Company’s~~direct ~~products~~cost ~~are covered by a~~of ~~standard~~ construction ~~warranty~~and cost of 1plant ~~year~~and ~~for~~machinery ~~products.~~installed Inas ~~the~~well ~~event~~as ~~of a failure of products~~acquisition ~~covered~~ cost byand ~~this~~design ~~warranty,~~fees ~~the~~incurred. ~~Company~~Capitalization ~~must~~of ~~repair~~these orcosts ~~replace~~ceases and the construction ~~products~~in ~~or,~~progress ~~if those~~is ~~remedies~~transferred ~~are~~to ~~insufficient,~~property and atequipment ~~the~~when substantially ~~discretion~~all of the ~~Company,~~activities ~~provide~~necessary ~~a refund.~~to ~~The~~prepare ~~Company~~the ~~provides~~assets ~~warranty reserve~~ for ~~product warranties to reflect~~their ~~estimated~~ intended ~~material~~use ~~and~~are ~~labor~~completed. ~~costs~~No ofdepreciation ~~maintenance~~is ~~for~~provided ~~potential~~until orconstruction ~~actual~~in ~~product~~ progress ~~issues~~is ~~but~~completed ~~for~~and ~~which~~ the ~~Company~~asset ~~expects~~is toready ~~incur~~for anits ~~obligation.~~intended ~~The product warranty reserve was $0 as of June 30, 2011 and December 31, 2010~~use.

~~Related~~Interest ~~parties~~is capitalized as part of the historical cost during the construction period for qualified assets. Interest is capitalized until the asset is ready for service. Capitalized interest is determined based upon the Company’s weighted-average borrowing cost on debt for the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depreciation or impairment, along with other capitalized costs related to that asset. Interest that is qualified for capitalization is insignificant for the three and nine months ended September 30, 2011 and 2010, as such, no capitalized interest was recorded for the aforementioned periods.

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

~~Comprehensive~~Intangible ~~income~~assets consist of land use rights which represent acquisition of land use rights of agriculture land from farmers and are amortized on the straight line basis over their respective lease periods. The lease period of agriculture land ranges from 30 years to 60 years.

~~The~~Impairment ~~Company follows the FASB’s accounting standard. Comprehensive income is defined as the change in equity~~ of along ~~company~~– ~~during~~lived ~~a period~~assets ~~from transactions~~ and ~~other events and circumstances excluding~~intangible transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income and foreign currency translation adjustments. assets

~~Retirement~~In ~~benefit~~accordance ~~costs~~with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2011 and December 31, 2010, the Company determined no impairment charges were necessary.

PRC state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution. F-13

~~Accumulated~~SILVAN ~~other~~INDUSTRIES, ~~comprehensive~~INC. ~~income~~AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements~~2. ~~Comprehensive~~SUMMARY ~~income~~OF isSIGNIFICANT ~~defined~~ACCOUNTING asPOLICIES ~~the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non~~-~~owner sources. The comprehensive~~ ~~income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.~~ CONTINUED

~~Earnings~~Income ~~per share (EPS)~~ taxes

~~Earnings~~The ~~per~~Company ~~share~~accounts isfor ~~calculated~~income intaxes ~~accordance~~under ~~with~~the ~~ASC~~provisions ~~260-10~~of ~~“Earnings~~ ASC ~~per~~740 ~~Share”,~~"Accounting ~~which~~for ~~requires~~Income ~~the~~Taxes". ~~Company~~Under toASC ~~calculate~~740, ~~net~~deferred ~~income~~tax ~~(loss)~~assets ~~per~~ and ~~share~~liabilities are determined based on ~~basic~~the ~~and~~difference ~~diluted~~between ~~net~~the ~~income (loss) per share, as defined.~~financial ~~Basic~~ statement ~~EPS~~carrying ~~excludes~~amounts ~~dilution~~ and isthe ~~computed~~tax bybases ~~dividing~~of ~~net~~assets ~~income~~and ~~(loss)~~liabilities ~~by the~~using ~~weighted~~ enacted ~~average~~tax ~~number~~rates ofin ~~shares~~effect ~~outstanding~~in ~~for~~ the ~~period.~~years ~~Diluted~~in ~~EPS reflects~~which the ~~potential~~differences ~~dilution~~are ~~that could occur if securities or other~~expected ~~contracts~~ to ~~issue common stock were exercised or converted into common stock~~reverse.

11The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

~~CHINA~~Deferred ~~FORESTRY~~income ~~INDUSTRY~~taxes ~~GROUP~~are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, ~~INC~~except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. ~~AND~~Deferred ~~SUBSIDIARIES~~tax assets and liabilities are offset when they relate to income taxes levied by the same ~~NOTES~~taxation TOauthority ~~CONDENSED~~and ~~CONSOLIDATED~~the ~~FINANCIAL~~Company ~~STATEMENTS~~intends ~~(UNAUDITED)~~to settle its current tax assets and liabilities on a net basis.

2ASC 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ~~SUMMARY~~ASC OF740 ~~SIGNIFICANT~~also ~~ACCOUNTING~~provides ~~POLICIES~~guidance –related to, ~~CONTINUED~~among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

~~Recent Accounting Pronouncements~~ F-14

InSILVAN ~~December 2010~~INDUSTRIES, ~~the Financial Accounting Standards Board (FASB) issued amended guidance to clarify the acquisition date that should be used for reporting pro-forma financial information for business combinations~~INC. ~~If comparative~~AND ~~financial~~SUBSIDIARIES ~~statements~~NOTES ~~are~~TO ~~presented,~~CONDENSED ~~the~~CONSOLIDATED ~~pro-forma~~FINANCIAL revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been completed as of the beginning of the comparable prior annual reporting period. The amendments in this guidance became effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011. The Company adopted this guidance on January 1, 2011 which had no impact in the consolidated financial results as the amendments relate only to additional disclosures. STATEMENTS

In December 2010, the FASB issued amendments to the guidance on goodwill impairment testing. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 ~~of the goodwill impairment test if it is more likely than not that a goodwill impairment exists~~. In ~~making~~SUMMARY ~~that~~OF ~~determination,~~SIGNIFICANT anACCOUNTING ~~entity~~POLICIES ~~should consider whether there are any~~- adverse qualitative factors indicating that impairment may exist. The amendments were effective January 1, 2011 and the Company adopted this guidance on January 1, 2011 which did not have a material impact in the Consolidated Financial Statements. CONTINUED

InTrade ~~January 2010, the FASB issued additional disclosure requirements for fair value measurements which the company included in its interim~~ and ~~annual~~other financial statements in 2010. Certain disclosure requirements relating to fair value measurements using significant unobservable inputs (Level 3) were deferred until January 1, 2011. These new requirements did not have an impact in the consolidated financial results as they relate only to additional disclosures. payables

InTrade ~~May~~payables ~~2011,~~and ~~the~~other ~~FASB~~payables ~~issued~~are ~~ASU~~carried ~~No.~~at ~~2011-04,~~cost ~~Fair Value~~and ~~Measurement~~ represent ~~(Topic~~liabilities ~~820):~~for ~~Amendments~~goods toand ~~Achieve~~services ~~Common~~provided ~~Fair~~to ~~Value~~the ~~Measurement~~Company ~~and~~prior to ~~Disclosure~~ the ~~Requirements~~end inof ~~U.S.~~the ~~GAAP~~period ~~and~~that ~~IFRS.~~are ~~The~~unpaid ~~amendments~~and ~~change~~arise when the ~~wording~~ ~~used~~Company becomes obliged to ~~describe~~make ~~the~~future ~~requirements~~payments in ~~U.S.~~respect ~~GAAP~~of ~~for~~the ~~measuring~~purchase ~~fair~~of ~~value~~ these goods and ~~for~~services. Trade ~~disclosing~~payables ~~information~~are ~~about~~non-interest ~~the~~bearing ~~fair~~and ~~value~~are ~~measurements.~~normally ~~The~~settled ~~amendments include~~on ~~the~~7 ~~following:~~to 60 day terms.

	1.	Those that clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements.
	2.	Those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.

Bills receivable and Bills payable

The ~~amendments~~Company inutilizes ~~this~~banker’s ~~Update~~acceptances ~~are~~in tothe beform ~~applied~~of ~~prospectively.~~bills ~~For~~ receivable ~~public~~and ~~entities,~~bills ~~the~~payable. ~~amendments~~The ~~are~~Company ~~effective~~accepts ~~during~~customer ~~interim~~payment ~~and~~for ~~annual~~the ~~periods~~ Company’s ~~beginning~~products ~~after~~by ~~December~~bills ~~15, 2011~~receivable. ~~For~~Bills ~~nonpublic~~receivable ~~entities,~~represent ~~the~~short-term ~~amendments~~ notes ~~are~~receivable ~~effective~~issued ~~for~~either ~~annual~~by ~~periods~~the ~~beginning~~customer ~~after~~or ~~December~~by ~~15,~~the ~~2011.~~customer and an ~~Early~~ accepting ~~application~~bank bythat ~~public~~entitles ~~entities~~the isCompany ~~not~~to ~~permitted.~~receive ~~Nonpublic~~the ~~entities~~full ~~may apply~~face amount from the ~~amendments~~customer inor ~~this~~the ~~Update~~accepting ~~early,~~bank ~~but~~at nomaturity, ~~earlier~~which ~~than~~is ~~for~~generally ~~interim~~six months ~~periods~~ from ~~beginning~~the ~~after~~date ~~December~~of ~~15, 2011~~issuance.

Bills payable represent bills issued by an accepting bank in favor of the Company’s suppliers. The Company’s issuppliers ~~currently~~receive ~~evaluating~~payments from the ~~impact,~~accepting ifbank ~~any~~directly upon maturity of the bills, and the Company is obliged to repay the face value of ~~ASU~~the bills to the accepting bank. These bills No are interest free and generally mature six months from the date of issuance. ~~2011-04~~To secure onthe banks’ undertakings, the Company is required to maintain deposits with such banks amounts equal to 50% to 100% of the bills’s ~~financial~~amounts ~~position~~issued, ~~and~~such deposits ~~results~~are presentedas restricted cash as of ~~operations~~September 31, 2011 and December 31, 2010. Upon maturity of the bills payable, the banks deduct the bills payable amount from the restricted cash account.

InProduct June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The presentation option under current GAAP to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated. warranties

~~The~~Substantially ~~amendments~~all inof ~~this~~the ~~Update~~Company’s ~~should~~products beare ~~applied~~covered by a ~~retrospectively.~~ standard ~~For~~warranty ~~public~~of ~~entities,~~1 year for products. In the ~~amendments~~event ~~are~~of ~~effective~~a ~~for~~failure ~~fiscal~~of products ~~years~~ covered by this warranty, ~~and~~the ~~interim~~Company ~~periods~~must ~~within~~repair or replace the products or, if those ~~years~~remedies are insufficient, ~~beginning~~and ~~after~~at ~~December~~the 15discretion of the Company, provide a ~~2011~~ refund. ~~For~~The ~~nonpublic~~Company ~~entities,~~provides ~~the~~warranty ~~amendments~~reserve ~~are~~for ~~effective~~product warranties to reflect estimated material and labor costs of maintenance for ~~fiscal~~potential ~~years~~or actual ~~ending~~ product ~~after~~issues ~~December~~but ~~15,~~for ~~2012,~~which ~~and~~the ~~interim~~Company ~~and~~expects ~~annual~~to ~~periods~~incur ~~thereafter~~an obligation. ~~Early~~Based ~~adoption~~ on ishistorically ~~permitted~~insignificant ~~because~~amount ~~compliance~~of ~~with~~warranty ~~amendments~~expense, ismanagement ~~already permitted.~~determined ~~The~~ that ~~Company~~no ~~already~~product ~~complies~~warranty ~~with~~reserve ~~this~~was ~~presentation.~~necessary as of September 30, 2011 and December 31, 2010.

12 F-15

~~CHINA~~SILVAN ~~FORESTRY INDUSTRY GROUP~~INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~

32. ~~ACCOUNTS~~SUMMARY ~~RECEIVABLE~~OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

~~The~~Related Company has performed an analysis on all of its accounts receivable and determined that all amounts are probable of collection within one year. As such, all trade receivables are reflected as a current asset. Allowance for doubtful accounts as of June 30, 2011 and December 31, 2010 are $0 and $27,252, respectively. Bad debts written off for the three and six months ended June 30, 2011 and 2010 were $0. parties

4Parties are considered to be related to the Company if the related party has the ability, directly or indirectly, to control the party, or exercise significant influence over the party in making financial and operating decisions, or where the Company and the party are subject to common control. Related ~~INVENTORY~~parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities which are under the significant influence of related parties of the Company.

~~Inventory~~Comprehensive ~~consists of:~~ income

		June 30,		December 31,
		2011		2010
Raw materials	$	9,318,641	$	6,297,151
Packaging materials and consumable		171,081		96,380
Finished goods		2,110,309		556,148
	$	11,600,031	$	6,949,679

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income and foreign currency translation adjustments.

~~There was no allowance made for obsolete or slow moving inventory as of June 30, 2011 and December 31, 2010.~~ F-16

5.SILVAN ~~DEPOSITS~~INDUSTRIES, INC. AND ~~PREPAID~~SUBSIDIARIES ~~EXPENSES~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Deposits~~2. ~~and~~SUMMARY ~~prepaid~~OF ~~expenses~~SIGNIFICANT ~~consist~~ACCOUNTING ~~of:~~POLICIES - CONTINUED

		June 30,		December 31,
		2011		2010
Deposits for
Raw materials and goods supplies	$	8,430,068	$	9,424,358
Electricity		367		113,860
Shipping and handling		170,316		129,861
Prepayment for services		693,333		773,334
Others		49,468		116,247
	$	9,343,552	$	10,557,660

Retirement benefit costs

~~Trade~~PRC ~~deposits~~state ~~are~~managed ~~paid~~retirement tobenefit ~~suppliers~~programs ofare ~~raw~~defined contribution ~~materials~~plans and ~~goods supplies,~~the ~~electricity~~payments ~~and~~to ~~shipping~~the ~~and~~plans ~~handling~~are ~~expense~~charged as ~~deposits~~expenses ~~for~~when ~~inventory~~ employees ~~purchases~~have ~~and~~rendered ~~provision~~service ~~for~~entitling ~~services.~~them ~~The inventory is normally delivered within one~~ to ~~two months after~~ the ~~payments have been made~~contribution. ~~Prepayments for services were paid for financial advisory services and services in connection with the listing of the Company.~~

13Accumulated other comprehensive income

~~CHINA~~ASC ~~FORESTRY~~Topic ~~INDUSTRY~~220 ~~GROUP,~~“Comprehensive ~~INC~~Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. ~~AND~~Comprehensive ~~SUBSIDIARIES~~income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions ~~NOTES~~and TOother ~~CONDENSED~~events ~~CONSOLIDATED~~and ~~FINANCIAL~~circumstances ~~STATEMENTS~~from ~~(UNAUDITED)~~non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

6.Earnings ~~OTHER~~per ~~RECEIVABLES~~share (EPS)

~~Other~~Earnings ~~receivables~~per ~~consist~~share is calculated in accordance with ASC 260-10 “Earnings per Share”, which requires the Company to calculate net income (loss) per share based on basic and diluted net income (loss) per share, as defined. Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted average number of: shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

		June 30,		December 31,
		2011		2010
Guarantee deposits	$	946,943	$	682,711
Due from employees		212,449		73,066
Prepaid promotion and advertising expenses		75,993		-
Prepaid professional expenses		18,256		9,665
Others		54,425		11,794
	$	1,308,066	$	777,236

Statutory Surplus Reserve

~~Guarantee~~In ~~deposits~~accordance ~~are~~with ~~provided~~the torelevant ~~financial~~laws ~~institutions~~and inregulations of the PRC ~~return~~ and ~~for~~the ~~issuance~~articles of aassociations ~~corporate~~of ~~guarantee~~the toCompany, ~~financiers.~~CNFI’s ~~Due~~subsidiaries ~~from~~in ~~employees~~the PRC are ~~amounts~~required ~~advanced~~ to ~~employees~~allocate ~~for~~10% ~~business~~of ~~expenses~~their onnet ~~behalf~~income ofreported in the ~~Company~~PRC statutory ~~and~~ accounts, ~~will~~after beoffsetting ~~reconciled~~any ~~upon~~prior ~~the~~years’ ~~employees~~losses, ~~submitting~~to the ~~business~~statutory ~~expenses~~surplus ~~receipts~~ reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries, any further allocation is optional.

7The statutory surplus reserves can be used to offset prior years’ losses, if any, and may be converted into registered capital, provided that the remaining balances of the reserve after such conversion is not less than 25% of registered capital. ~~TAXES~~The ~~RECOVERABLE~~statutory surplus reserve is non-distributable.

~~Taxes recoverable consist of:~~ F-17

		June 30,		December 31,
		2011		2010
VAT	$	622,506	$	2,452,407

SILVAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

82. ~~PROPERTY,~~SUMMARY ~~PLANT~~OF ~~AND~~SIGNIFICANT ~~EQUIPMENT,~~ACCOUNTING ~~NET~~POLICIES – CONTINUED

~~Property,~~Recently ~~plant~~Issued ~~and~~Accounting ~~equipment,~~Pronouncements ~~net,~~Not ~~consist of the following:~~Yet Adopted

		June 30,			December 31,
		2011			2010
Buildings	$	3,034,227		$	2,975,099
Machinery and equipment		4,116,298			3,968,175
Motor vehicles		137,209			134,536
Office equipment		207,341			99,436
Furniture and fixtures		16,129			46,212
		7,511,204			7,223,458
Less: Accumulated depreciation		(1,054,959	)		(871,169	)
	$	6,456,245		$	6,352,289

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about the fair value measurements. The amendments include the following:

During the three months ended June 30, 2011, depreciation expenses amounted to $84,904, of which $67,321 and $17,583 were recorded as cost of sales and general and administrative expenses, respectively.

	1.	Those that clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements.

	2.	Those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.

~~During~~The ~~the~~amendments ~~three~~in ~~months~~this ~~ended~~Update ~~June~~are ~~30,~~to ~~2010~~be applied prospectively. For public entities, ~~depreciation~~the amendments are effective during interim and annual ~~expenses~~ periods ~~amounted~~beginning toafter ~~$68~~December 15,~~427,~~ of2011. ~~which~~For ~~$56~~nonpublic entities,~~766~~ ~~and~~the amendments ~~$11~~are effective for annual periods beginning after December 15,~~661~~ ~~were~~2011. Early ~~recorded~~application asby ~~cost~~public entities is not permitted. Nonpublic entities may of apply ~~sales~~the ~~and~~amendments ~~general~~in ~~and~~this ~~administrative~~Update ~~expenses~~early, ~~respectively.~~but no earlier than for interim periods beginning after December 15, 2011.

~~During~~The ~~the~~Company ~~six~~is ~~months~~currently ~~ended~~evaluating ~~June~~the 30impact, ~~2011,~~if ~~depreciation expenses amounted to $164~~any,~~532,~~ of ~~which~~ASU No. ~~$132,065~~2011-04 ~~and~~on ~~$32,467~~the ~~were~~Company’s ~~recorded~~financial ~~as cost~~position ~~of sales~~ and ~~general~~results ~~and~~of ~~administrative expenses, respectively~~operations.

~~During~~In June 2011, the ~~six~~FASB ~~months~~issued ~~ended~~ASU ~~June~~No. 302011-05, ~~2010,~~Comprehensive Income ~~depreciation~~(Topic 220): Presentation of Comprehensive Income. Under the ~~expenses~~ amendments, ~~amounted~~an entity has the option to ~~$136~~present the total of comprehensive income,~~778,~~ the components of ~~which~~net ~~$114~~income,~~309~~ and ~~$22,469~~the ~~were~~components ~~recorded~~of asother comprehensive ~~cost~~ income either in a single continuous statement of ~~sales~~comprehensive ~~and~~income ~~general~~or ~~and~~in ~~administrative~~two separate ~~expenses,~~but ~~respectively~~consecutive statements. The presentation option under current GAAP to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated.

14The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted because compliance with amendments is already permitted.

~~CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ F-18

9SILVAN INDUSTRIES, INC. ~~INTANGIBLE~~AND ~~ASSETS,~~SUBSIDIARIES ~~NET~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Net~~2. ~~intangible~~SUMMARY ~~assets~~OF atSIGNIFICANT ~~June~~ACCOUNTING ~~30,~~POLICIES ~~2011 were as follows:~~ - CONTINUED

		At Cost		Accumulated Amortization		Net Book Value
Land use rights	$	3,105,119	$	71,691	$	3,033,428
Forest right		6,188,598		299,446		5,889,152
Software		277,693		5,785		271,908
	$	9,571,410	$	376,922	$	9,194,488

The Company intends to comply with the presentation on January 1, 2012.

~~Net~~In ~~intangible~~September ~~assets~~2011, atthe FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The objective of this Update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 3115, ~~2010~~2011. ~~were~~Early adoption is permitted, including for annual and interim goodwill impairment tests performed as ~~follows:~~of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company intends to adopt the amendments in this Update effective January 1, 2012.

		At Cost		Accumulated Amortization		Net Book Value
Land use rights	$	847,752	$	53,421	$	794,331
Forest right		6,068,000		195,740		5,872,260
	$	6,915,752	$	$249,161	$	6,666,591

F-19

~~Private~~SILVAN ~~ownership of land is not permitted in the PRC. Instead~~INDUSTRIES, ~~the~~ ~~Company has leased three lots of land~~INC. ~~The~~AND ~~cost~~SUBSIDIARIES ofNOTES ~~the~~TO ~~first~~CONDENSED ~~and~~CONSOLIDATED ~~second~~FINANCIAL lots land use rights acquired in 2007 and 2008 were $320,426 (RMB2,105,232) and $532,716 (RMB3,500,000), respectively and these lots were located at Hexing Village, Dingxiao Economic Development Zone, Xingyi City, Qianxinan, Guizhou Province, the People’s Republic of China. The cost of the third lot of land is forest land, acquired in 2010 was $6,088,187 (RMB40,000,000) and was located at Liping County, Qiandongnan, Guizhou Province, the People’s Republic of China. STATEMENTS

~~Land use rights are amortized on the straight line basis over their respective lease periods~~3. ~~The~~ACCOUNTS ~~lease period of agriculture land is 30 years.~~ RECEIVABLE

~~During~~The ~~the~~Company ~~three~~has ~~months~~performed ~~ended~~an ~~June~~analysis ~~30,~~on ~~2011~~all of its accounts receivable and ~~2010~~determined that all amounts are probable of collection within one year. As such, all trade receivables are reflected as a current asset. Allowance ~~amortization~~ for ~~expenses~~doubtful ~~amounted~~accounts toas ~~$62~~of September 30,~~680~~ 2011 and December 31, 2010 are $540 and $27,~~238~~252, respectively. ~~which~~Bad ~~was~~debts written off for the three and nine months ended ~~recorded~~ September ~~under~~30, ~~general~~2011 and ~~administrative~~2010 ~~expenses.~~were $0.

~~During the six months ended June 30, 2011 and 2010, amortization expenses amounted to $118,792 and $108,477, respectively which was recorded under general and administrative expenses~~4. INVENTORY

~~Estimated~~Inventory ~~amortization~~consists ~~for the next five years and thereafter is as follows~~of:

Remainder of 2011	$	154,147
		September 30,		December 31,
2012		308,293
		2011		2010
2013		308,293
Raw materials	$	10,718,993	$	6,297,151
2014		308,293
Packaging materials and consumable		158,433		96,380
2015		308,293
Finished goods		2,008,744		556,148
Thereafter		7,807,169
	$	12,886,170	$	6,949,679
Total	$	9,194,488

~~10.~~There ~~CONSTRUCTION~~was INno ~~PROGRESS~~allowance made for obsolete or slow moving inventory as of September 30, 2011 and December 31, 2010.

		June 30,		December 31,
		2011		2010
Wooden fiber manufacturing factory	$	5,355,426	$	5,251,065
Wooden floor manufacturing factory		54,342		53,283
Total	$	5,409,768	$	5,304,348

F-20

15SILVAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~CHINA FORESTRY INDUSTRY GROUP, INC~~5. DEPOSITS AND ~~SUBSIDIARIES NOTES~~PREPAID ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ EXPENSES

~~11.~~Deposits ~~SHORT~~and ~~TERM~~prepaid ~~AND~~expenses ~~LONG~~consist ~~TERM LOANS~~ of:

There are no provisions in the Company’s bank borrowings that would accelerate repayment of loan as a result of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to retire the loans prior to maturity, either at par or at a premium over par.

		September 30,		December 31,
		2011		2010

Deposits for
Raw materials and goods supplies	$	17,156,698	$	9,424,358
Electricity		6,044		113,860
Shipping and handling		193,447		129,861
Prepayment for services		719,816		773,334
Others		159,272		116,247
	$	18,235,277	$	10,557,660

~~(a)~~Trade ~~Short~~deposits ~~term~~are ~~loans~~paid to suppliers of raw materials and goods supplies, electricity and shipping and handling expense as deposits for inventory purchases and provision for services. The inventory is normally delivered within one to two months after the payments have been made. Prepayments for services were paid for financial advisory services and services in connection with the listing of the Company.

~~Short~~F-~~term loans represent the borrowings from commercial banks that are due within one year. These loans consisted of the following:~~ 21

			Interest		June 30,		December 31,
Bank	Term	Notes	rate		2011		2010
					(unaudited)
Xingyi City Rural Cooperative Bank	March 26, 2010 to March 25, 2011		7.965%	$	-	$	743,330
Bank of Chongqing	June 21, 2010 to June 20, 2011	(i)	5.31%		-		3,034,000
Xingyi City Rural Cooperative Bank	July 17, 2009 to July 16, 2011	(ii)	8.10%		773,575		758,500
China Merchant Bank	March 8, 2011 to March 7, 2012	(iii)	6.06%		3,867,874		-
Xingyi City Rural Cooperative Bank	April 30, 2011 to April 29, 2012	(ii)	8.72%		1,547,149		-
Xingyi City Rural Cooperative Bank	May 6, 2011 to April 29, 2012	(ii)	8.72%		2,166,009		-
				$	8,354,607	$	4,535,830

SILVAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

166. OTHER RECEIVABLES

~~CHINA~~Other ~~FORESTRY~~receivables ~~INDUSTRY~~consist ~~GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ of:

11. SHORT TERM AND LONG TERM LOANS - CONTINUED

		September 30,		December 31,
		2011		2010

Guarantee deposits	$	920,134	$	682,711
Due from employees		232,466		73,066
Prepaid promotion and advertising expenses		92,694		-
Prepaid professional expenses		27,067		9,665
Others		58,544		11,794
	$	1,330,905	$	777,236

~~(b)~~Guarantee ~~Long~~deposits ~~term~~are ~~loans~~provided to financial institutions in return for issuance of a corporate guarantee to financiers. Due from employees are amounts advanced to employees for business expenses on behalf of the Company and will be reconciled upon the employees submitting the business expenses receipts.

~~Long~~7. ~~term~~TAXES ~~loans consist of the following:~~ RECOVERABLE

			Interest		June 30,		December 31,
Bank	Term	Notes	rate		2011		2010
					(unaudited)
Guiyang City Nanming	January 24, 2011 to	(iii)	8.775%
Rural Credit Cooperative Bank	November 18, 2012			$	3,867,874	$	-
Guiyang City Nanming Rural Credit Cooperative Bank	January 24, 2011 to January 18, 2013	(iii)	8.775%		4,022,588		-
				$	7,890,462	$	-

According to a tax refund approval notice issued by the Tax Administration of the Ministry of Finance of the PRC, certain items are qualified for the refund of value added tax (VAT). The tax refund rate is 100% in 2009 and 80% in 2010 of the VAT tax payable amount. The Company’s wood flooring and wooden fiber sheets qualify for the VAT refund. The Company is required to pay the VAT tax payable first, then entitled for the tax refund. No such tax refund approval notice is issued for 2011.

~~Notes:~~Taxes recoverable consist of:

(i) The loan is secured by forestry land use right of the Company. The net book value of the forestry land use right is $1,349,965 as of December 31, 2010.

		September 30,		December 31,
		2011		2010

VAT	$	629,814	$	2,452,407

(ii) The loan has a corporate guarantee by Zhong Ruixin Investment Guarantee Co., Ltd in which our director, Mr. Yi Zeng also serves as their general manager. The Company paid a guarantee fee of $225,393 to Zhong Ruixin Investment Guarantee Co., Ltd. F-22

~~(iii)~~SILVAN ~~The loans are secured by the real estate properties of Guizhou Huacheng Group in which our director~~INDUSTRIES, MrINC. ~~Yudong~~AND JiSUBSIDIARIES ~~also~~NOTES ~~serves~~TO asCONDENSED ~~their chairman.~~CONSOLIDATED FINANCIAL STATEMENTS

~~Interest expenses on the loans for the three months ended June 30, 2011 and 2010 amounted to $415,141 and $29,957, respectively~~8. ~~Interest expenses on the loans for the six months ended June 30~~PROPERTY, ~~2011~~PLANT ~~and~~AND ~~2010 amounted to $635~~EQUIPMENT,~~164~~ ~~and $55,905, respectively.~~ NET

17Property, plant and equipment, net, consist of the following:

CHINA FORESTRY INDUSTRY GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		September 30,			December 31,
		2011			2010

Buildings	$	3,069,848		$	2,975,099
Machinery and equipment		4,196,698			3,968,175
Motor vehicles		138,820			134,536
Office equipment		266,477			99,436
Furniture and fixtures		22,290			46,212
		7,694,133			7,223,458
Less: Accumulated depreciation		(1,203,454	)		(871,169	)
	$	6,490,679		$	6,352,289

~~12.~~During ~~CUSTOMER~~the ~~DEPOSITS~~three months ended September 30, 2011, depreciation expense amounted to $135,320, of which $115,167 and $20,153 were recorded as cost of sales and general and administrative expenses, respectively.

~~Customer~~During ~~deposits~~the ~~represent amounts advanced by customers for orders of product. The products normally are shipped within~~ three months ~~after receipt~~ended ofSeptember ~~the~~30, ~~advance~~2010, ~~payment and the related sale is recognized in accordance~~depreciation ~~with~~ expense ~~the~~amounted ~~Company’s~~to ~~revenue~~$71,590, ~~recognition policy. As~~ of ~~June~~which 30$59,833 ~~2011~~ and ~~December 31~~$11,757 ~~2010,~~were ~~customer~~recorded ~~deposits~~as ~~amounted~~cost of tosales ~~$1,577,277~~and general and $1administrative expenses,~~936,733,~~ respectively.

~~13.~~During ~~OTHER~~the ~~PAYABLES~~nine ~~AND~~months ~~ACCRUED~~ended ~~EXPENSES~~September 30, 2011, depreciation expense amounted to $299,852, of which $247,232 and $52,620 were recorded as cost of sales and general and administrative expenses, respectively.

		June 30,		December 31,
		2011		2010
		(unaudited)
Other taxes payable	$	497,551	$	789,252
Due to third parties		-		775,187
Due to employees		664,965		151,700
Accrued wages		146,457		113,224
Total	$	1,308,973	$	1,829,363

During the nine months ended September 30, 2010, depreciation expense amounted to $208,350, of which $174,124 and $34,226 were recorded as cost of sales and general and administrative expenses, respectively.

~~Other taxes payable include VAT tax, city maintenance and construction levies, stamp duty, education levies and other miscellaneous taxes.~~ F-23

14SILVAN INDUSTRIES, INC. ~~INCOME~~AND ~~TAXES~~SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The Company is incorporated in the State of Nevada in the U~~9.~~S. and~~ isINTANGIBLE ~~subject~~ASSETS, ~~to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada does not impose any corporate state income tax.~~ NET

NoNet ~~Hong~~intangible ~~Kong~~assets ~~profits~~at ~~tax~~September ~~has been provided in the financial statements, as the Company did not have any assessable profits for the three and six months ended June~~ 30, 2011 ~~and~~were ~~2010.~~ as follows:

Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

		At Cost		Accumulated Amortization		Net Book Value

Land use rights	$	3,141,573	$	91,237	$	3,050,336
Forest right		6,261,251		353,455		5,907,796
Software		280,953		14,633		266,320
	$	9,683,777	$	459,325	$	9,224,452

~~Under~~Net ~~Guizhou~~intangible ~~Province~~assets ~~preferential~~at ~~tax~~December ~~policy~~31, ~~QAF~~2010 ~~and~~were ~~QSTF are~~as ~~entitled to certain tax exemptions and reductions available to all companies in Guizhou Province, the People’s Republic of China.~~ follows:

Under these “tax holidays”, QAF is entitled to exemption from EIT for 3 years and reduced tax rates for 2 years after that, effective as of 2006 and 2009, respectively. Under Chinese tax law, enterprise income tax is charged and collected first and refunded later. Provisions for income tax were made at 25% on yearly reported profits less the amounts of income tax refunded for the fiscal years 2010 and 2009. QAF is subject to the uniform corporate income tax rate of 25% beginning in 2011.

		At Cost		Accumulated Amortization		Net Book Value

Land use rights	$	847,752	$	53,421	$	794,331
Forest right		6,068,000		195,740		5,872,260
	$	6,915,752	$	$249,161	$	6,666,591

~~Further,~~Private ~~QSTF~~ownership ~~incurred~~of ~~income~~land ~~tax~~is ~~expenses~~not ~~during~~permitted ~~fiscal~~in ~~years 2010~~the ~~and~~PRC. ~~2009~~Instead, the ~~but~~Company ~~QSTF~~has ~~was~~leased ~~entitled~~five tolots aof ~~claim~~land. ~~for~~The ~~refund~~cost of ~~these~~the ~~payments.~~first, second, fourth ~~Provision~~ and ~~for~~fifth ~~income~~lots ~~tax~~land isuse ~~made~~rights acquired in 2007, 2008, 2011 and 2011 were $329,535 (RMB2,105,232), $547,859 (RMB3,500,000), $618,443 (RMB3,950,925) and $1,645,736 (RMB10,513,782), respectively. These lots were located at ~~EIT~~Hexing Village, ~~rate~~Dingxiao ofEconomic ~~25%~~Development onZone, ~~yearly~~Xingyi ~~reported~~City, ~~profits~~Qianxinan, Guizhou ~~less~~ Province, respectively, within the ~~amounts~~PRC. The cost of ~~income~~the ~~tax~~third ~~refunded~~lot ~~for~~of ~~the~~land ~~fiscal~~is forest ~~years~~land, acquired in 2010 was $6,261,251 (RMB40,000,000) and ~~2009.~~was located at Liping County, Qiandongnan, Guizhou Province, the PRC.

18Land use rights are amortized on the straight line basis over their respective lease periods. The lease period of agriculture land is 30 to 50 years.

~~CHINA~~During ~~FORESTRY~~the ~~INDUSTRY~~three ~~GROUP~~months ended September 30, ~~INC.~~2011 ~~AND~~and ~~SUBSIDIARIES~~2010, ~~NOTES~~amortization TOexpense ~~CONDENSED~~amounted ~~CONSOLIDATED~~to ~~FINANCIAL~~$77,720 ~~STATEMENTS~~and ~~(UNAUDITED)~~$54,390 respectively which was recorded under general and administrative expenses.

~~14.~~During ~~INCOME~~the ~~TAXES~~nine –months ~~CONTINUED~~ended September 30, 2011 and 2010, amortization expense amounted to $196,512 and $163,170, respectively which was recorded under general and administrative expenses.

~~Provision for income taxes is as follows:~~ F-24

		For the Three Months Ended				For the Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2011		2010		2011		2010
Income tax
CNFI - U.S. corporate tax
	$	-	$	-	$	-	$	-
CBF - Hong Kong profits tax
		-		-		-		-
QAF - China EIT		137,744		434,413		277,821		624,792
QSTF - China EIT		467,267		472,100		903,057		592,604
GSTF - China EIT		740		-		740		-
Deferred tax		-		-		-		-
	$	605,751	$	906,513	$	1,181,618	$	1,217,396

SILVAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The~~9. ~~Company~~INTANGIBLE ~~did not recognize any interest or penalties related to unrecognized tax benefits in the three and six months ended June 30~~ASSETS, ~~2011~~NET ~~and 2010.~~- ~~The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.~~ CONTINUED

~~15.~~Estimated ~~STOCK~~amortization ~~OPTIONS~~for ~~AND~~the ~~WARRANTS~~next five years and thereafter is as follows:

The Company accounts for its stock options and warrants in accordance with ASC Topic 718, “Compensation – Stock Compensation” and ASC Topic 505-50 “Equity – Based Payments to Non-Employees” which were adopted by the Company on December 15, 2010. The Company issued a warrant to a third party for the purchase of 60,000 shares of the Company’s common stock at an exercise price of $4.00 per share. The warrant expires on December 15, 2015.

Remainder of 2011	$	77,978
2012		311,911
2013		311,911
2014		311,911
2015		311,911
Thereafter		7,898,830
Total	$	9,224,452

~~The Company determines the estimated fair value of share-based awards using the Black-Scholes option-pricing model~~10. ~~The~~CONSTRUCTION ~~Black-Scholes~~IN model is affected by the Company’s stock price as well as by assumptions regarding certain complex and subjective variables. These variables include, but are not limited to; the Company’s expected stock price volatility over the term of the awards and the actual and projected option exercise behaviors. PROGRESS

		Number of shares
		September 30,		December 31,
		entitled to		Exercise	Expiration date
		2011		2010
		purchase		Price
Wooden fiber manufacturing factory	$	5,418,298	$	5,251,065
Balance as of December 31, 2010		60,000	$	4.00
Wooden floor manufacturing factory		54,980		53,283
Warrants exercised		-		-
Total	$	5,473,278	$	5,304,348
Warrants expired		-		-
Total outstanding as of June 30, 2011		60,000	$	4.00	December 15, 2015

~~There was no share based compensation expense for the three and six months ended June 30, 2011 and 2010.~~ F-25

19SILVAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~CHINA~~11. ~~FORESTRY~~SHORT ~~INDUSTRY~~TERM ~~GROUP, INC.~~ AND ~~SUBSIDIARIES NOTES~~LONG TOTERM ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ LOANS

~~16.~~(a) ~~CONCENTRATION,~~Short ~~RISKS,~~term ~~AND UNCERTAINTIES~~ loans

~~The~~Short-term ~~Company~~loans ~~has~~represent the ~~following~~borrowings ~~concentrations~~from ofcommercial ~~business with~~banks ~~customers~~ that ~~constituting~~are ~~10%~~due orwithin ~~greater~~one ofyear. ~~the~~These ~~Company’s~~loans ~~revenues~~consisted ~~for~~of the ~~three and six months ended June 30, 2011 and 2010~~following:

	For the Three Months Ended		For the Six Months Ended
			Interest		September 30,		December 31,
	June 30,	June 30,	June 30,		June 30,
Bank	Term	Notes	rate		2011		2010
	2011	2010	2011		2010
Xingyi City Rural Cooperative Bank	March 26, 2010 to March 25, 2011		7.965%	$	-	$	743,330
Customer A	67.74%	40.72%	70.01%		32.34%
Bank of Chongqing	June 21, 2010 to June 20, 2011	(i)	5.31%		-		3,034,000
Customer B	24.87%	34.68%	26.21%		33.31%
Xingyi City Rural Cooperative Bank	July 17, 2009 to July 16, 2011	(ii)	8.10%		-		758,500
China Merchant Bank	March 8, 2011 to March 7, 2012	(iii)	8.484%		3,913,282		-
Xingyi City Rural Cooperative Bank	April 30, 2011 to April 29, 2012	(ii)	8.715%		3,756,751		-
Bank of Chongqing	July 4, 2011 to July 3, 2012	(iv)	7.572%		3,130,625		-
Xingyi City Rural Cooperative Bank	August 3, 2011 to August 2, 2012	(ii)	9.5667%		782,656		-
				$	11,583,314	$	4,535,830

~~As of June 30, 2011, amount due from customer A and customer B were $3,428,567 and $4,640,576, respectively.~~ F-26

~~The~~SILVAN ~~Company~~INDUSTRIES, ~~has~~INC. ~~not~~AND ~~experienced~~SUBSIDIARIES ~~any~~NOTES ~~significant~~TO ~~difficulty~~CONDENSED ~~in collecting~~CONSOLIDATED ~~its~~FINANCIAL ~~accounts receivable in the past and is not aware of any financial difficulties of its major customers.~~ STATEMENTS

~~The~~11. ~~Company~~SHORT ~~has~~TERM ~~the~~AND ~~following~~LONG ~~concentrations~~TERM ofLOANS ~~business~~- ~~with suppliers constituting 10% or greater of the Company’s purchases for the three and six months ended June 30, 2011 and 2010:~~ CONTINUED

For the Three Months Ended

For the Six Months Ended

June 30,

2011

2010

2011

2010

(unaudited)

Supplier A

59.00%

76.72%

62.53%

48.82%

Supplier B

17.60%

Supplier C

13.46%

Supplier D

12.68%

(b) Long term loans

*Long ~~Constitute~~term ~~less~~loans ~~than~~consist ~~10%~~ of the ~~Company’s total purchases.~~ following:

As of June 30, 2011, amount due to supplier A, B, C and D were $0, $1,399,187, $0 and $0, respectively.

			Interest		September 30,		December 31,
Bank	Term	Notes	rate		2011		2010

Guiyang City Nanming Rural Credit Cooperative Bank	January 24, 2011 to November 18, 2012	(iii)	8.775%	$	3,913,282	$	-
Guiyang City Nanming Rural Credit Cooperative Bank	January 24, 2011 to January 18, 2013	(iii)	8.775%		4,069,813		-

				$	7,983,095	$	-

~~17. ECONOMIC AND POLITICAL RISK~~ Notes:

(i) The ~~Company's~~loan ~~operations~~is ~~are~~secured ~~carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced~~ by ~~the~~forestry ~~political,~~land ~~economic~~use ~~and~~right ~~legal environment in the PRC, and by the general state~~ of the ~~PRC's economy. The Company's operations~~ ~~in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe~~ Company. The ~~Company's~~ ~~results~~net ~~may~~book bevalue ~~adversely~~of ~~affected~~the byforestry ~~changes~~land inuse ~~governmental~~right ~~policies with~~is ~~respect to laws and regulations~~$1, ~~anti-inflationary measures~~349,965 ~~currency conversion~~as ~~and remittance abroad, and rates and methods~~ of December ~~taxation~~31, ~~among other things~~2010.

20(ii) The loan has a corporate guarantee by Zhong Ruixin Investment Guarantee Co., Ltd in which our director, Mr. Yi Zeng also serves as their general manager. The Company paid a total guarantee fee of $228,231 to Zhong Ruixin Investment Guarantee Co., Ltd.

~~CHINA~~(iii) ~~FORESTRY~~The ~~INDUSTRY~~loans ~~GROUP,~~are ~~INC.~~secured ~~AND~~by ~~SUBSIDIARIES~~the real estate properties of ~~NOTES~~Guizhou TOHuacheng ~~CONDENSED~~Group ~~CONSOLIDATED~~in ~~FINANCIAL~~which ~~STATEMENTS~~our ~~(UNAUDITED)~~director, Mr. Yudong Ji also serves as their chairman.

18(iv) The loan is secured by the real estate properties of Guizhou Huacheng Group in which our director, Mr. ~~COMMITMENTS~~Yudong ~~AND~~Ji ~~CONTINGENCIES~~also serves as their chairman and personal guarantee by our directors, Mr. YuLu Bai, Mr. Yudong Ji, Mr. Yi Zeng and our general manager, Mr. Qin Shi.

~~Operating~~Interest ~~Leases~~expenses on the loans for the three months ended September 30, 2011 and 2010 amounted to $464,018 and $175,244, respectively. Interest expenses on the loans for the nine months ended September 30, 2011 and 2010 amounted to $1,099,182 and $231,761, respectively.

There was no lease expense for the three and six months ended June 30, 2011 and 2010. The leases of the stores were signed under GST, our former joint venture partner, and other non GST parties and lease payments were paid by these parties. As of June 30, 2011, two of the store leases have been transferred under QSTF and QSTF will be responsible for the lease payment starting from July 2011.F-27

AsSILVAN ~~of June 30~~INDUSTRIES, ~~2011, the Company entered into two lease agreements for its stores and warehouses at two locations which expire in 2013~~INC. ~~The~~ ~~lease~~AND ~~payments~~SUBSIDIARIES ~~commence~~NOTES inTO ~~July~~CONDENSED ~~2011~~CONSOLIDATED ~~and~~FINANCIAL ~~will be recorded as lease expense by QSTF. The future minimum lease payments as of June 30, 2011 are as follow:~~ STATEMENTS

~~For~~12. ~~the~~CUSTOMER ~~year ending December 31,~~ DEPOSITS

Remainder of 2011	$	30,519
2012		61,038
2013		54,466
	$	146,023

Customer deposits represent amounts advanced by customers for orders of product. The products normally are shipped within three months after receipt of the advance payment and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of September 30, 2011 and December 31, 2010, customer deposits amounted to $1,553,063 and $1,936,733, respectively.

~~Purchase~~13. ofOTHER ~~Property~~PAYABLES ~~for~~AND aACCRUED ~~total consideration of $9,695,281 (RMB62,665,450)~~ EXPENSES

On August 25, 2006, the Company signed a contract for property under construction, totaling $9,695,281 (RMB62,665,450). As of June 30, 2011, the Company paid $6,575,385 (RMB42,500,000) was recorded in prepayment for property, plant and equipment. The remainder $3,119,896 (RMB20,165,450) will be paid by the end of 2011.

		September 30,		December 31,
		2011		2010

Other taxes payable	$	476,516	$	789,252
Due to third parties		781,143		775,187
Due to employees		46,646		151,700
Accrued wages		110,928		113,224
Total	$	1,415,233	$	1,829,363

~~From~~Other ~~time~~taxes topayable ~~time~~include ~~and~~VAT ~~in the ordinary course of business~~tax, ~~the Company~~city ~~may~~maintenance ~~be subject to various claims, charges,~~ and ~~litigation. As of June~~ ~~30,~~ construction ~~2011 and December 31~~levies, ~~2010,~~stamp ~~the Company did not have any pending claims~~duty, ~~charges,~~ oreducation ~~litigation~~levies ~~that it would have a material adverse effect on its consolidated balance sheets, consolidated statements of income~~ and ~~comprehensive income~~other ~~or cash flows~~miscellaneous taxes.

~~19. OBLIGATIONS UNDER MATERIAL CONTRACTS~~ F-28

(i)

The Company entered into a financial advisory agreement dated February 2, 2010 to appoint Asia Regal Financial Capital Group Co., Ltd. and Shenzhen Junwei Investment and Development Co., Ltd. as financial advisors. Pursuant to the agreement, the Company is obligated to issue 100,000 of common shares at $0.10 per share to them prior to December 31 of every year within 5 years from the Company listing on OTCBB. The agreement contains an exclusivity provision whereby the Company has agreed to engage them as the Company’s sole financial advisor and its related company within 2 years since the date of the Company’s listed on OTCBB and also contains a $1 million liquidated damages provision for breach of such exclusivity.

(ii)

CCG Investor Relations Partners LLC, CCG, an investor relations firm was issued a warrant to purchase up to 60,000 shares of the Company’s stock, at a price of $4.00 per share, pursuant to the terms and conditions of a letter agreement, dated December 15, 2010, between the Company and CCG. The warrant shall have a term of 5 years and expires on December 15, 2015, CCG had not exercised the warrant and had not purchased any shares of the Company’s stock.

SILVAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2114. INCOME TAXES

~~CHINA~~The ~~FORESTRY~~Company ~~INDUSTRY~~is ~~GROUP,~~incorporated ~~INC~~in the State of Nevada in the U.S. and ~~AND~~is ~~SUBSIDIARIES~~subject to a gradual U.S. federal corporate income tax of 15% to 35%. The ~~NOTES~~State TOof ~~CONDENSED~~Nevada ~~CONSOLIDATED~~does ~~FINANCIAL~~not ~~STATEMENTS~~impose ~~(UNAUDITED)~~any corporate state income tax.

~~20.~~No ~~EARNINGS~~Hong ~~PER~~Kong ~~SHARE~~profits tax has been provided in the financial statements, as the Company did not have any assessable profits for the three and nine months ended September 30, 2011 and 2010.

~~Basic~~Beginning ~~earnings~~January ~~per~~1, ~~share~~2008, isChina ~~computed~~unified bythe ~~dividing~~corporate ~~net~~ income ~~attributable~~ tax torule ~~common~~on ~~shareholders~~foreign byinvested ~~the~~enterprises weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and ~~warrants,~~domestic ~~in the weighted average number of common shares outstanding for the year, if dilutive~~enterprises. The ~~numerators and denominators used in the computations of basic and dilutive~~unified ~~earnings~~ corporate ~~per~~income ~~share~~tax ~~are~~rate ~~presented~~is ~~in the following table:~~ 25%.

		For the three months ended				For the six months ended
		June 30,				June 30,
		2011		2010		2011		2010
BASIC
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income	$	1,351,970	$	3,323,855	$	3,443,074	$	4,549,176
Net income used in computing basic earnings per share	$	1,351,970	$	3,323,855	$	3,443,074	$	4,549,176
Basic earnings per share	$	0.05	$	0.16	$	0.11	$	0.22
Basic weighted average shares outstanding		30,000,000		20,500,000		30,000,000		20,500,000

Under Guizhou Province preferential tax policy, QAF and QSTF are entitled to certain tax exemptions and reductions available to all companies in Guizhou Province, the People’s Republic of China.

		For the three months ended				For the six months ended
		June 30,				June 30,
		2011		2010		2011		2010
DILUTED
Numerator for diluted earnings per share attributable to the Company’s common stockholders:
Net income	$	1,351,970	$	3,323,855	$	3,443,074	$	4,549,176
Net income used in computing diluted earnings per share	$	1,351,970	$	3,323,855	$	3,443,074	$	4,549,176
Diluted earnings per share	$	0.05	$	0.16	$	0.11	$	0.22
Weighted average outstanding shares of common stock		30,000,000		20,500,000		30,000,000		20,500,000
Warrants and contingently issuable shares		1,509		-		-		-
Options and contingently issuable shares		-		-		-		-
Diluted weighted average shares outstanding		30,001,509		20,500,000		30,000,000		20,500,000

~~For~~Further, ~~the~~QSTF ~~three~~incurred ~~months~~income ~~ended~~tax ~~June~~expenses ~~30,~~during ~~2011,~~fiscal ~~60,000~~years 2010 ~~warrants~~and 2009, ~~were not~~but ~~included~~QSTF inwas ~~the~~entitled ~~diluted~~to ~~earnings~~a ~~per~~claim ~~share~~for ~~because~~refund ~~the~~of ~~average~~these ~~stock price~~payments. ~~was~~ Provision ~~lower~~for ~~than~~income ~~the~~tax ~~strike~~is ~~price~~made ofat ~~these~~EIT ~~warrants.~~rate ~~There~~of ~~were~~25% noon ~~potentially dilutive~~yearly ~~securities~~reported ~~during~~profits less the ~~three~~amounts ~~months~~of ~~ended~~income ~~June~~tax ~~30,~~refunded ~~2011~~for ~~and~~the fiscal years 2010. and 2009.

	For the three months ended		For the six months ended
	June 30,		June 30,
	2011	2010	2011	2010
Potential common shares outstanding as of June 30,
Warrant outstanding (shares)	60,000	-	-	-

F-29

22SILVAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~CHINA FORESTRY INDUSTRY GROUP, INC~~14. ~~AND~~INCOME ~~SUBSIDIARIES NOTES~~TAXES TO– ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ CONTINUED

~~21.~~Provision ~~PRODUCT~~for ~~LINE~~income ~~INFORMATION~~taxes is as follows:

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

		For the Three Months Ended				For the Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2011		2010		2011		2010
Income tax CNFI - U.S. corporate tax	$	-	$	-	$	-	$	-
CBF - Hong Kong profits tax		-		-		-		-
QAF - China EIT		202,944		163,325		480,765		789,863
QSTF - China EIT		487,614		627,932		1,390,671		1,222,192
GSTF - China EIT		12,304		-		13,044		-
Deferred tax		-		-		-		-

	$	702,862	$	791,257	$	1,884,480	$	2,012,055

		For the Three Months Ended				For the Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2011		2010		2011		2010
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Domestic sales
Wooden fiber sheet	$	618,212	$	6,970,666	$	2,065,828	$	9,727,338
Wooden floor		7,838,723		5,616,687		16,834,081		7,151,014
	$	8,456,935	$	12,587,353	$	18,899,909	$	16,878,352

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the three and nine months ended September 30, 2011 and 2010. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

~~22. RELATED PARTIES TRANSACTIONS~~ F-30

AsSILVAN ~~of June 30~~INDUSTRIES, ~~2011~~INC. ~~and~~AND ~~2010,~~SUBSIDIARIES ~~the~~NOTES ~~Company~~TO ~~had~~CONDENSED ~~the~~CONSOLIDATED ~~following significant~~FINANCIAL ~~related party transactions:~~ STATEMENTS

Name of related party	Nature of transactions
Mr. YuLu Bai, Chief Executive Officer	There are due from Mr. YuLu Bai totaled $1,451,047 and $0 as of June 30, 2011 and 2010 and included in Due from Related Party. Due to Mr. YuLu Bai was $1,527,080 as of December 31, 2010. The amounts are unsecured, interest free and have no fixed term of repayment.
	The amount due from Mr. Bai relates to proceeds from the share exchange agreement which was deposited to Mr. Bai’s account. At December 31, 2010, the Company had payable to Mr. Bai for forestry right that Mr. Bai paid on behalf of the Company; therefore, the amount due from Mr. Bai was netted with the amount due to Mr. Bai, resulted in a net due to related party balance of $1,527,080. During the six months ended June 30, 2011, the Company paid off the amount due to Mr. Bai, resulted in a net due from related party balance of $1,451,047 as of June 30, 2011.

15. STOCK OPTIONS AND WARRANTS

23The Company accounts for its stock options and warrants in accordance with ASC Topic 718, “Compensation – Stock Compensation” and ASC Topic 505-50 “Equity – Based Payments to Non-Employees” which were adopted by the Company on December 15, 2010. The Company issued a warrant to a third party for the purchase of 60,000 shares of the Company’s common stock at an exercise price of $4.00 per share. The warrant expires on December 15, 2015.

~~ITEM~~The 2Company determines the estimated fair value of share-based awards using the Black-Scholes option-pricing model. ~~MANAGEMENT~~The Black-Scholes model is affected by the Company’Ss ~~DISCUSSION~~stock ~~AND~~price ~~ANALYSIS~~as OFwell ~~FINANCIAL~~as ~~CONDITION~~by ~~AND~~assumptions ~~RESULTS~~regarding certain OFcomplex ~~OPERATIONS~~and subjective variables. These variables include, but are not limited to; the Company’s expected stock price volatility over the term of the awards and the actual and projected option exercise behaviors.

Special Note Regarding Forward Looking Statements

	Number of shares			Remaining
	entitled to		Exercise	Contractual Life
	purchase		Price	(years)
Balance as of December 31, 2010	60,000	$	4.00	4.21
Warrants exercised	-		-
Warrants expired	-		-
Total outstanding as of September 30, 2011	60,000	$	4.00	4.21

InThere ~~addition~~was tono ~~historical~~share ~~information,~~based ~~this~~compensation ~~report~~expense ~~contains forward-looking~~for ~~statements within~~ the ~~meaning~~three ~~of Section 27A of the Securities Act of 1933, as amended,~~ and ~~Section 21E of the Securities Exchange Act of 1934,~~ as nine ~~amended.~~months Weended ~~use~~September ~~words such as “believe~~30,” ~~“expect,”~~2011 “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

~~Readers~~On ~~are~~May ~~urged~~17, to2010, ~~carefully~~our ~~review~~Chairman and ~~consider~~CEO, ~~the~~Mr. ~~various~~Yulu Bai, entered ~~disclosures~~ into ~~made~~an byoption usagreement inwith ~~this~~Ms. ~~report~~Ren ~~and~~Ping ~~our~~Tu, ~~other~~his ~~filings~~wife, ~~with~~pursuant ~~the~~to ~~SEC.~~which ~~These~~Mr. ~~reports~~ Bai ~~attempt~~was togranted ~~advise~~an ~~interested~~option ~~parties~~to acquire all of the ~~risks~~20,500,000 ~~and~~shares ~~factors~~of ~~that may~~the ~~affect~~ Company’s ~~our~~common ~~business,~~stock ~~financial~~currently ~~condition~~owned ~~and~~by ~~results~~Ms. ofTu ~~operations~~for ~~and prospects.~~an ~~The~~exercise ~~forward-looking~~price ~~statements~~of $2,500,000. ~~made~~On inSeptember ~~this~~6, ~~report~~2011, ~~speak~~Mr. ~~only~~Bai asexercised of the ~~date~~option ~~hereof~~to ~~and~~acquire weall 20,500,000 ~~disclaim~~shares ~~any~~of ~~obligation,~~the ~~except~~Company’s ascommon ~~required~~stock. byAfter ~~law,~~Mr. ~~to provide~~Bai ~~updates~~exercised this option, ~~revisions~~he orowns ~~amendments~~68.33% toof ~~any~~the ~~forward-looking~~Company’s ~~statements~~issued ~~to reflect~~and ~~changes~~outstanding incommon ~~our~~stock ~~expectations~~and became orthe ~~future~~controlling ~~events~~stockholder.

~~Use of Terms~~ F-31

~~Except~~SILVAN ~~where~~INDUSTRIES, ~~the~~INC. ~~context~~AND ~~otherwise~~SUBSIDIARIES ~~requires~~NOTES ~~and~~TO ~~for~~CONDENSED ~~the purposes~~CONSOLIDATED ofFINANCIAL ~~this report only:~~STATEMENTS

~~the “Company,” “we,” “us,” and “our” refer to the combined businesses of China Forestry Industry Group, Inc~~16. ~~and its subsidiaries~~CONCENTRATION, ~~Bingwu Forestry~~RISKS, ~~Aosen~~ ~~Forestry,~~AND ~~Silvan Flooring and Guiyang Silvan Touch;~~ UNCERTAINTIES

~~“CNFI”~~The ~~refers~~Company tohas ~~China~~the ~~Forestry~~following ~~Industry~~concentrations ~~Group,~~of ~~Inc.,~~business awith customers ~~Nevada~~constituting ~~corporation;~~10% or greater of the Company’s revenues for the three and nine months ended September 30, 2011 and 2010:

“Bingwu Forestry” refers to China Bingwu Forestry Group Limited, a Hong Kong company;

	For the Three Months Ended		For the Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010

Customer A	90.79%	20.25%	77.35%	34.15%
Customer B	*	10.68%	16.78%	28.72%

~~“Aosen~~* ~~Forestry”~~Constitute ~~refers~~less tothan ~~Qian~~10% Xiof ~~Nan~~the ~~Aosen Forestry~~ Company,’s ~~Limited,~~total ~~a PRC company;~~ sales.

~~“Silvan~~As ~~Flooring”~~of ~~refers~~September to30, ~~Qian~~2011, Xiamount ~~Nan~~due ~~Silvan~~from ~~Flooring~~customer ~~Company,~~A ~~Limited, a~~and ~~PRC~~customer ~~company;~~B were $2,728,265 and $493,600, respectively.

~~“Guiyang~~The ~~Silvan~~Company ~~Touch”~~has ~~refers~~not toexperienced ~~Guiyang~~any ~~Silvan~~significant ~~Touch~~difficulty ~~Flooring~~in collecting ~~Co.,~~its accounts receivable in the past and is not aware of any financial ~~Limited,~~difficulties aof ~~PRC~~its ~~company;~~major customers.

~~“Hong~~The ~~Kong”~~Company ~~refers~~has to the ~~Hong~~following ~~Kong~~concentrations ~~Special~~of ~~Administrative~~business ~~Region~~with suppliers constituting 10% or greater of the ~~People~~ Company’s ~~Republic~~purchases offor ~~China;~~the three and nine months ended September 30, 2011 and 2010:

“PRC” and “China” refer to the People’s Republic of China;

	For the Three Months Ended		For the Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010

Supplier A	39.33%	56.40%	64.68%	32.40%
Supplier B	*	22.83%	*	10.75%

~~“SEC”~~* ~~refers~~Constitute toless ~~the~~than ~~Securities~~10% ~~and~~of ~~Exchange~~the ~~Commission;~~Company’s total purchases.

~~“Exchange~~As ~~Act”~~of ~~refers~~September ~~the~~30, ~~Securities~~2011, ~~Exchange~~amount ~~Act~~due ofto ~~1934~~supplier A and B were $772,467 asand ~~amended;~~$0, respectively.

~~“Securities Act” refers to the Securities Act of 1933, as amended;~~ F-32

~~“Renminbi”~~SILVAN ~~and~~INDUSTRIES, ~~“RMB”~~INC. ~~refer~~AND toSUBSIDIARIES ~~the~~NOTES ~~legal~~TO ~~currency~~CONDENSED ofCONSOLIDATED ~~China;~~FINANCIAL ~~and~~ STATEMENTS

“U17.S. ~~dollars,”~~ECONOMIC ~~“dollars”~~AND ~~and~~POLITICAL ~~“$” refer to the legal currency of the United States.~~ RISK

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

~~We are engaged in the production and sale of floor materials and related products to residential and commercial customers in China~~18. ~~Our product~~COMMITMENTS ~~lines~~AND ~~include laminate flooring and fiber floor boards that are manufactured in a variety of colors, dimensions and designs.~~ CONTINGENCIES

24(1) Operating Leases

~~The~~As ~~primary~~of ~~raw~~September ~~material~~30, ~~used~~2011, inthe ~~our~~Company ~~products~~entered isinto ~~wood,~~six ~~which we~~lease ~~currently~~ agreements ~~procure~~for ~~from~~its ~~third~~stores ~~party~~and ~~suppliers.~~warehouses Weat ~~expect~~six ~~that~~locations ~~commencing~~which expire in ~~late~~2014. ~~2012,~~ The wefuture ~~will~~minimum belease ~~able~~payments toas ~~procure approximately 20%~~ of ~~our~~September ~~wood from our 2~~30,~~250 hectares~~ ~~(approximately,~~2011 ~~22.5~~are ~~km2)~~as ~~of eucalyptus forest in Guizhou province.~~ follow:

~~Our~~For ~~manufacturing~~the ~~facility~~year inending ~~Qianxinan,~~December ~~Guizhou province has an annual production capacity of six million square meters of laminate flooring and 75~~31,000 cubic meters of industrial fiber boards. We are constructing two new manufacturing facilities next to our current facility to expand our laminate flooring production line and industrial fiber board production line. We expect this expansion will increase our overall capacity to 200,000 cubic meters of fiber boards and 12 million square meters of laminate floor.

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

Remainder of 2011	$	19,988
2012		81,060
2013		74,567
2014		10,380
	$	185,995

InDuring ~~March~~the ~~2011,~~three wemonths ~~established~~ended ~~Guiyang~~September ~~Silvan~~30, ~~Touch~~2011 inand ~~order to~~2010, ~~expand~~rental ~~our~~expenses ~~sales~~amounted ~~channels.~~to ~~Guiyang~~$11,165 ~~Silvan Touch’s principal activities will be manufacturing~~ and ~~wholesaling~~$0 ofrespectively ~~wood~~which ~~flooring,~~was ~~furniture~~recorded ~~and decorations.~~under ~~Guiyang~~general ~~Silvan~~and ~~Touch~~administrative ~~has started operations on March 24, 2011~~expenses.

~~Second~~During ~~Quarter~~the ~~Financial~~nine ~~Performance~~months ~~Highlights~~ended September 30, 2011 and 2010, rental expenses amounted to $11,165 and $0, respectively which was recorded under general and administrative expenses.

~~The following summarizes certain key financial information for the second quarter of 2011:~~F-33

~~Revenue:~~SILVAN ~~Revenue was $8.5 million for the three months ended June 30~~INDUSTRIES, ~~2011, a decrease of $4~~INC.1 ~~million,~~AND orSUBSIDIARIES ~~32.8%,~~NOTES ~~from~~TO ~~$12.6~~CONDENSED ~~million~~CONSOLIDATED ~~for the~~FINANCIAL ~~same period last year.~~ STATEMENTS

~~Gross Profit and Margin: Gross profit was $3~~18.3 ~~million~~COMMITMENTS ~~for the~~AND ~~three~~CONTINGENCIES ~~months~~- ended June 30, 2011, a decrease of $384,138, or 10.5%, from $3.7 million for the same period last year. Gross margin was 38.7% for the three months ended June 30, 2011, as compared to 29.1% for the same period last year. CONTINUED

~~Net~~(2) ~~Income:~~Capital ~~Net income was $1.4 million for the three months ended June 30, 2011, a decrease of $1.9 million, or 59.3%, from $3.3 million for the same period last year.~~ commitment

~~Fully~~Production ~~diluted~~line ~~net income per share: Fully diluted net income per share~~ for ~~the~~wooden ~~three~~fiber ~~months ended June 30, 2011 was $0.05, as compared to $0.16 for the same period last year.~~ sheet

As ofat ~~June~~September 30, 2011, the total ofestimated ~~our~~ contract ~~backlog~~costs ~~was~~to complete the production line for wooden fiber sheet are approximately $758.73 million (RMB372.4 million) of which the Company has paid for approximately $6.1 million (RMB39.2 million). The remaining of $52.2 (RMB333.2 million) will be completed and paid by the end of 2013.

25Production line for wooden floor

~~Results~~As at September 30, 2011, the total estimated contract costs to complete the production line for wooden floor are approximately $23.7 million (RMB151.6 million) of ~~Operations~~which the Company has paid for approximately $0.2 million (RMB1.6 million). The remaining of $23.5 million (RMB150.0 million) will be completed and paid by the end of 2013.

~~Comparison~~Purchase of ~~Three Months Ended June 30, 2011 and June 30, 2010~~ Property

~~The~~As ~~following~~at ~~table~~September ~~shows~~30, ~~key~~2011, ~~components~~the oftotal ~~our~~estimated ~~results~~contract ofcosts to ~~operations~~ acquire ~~during~~a ~~the~~property ~~three~~under ~~months~~construction ~~ended~~are ~~June~~approximately ~~30,~~$9.8 ~~2011~~million ~~and~~(RMB62.7 million) ~~2010,~~of inwhich ~~both~~the ~~dollars~~Company has paid for approximately $6.7 million (RMB42.5 million). The remaining of $3.1 million (RMB20.2 million) will be completed and paid asby athe ~~percentage~~end of ~~our revenues~~2011.

(All amount, other than percentage, in U.S. dollars)
	Three Months Ended			Three Months Ended
	June 30, 2011			June 30, 2010			Increase/(Decrease)
			As a			As a
			percentage of			percentage of
	Dollar ($)		Revenue	Dollar ($)		Revenue	Dollar ($)		Percentage
Revenue	8,456,935		100.00%	12,587,353		100.00%	(4,130,418	)	-32.81%
Cost of revenue	5,182,847		61.29%	8,929,127		70.94%	(3,746,280	)	-41.96%
Gross profit	3,274,088		38.71%	3,658,226		29.06%	(384,138	)	-10.50%
Operating expenses
Selling expenses	(376,637	)	4.45%	(42,882	)	0.34%	333,755		778.31%
General and administrative expenses	(531,146	)	6.28%	(483,122	)	3.84%	48,024		9.94%
Total operating expenses	(907,783	)	10.73%	(526,004	)	4.18%	381,779		72.58%
Income from operations	2,366,305		27.98%	3,132,222		24.88%	(765,917	)	-24.45%
Other income (expense)
Interest income	14,576		0.17%	-		-	14,576		-
Interest expense	(414,989	)	-4.91%	(27,709	)	-0.22%	387,280		1397.67%
Other (expenses) income	(8,513	)	-0.10%	293		0.00%	(8,806	)	3005.46%
Government grant	342		0.00%	1,125,562		8.94%	(1,125,220	)	-99.97%
Total other income (expenses)	(408,584	)	-4.83%	1,098,146		8.72%	(1,506,730	)	-137.21%
Income before income taxes	1,957,721		23.15%	4,230,368		33.61%	(2,272,647	)	-53.72%
Provision for income taxes	(605,751	)	7.16%	(906,513	)	7.20%	(300,762	)	-33.18%
Net income	1,351,970		15.99%	3,323,855		26.41%	(1,971,885	)	-59.33%

(3) Obligations under material contracts

Revenue. We generate revenues from the sales of our industrial fiber boards, laminate flooring, wooden flooring, and related flooring products. Our revenue decreased to $8.5 million for the three months ended June 30, 2011, from $12.6 million for the same period in 2010, representing a 32.8% decrease. The decrease in revenue was mainly due to decrease in sales volume and average sales price of our fiber board products resulting from intense competition in the market for similar products.

(i)	The Company entered into a financial advisory agreement dated February 2, 2010 to appoint Asia Regal Financial Capital Group Co., Ltd. and Shenzhen Junwei Investment and Development Co., Ltd. as financial advisors. Pursuant to the agreement, the Company is obligated to issue 100,000 of common shares at $0.10 per share to them prior to December 31 of every year within 5 years from the Company listing on OTCBB. The agreement contains an exclusivity provision whereby the Company has agreed to engage them as the Company’s sole financial advisor and its related company within 2 years since the date of the Company’s listed on OTCBB and also contains a $1 million liquidated damages provision for breach of such exclusivity.

(ii)	CCG Investor Relations Partners LLC, CCG, an investor relations firm was issued a warrant to purchase up to 60,000 shares of the Company’s stock, at a price of $4.00 per share, pursuant to the terms and conditions of a letter agreement, dated December 15, 2010, between the Company and CCG. The warrant shall have a term of 5 years and expires on December 15, 2015; CCG had not exercised the warrant and had not purchased any shares of the Company’s stock.

In terms of product lines, sales of our laminate flooring and fiber board products accounted for approximately 63.0% and 37.0% of our revenue, respectively, for the three months ended June 30, 2011, as compared to approximately 38.0% and 62.0%, respectively, for the same period in 2010. We did not sell any hard wood flooring products in the second quarter because we are still developing this new product market.F-34

~~Both~~SILVAN sales volume and average sales price of our laminate flooring products increased in this quarter. Average unit sales price of laminate flooring products increased slightly by approximately 0.2% for the three months ended June 30INDUSTRIES, ~~2011~~INC. WeAND ~~sold~~SUBSIDIARIES ~~approximately~~NOTES ~~0.9~~TO ~~million~~CONDENSED ~~square meters~~CONSOLIDATED ofFINANCIAL laminate flooring products during the three months ended June 30, 2011, as compared to approximately 0.7 million square meters of laminate flooring products for the same period in 2010. The increase was mainly due to our continued promotion and market expansion efforts for this product line.STATEMENTS

~~Sales volume and average sales price of our fiber board products decreased during the three months ended June 30, 2011~~19. WeEARNINGS ~~sold approximately~~PER 0.6 million pieces of fiber boards during the three months ended June 30, 2011, as compared to approximately 1.2 million pieces of fiber boards for the same period in 2010. The decrease in sales volume was mainly SHARE

26Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the period, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:

because we received two big one-time orders for fiber boards in the second quarter last year. With the expansion of our new facility, we are actively developing long-term customers. Average sales price of our fiber board products decreased approximately 1.8% in the second quarter of 2011 as compared to the same period last year. A larger portion of our products sold in this quarter was 12mm fiber board which generally has a lower sales price than our 15mm fiber board which was the major products sold in the same quarter last year.

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010
BASIC
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income	$	1,265,319	$	2,134,087	$	4,708,393	$	7,152,018
Net income used in computing basic earnings per share	$	1,265,319	$	2,134,087	$	4,708,393	$	7,152,018
Basic earnings per share	$	0.04	$	0.09	$	0.16 $		0.32

Basic weighted average shares outstanding		30,000,000		22,590,044		30,000,000		22,590,044

Cost of Revenue. Our cost of revenue is primarily comprised of the costs of our raw materials, labor and overhead. Our cost of revenue decreased $3.7 million, or 42.0%, to $5.2 million for the three months ended June 30, 2011, from $8.9 million for the same period in 2010. The decrease was generally in line with the decrease in sales volume. The cost of revenue as a percentage of revenue decreased from 70.9% for the three months ended June 30, 2010 to 61.3% for the three months ended June 30, 2011. Such percentage decrease was primarily due to the increased gross margin of our fiber board product line. As a percentage of revenue, cost of sales for our fiber board product line was 70.3% for the three months ended June 30, 2011 as compared to 75.6% for the same period in 2010. Due to our continuing research and development efforts, we improved the manufacturing technology of this product line which led to less consumption of raw material and improved gross margin.F-35

~~Gross~~SILVAN ~~profit and gross margin. Our gross profit is equal to the difference between our revenue and our cost of revenue. Our gross profit decreased $384~~INDUSTRIES,~~138,~~ ~~or 10~~INC.~~5%,~~ toAND ~~$3.3~~SUBSIDIARIES ~~million~~NOTES ~~for~~TO ~~the~~CONDENSED ~~three~~CONSOLIDATED ~~months ended~~FINANCIAL June 30, 2011, from $3.7 million for the same period in 2010. Gross profit as a percentage of revenue (gross margin) was 38.7% and 29.1% for the three months ended June 30, 2011 and 2010, respectively. The increase in the gross margin was primarily driven by the increased gross margin of our fiber board products as described above. The respective gross margins for our laminate flooring and fiber board products were 29.8% and 29.7% for the three months ended June 30, 2011, as compared to 36.6% and 24.4% for the same period in 2010. The drop in laminate flooring’s gross margin was mainly attributable to a greater percentage increase in average cost than the percentage increase in average sales price.STATEMENTS

~~Selling expenses~~19. ~~Our~~EARNINGS ~~selling~~PER ~~expenses~~SHARE ~~are comprised~~- primarily of sales commissions, the cost of advertising and promotional materials, salaries and fringe benefits of sales personnel, travel expense, consulting fees and other sales related costs. Our selling expenses increased by $333,755, or 778.3%, to $376,637 for the three months ended June 30, 2011, from $42,882 for the same period in 2010. The increase was primarily a result of the expansion of our sales network leading to increased salary, welfare expenses and advertisement and exhibition expenses. Our salary expenses for the three months ended June 30, 2011 amounted to approximately $248,618, compared to approximately $123,995 for the same period in 2010. Our welfare expenses for the three months ended June 30, 2011 amounted to approximately $38,569, compared to approximately $2,059 for the same period in 2010. Our advertisement and exhibition expenses for the three months ended June 30, 2011 amounted to approximately $138,357, compared to approximately $24,887 for the same period in 2010. Due to continued efforts to promote our brand recognition and marketing in the PRC, our travel and consultation expenses also increased and contributed to the increase of selling and marketing expenses. Our travel expenses for the three months ended June 30, 2011 amounted to approximately $20,715, compared to approximately $5,648 for the same period in 2010. We also incurred approximately $23,233 in consultation expenses for the three months ended June 30, 2011 and we had no such expense in the same quarter in 2010. CONTINUED

General and administrative expenses. General and administrative expenses consist primarily of compensation and benefits to our management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Our general and administrative expenses increased $48,000, or 9.9%, to $531,000 for the three months ended June 30, 2011, from $483,000 for the same period in 2010. This increase was mainly due to the hiring of additional staff to manage our expanding business, particularly in our finance department, to assist with the increased administrative duties associated with being a public company. This also led to increases of related welfare expenses.

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010
DILUTED
Numerator for diluted earnings per share attributable to the Company’s common stockholders:
Net income	$	1,265,319	$	2,134,087	$	4,708,393	$	7,152,018
Net income used in computing diluted earnings per share	$	1,265,319	$	2,134,087	$	4,708,393	$	7,152,018
Diluted earnings per share	$	0.04	$	0.09	$	0.16	$	0.32


Weighted average outstanding shares of common stock		30,000,000		22,590,044		30,000,000		22,590,044
Warrants and contingently issuable shares		-		-		-		-
Options and contingently issuable shares		-		-		-		-
Diluted weighted average shares outstanding		30,000,000		22,590,044		30,000,000		22,590,044

~~Other~~For ~~income~~the ~~(expense).~~three ~~Our~~months ~~total~~and ~~other~~nine ~~expenses for the three~~ months ended ~~June~~September 30, 2011 ~~was $408~~,~~584~~ 60,000 aswarrants ~~compared~~were tonot ~~other income~~included ofin ~~$1.1 million for~~ the ~~same~~diluted ~~period~~earnings inper ~~2010.~~share Webecause ~~incurred more expenses in~~the ~~this~~ average ~~quarter~~stock ~~mainly~~price ~~because~~was oflower athan ~~higher~~the ~~interest~~strike ~~expense~~price of ~~$415,000~~these ~~resulting~~warrants. There ~~from~~ were ~~increased~~no ~~bank~~potentially ~~borrowings~~dilutive securities during the three months ended ~~June~~ September 30, 2011. ~~In addition,~~and ~~we received a one-time government grant of $1.1 million in the second quarter~~ 2010.

Income before income taxes. Our income before income taxes decreased by $2.2 million, or 53.7%, to $2.0 million for the three months ended June 30, 2011, from $4.2 million for the same period in 2010. As a percentage of revenue, our income before income taxes decreased from 33.6% for the three months ended June 30, 2010 to 23.2% for the three months ended June 30, 2011. The amount and percentage decrease mainly a result of lower gross profit, higher selling expenses and higher interest expenses due to increase of loan for purchasing raw materials in 2011.

	For the Three Months Ended		For the Nine Months Ended
	September 30,		September	30,
	2011	2010	2011	2010
Potential common shares outstanding as of September 30, Warrant outstanding (shares)	60,000	-	60,000	-

27 F-36

~~Government~~SILVAN ~~grant. We received $342 in government grant income for the three months ended June 30~~INDUSTRIES, ~~2011, as compared to $1~~INC.~~1 million~~ ~~for~~AND ~~the~~SUBSIDIARIES ~~same~~NOTES ~~period~~TO inCONDENSED ~~2010.~~CONSOLIDATED ~~Government~~FINANCIAL ~~grant income received for the three months ended June 30, 2010 consisted entirely of the value added tax refund.~~STATEMENTS

~~Income taxes~~20. ~~Our~~PRODUCT ~~income~~LINE ~~taxes decreased by $300,000, or 33.2%, to $606,000 for the three months ended June 30, 2011, from $906,000 for the same period in 2010. The decrease was due to our decrease in our taxable income.~~INFORMATION

~~Net~~The ~~Income.~~Company ~~For~~sells ~~the~~wooden ~~three~~fiber ~~months~~sheets ~~ended~~and ~~June~~wooden 30floors which are used by customers in various industries. The production process, class of ~~2011~~ customer, weselling ~~generated~~practice aand ~~net~~distribution ~~income~~process ofare $1the same for all wooden fiber sheets and wooden floors.4 ~~million,~~The Company’s chief operating decision-makers (i.e. chief executive officer and his direct reports) review financial information presented on a ~~decrease~~consolidated basis, accompanied by disaggregated information about revenues by product lines for purposes of $1allocating resources and evaluating financial performance.9 ~~million~~There are no segment managers who are held accountable for operations, operating results and plans for levels or components 57 below the consolidated unit level.~~3%,~~ ~~from~~The $3Company considers itself to be operating within one reportable segment.3 ~~million~~The ~~for~~Company ~~the~~does ~~same~~not ~~period~~have long-lived assets located in ~~2010,~~foreign ascountries. aThe ~~result~~Company's ofnet ~~the~~revenue from external customers ~~cumulative~~ by ~~effect~~main ofproduct ~~the~~lines ~~foregoing~~is ~~factors.~~as follows:

Comparison of Six Months Ended June 30, 2011 and June 30, 2010

		For the Three Months Ended				For the Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2011		2010		2011		2010

Domestic sales
Wooden fiber sheet	$	2,102,709	$	286,392	$	4,168,537	$	10,040,917
Wooden floor		8,608,430		8,484,627		25,442,511		15,655,629
	$	10,711,139	$	8,771,019	$	29,611,048	$	25,696,546

~~The following table shows key components of our results of operations during the six months ended June 30, 2011 and 2010, in both dollars and as a percentage of our revenues.~~F-37

	Six Months Ended			Six Months Ended
	June 30, 2011			June 30, 2010			Increase/(Decrease)
			As a			As a
			percentage of			percentage
	Dollar ($)		Revenue	Dollar ($)		of Revenue	Dollar ($)		Percentage
Revenue	18,899,909		100.00%	16,878,352		100.00%	2,021,557		11.98%
Cost of revenue	12,047,828		63.75%	11,706,000		69.36%	341,828		2.92%
Gross profit	6,852,081		36.25%	5,172,352		27.37%	1,679,729		32.48%
Operating expenses
Selling expenses	726,232		3.84%	118,317		0.70%	607,915		513.80%
General and administrative expenses	904,770		4.79%	702,075		4.16%	202,695		28.87%
Total operating expenses	1,631,002		8.63%	820,392		4.86%	810,610		98.81%
Income from operations	5,221,079		27.62%	4,351,960		25.78%	869,119		19.97%
Other income (expense)
Interest income	23,575		0.12%	-		0.00%	23,575		100.00%
Interest expense	(635,012	)	-3.36%	(49,057	)	-0.29%	585,955		1194.44%
Other expenses	(30,364	)	-0.16%	43,860		0.00%	(74,224	)	-169.22%
Government grant	45,414		0.24%	1,419,809		8.41%	(1,374,395	)	-96.80%
Total other income (expenses)	(596,387	)	-3.16%	1,414,612		8.38%	(2,010,999	)	-142.16%
Income before income taxes	4,624,692		24.47%	5,766,572		34.17%	(1,141,880	)	-19.80%
Provision for income taxes	(1,181,618	)	-6.25%	(1,217,396	)	-7.21%	(35,778	)	-2.94%
Net income	3,443,074		18.22%	4,549,176		26.95%	(1,106,102	)	-24.31%

SILVAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Revenue~~21. ~~Our~~RELATED ~~revenue~~PARTIES increased to $18.9 million for the six months ended June 30, 2011, from $16.9 million for the same period in 2010, representing a 12.0% increase. The increase in revenue was mainly due to higher sales volume in the first quarter of 2011 after the expansion of our sales and distribution network. During the six months ended June 30, 2011, we sold approximately 2.0 million square meters of laminate flooring products and approximately 1.1 million pieces of fiber boards, as compared to approximately 0.9 million square meters of laminate flooring products and approximately 1.7 million pieces of fiber boards for the same period in 2010. In addition, we started selling hard wood flooring products in the market in the first quarter of 2011 and sold approximately 0.05 million square meters of hard wood flooring products in the six months ended June 30, 2011. Our respective sales of laminate flooring products, fiber board products and hard wood flooring products accounted for approximately 65.3%, 34.1% and 0.6% of our revenue for the six months ended June 30, 2011, as compared to 34.9%, 65.1% and 0% for the same period in 2010.TRANSACTIONS

28As of September 30, 2011 and 2010, the Company had the following significant related party transactions:

Cost of revenue. Our cost of revenue increased $341,828, or 2.9%, to $12.0 million for the six months ended June 30, 2011, from $11.7 million for the same period in 2010. The increase was generally in line with the increase in sales volume. The cost of revenue as a percentage of revenue decreased from 69.4% for the six months ended June 30, 2010 to 63.8% for the six months ended June 30, 2011. The percentage decrease was primarily due to improved gross margin of our fiber board products as discussed in the immediate paragraph below.

Name of related party	Nature of transactions

Mr. YuLu Bai, Chief	There are due from Mr. YuLu Bai totaled $1,451,047 and $0 as of

Executive Officer	September 30, 2011 and 2010 and included in Due from Related Party. Due to Mr. YuLu Bai was $1,527,080 as of December 31, 2010. The amounts are unsecured, interest free and have no fixed term of repayment.

	The amount due from Mr. Bai relates to proceeds from the share exchange agreement which was deposited to Mr. Bai’s account. At December 31, 2010, the Company had payable to Mr. Bai for forestry right that Mr. Bai paid on behalf of the Company; therefore, the amount due from Mr. Bai was netted with the amount due to Mr. Bai, resulted in a net due to related party balance of $1,527,080. During the nine months ended September 30, 2011, the Company paid off the amount due to Mr. Bai, resulted in a net due from related party balance of $1,451,047 as of September 30, 2011. The Company expects to collect the amount due from Mr. Bai by end of 2011.

Gross profit and gross margin. Our gross profit increased $1.7 million, or 32.5%, to $6.9 million for the six months ended June 30, 2011, from $5.2 million for the same period in 2010. Such increase in overall gross profit was mainly due to an approximately 59% increase in gross profit generated from sales of laminate flooring products which more than offset an approximately 29.6% decrease of gross profit from sales of fiber boards. Gross margin was 36.3% and 30.6% for the six months ended June 30, 2011 and 2010, respectively. The increase in gross margin was primarily driven by the difference between the percentage increase in cost of sales (2.9%) and the increase in revenues (12.0%) . Gross margins for our laminate flooring products and fiber board products were 26.1% and 27.0%, respectively, for the six months ended June 30, 2011, as compared to 37.0% and 24.0%, respectively, for the same period in 2010. Gross margin of our new hard wood flooring products was 24.8% for the six months ended June 30, 2011. Gross margin of fiber board products improved in the first six months of 2011 mainly due our continuing research and development efforts, which led to improvement in manufacturing technology and less consumption of raw material. The drop in gross margin of laminate flooring products was mainly attributable to a combined effect of decrease in their unit sales price and increase in unit cost. The average sales price of laminate flooring products per square meter dropped approximately 4.2% from the six months ended June 30, 2010 as a result of intense competition in the market for similar products.F-38

~~Selling~~ITEM ~~expenses~~2. ~~Our~~MANAGEMENT’S ~~selling~~DISCUSSION ~~expenses~~AND ~~increased by~~ANALYSIS ~~$608,000,~~OF orFINANCIAL ~~513.8%,~~CONDITION toAND ~~$726,000~~RESULTS ~~for~~OF ~~the six months ended June 30, 2011, from $118,000 for the same period in 2010~~OPERATIONS. The increase was primarily a result of the expansion of our sales network leading to increased salary, welfare expenses and advertisement and exhibition expenses. Our salary expenses for the six months ended June 30, 2011 amounted to approximately $501,178, compared to approximately $213,293 for the same period in 2010. Our welfare expenses for the six months ended June 30, 2011 amounted to approximately $94,852, compared to approximately $4,390 for the same period in 2010. Our advertisement and exhibition expenses for the six months ended June 30, 2011 amounted to approximately $203,232, compared to approximately $54,144 for the same period in 2010. Due to continued efforts to promote our brand recognition and marketing in the PRC, we also incurred more travel and consultation expenses. Our travel expenses for the six months ended June 30, 2011 amounted to approximately $49,708, compared to approximately $7,797 for the same period in 2010. Our consultation expenses for the six months ended June 30, 2011 amounted to approximately $86,534, compared to $0 for the same period in 2010.

~~General~~Special ~~and~~Note ~~administrative~~Regarding ~~expenses.~~Forward ~~Our~~Looking general and administrative expenses increased $203,000, or 28.87%, to $905,000 for the six months ended June 30, 2011, from $702,000 for the same period in 2010. This increase was mainly due to the hiring of additional staff to manage our expanding business, particularly in our finance department, to assist with the increased administrative duties associated with being a public company.Statements

~~Other~~In ~~income~~addition ~~(expense).~~to Wehistorical ~~had $596~~information,~~000~~ inthis ~~net~~report contains ~~other~~forward-looking ~~expenses~~statements ~~for~~within the ~~six~~meaning ~~months~~of ~~ended~~Section ~~June~~27A 30of the Securities Act of 1933, ~~2011~~as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~compared~~amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to ~~net~~identify ~~other~~forward-looking statements. Such statements ~~income~~include, among others, those concerning market and industry segment growth and demand and acceptance of ~~$1.4~~new ~~million~~and ~~for~~existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, ~~same~~strategies ~~period~~and inobjectives ~~2010.~~of ~~The~~management ~~$2.0~~for ~~million~~future ~~decrease~~operations; inany ~~other~~statements ~~income~~regarding ~~(expense)~~future ~~was~~economic ~~primarily~~conditions ~~due~~or toperformance; aas ~~one~~well ~~time~~as ~~government~~all assumptions, ~~grant~~expectations, ofpredictions, $1intentions or beliefs about future events.4 You are cautioned that any such forward-looking statements are not ~~million~~guarantees ~~received~~of future performance and involve risks and uncertainties, including those identified in ~~the~~Item ~~six~~1A ~~months~~“Risk Factors” included in our Annual Report on Form 10-K for the year ended ~~June~~December 3031, 2010, ~~and~~as ~~higher~~well ~~interest expense~~as ofassumptions, ~~$635~~which,~~000~~ ~~resulting~~if they ~~from~~were ~~increased~~to ~~bank~~ever ~~borrowings~~materialize ~~during~~or prove incorrect, could cause the ~~six~~results of the ~~months~~Company ~~ended~~to ~~June~~differ ~~30,~~materially ~~2011~~from those expressed or implied by such forward-looking statements.

~~Income~~Readers ~~before~~are ~~income~~urged ~~taxes.~~to ~~Our~~carefully ~~income~~review ~~before income~~and ~~taxes~~consider ~~decreased~~the various disclosures made by ~~$1.1~~us ~~million,~~in orthis ~~19.8%,~~report toand ~~$4.6~~our ~~million~~other ~~for~~filings with the ~~six~~SEC. These ~~months~~reports ~~ended~~attempt ~~June~~to ~~30,~~advise ~~2011,~~interested ~~from~~parties ~~$5.8~~of ~~million for~~ the ~~same~~risks ~~period~~and infactors ~~2010.~~that ~~As a~~may ~~percentage~~affect ofour ~~revenue~~business, ~~our~~financial ~~income~~condition ~~before~~and ~~income~~results ~~taxes~~of ~~decreased~~operations ~~from 34~~and prospects.2% ~~for the~~The ~~six~~forward-looking ~~months~~statements ~~ended~~made ~~June~~in ~~30,~~this ~~2010~~report tospeak ~~24.5%~~only ~~for~~as of the ~~six~~date ~~months~~hereof ~~ended June 30, 2011. The dollar~~ and ~~percentage~~we ~~decrease~~disclaim ~~was~~any ~~primarily~~obligation, aexcept ~~result~~as ofrequired ~~the~~by ~~higher selling~~law, ~~general~~to provide ~~and~~updates, ~~administrative~~revisions ~~expenses~~or ~~and~~amendments ~~factors~~to ~~causing~~any ~~the~~forward-looking ~~fluctuation~~statements to reflect changes in ~~other~~our ~~income~~expectations ~~(expense)~~or ~~discussed~~future ~~above~~events.

~~Government~~Use ~~grant. We received government grant~~ of ~~$45,000~~ ~~for the six months ended June 30, 2011, as compared to $1.4 million for the same period in 2010.~~Terms

~~Income~~Except ~~taxes.~~where ~~Our income taxes decreased by $36,000, or 2.9%, to $1.2 million for~~ the ~~six~~context ~~months~~otherwise ~~ended~~requires ~~June~~and ~~30, 2011, from $1.2 million~~ for the ~~same period in 2010. The decrease was primarily due to~~ ~~decrease~~purposes inof ~~taxable~~this ~~income~~report ~~resulting~~only: ~~from the increase in operating expenses and other expenses discussed above.~~

29the “Company,” “we,” “us,” and “our” refer to the combined business of Silvan Industries and its subsidiaries, Bingwu Forestry, Aosen Forestry, Silvan Flooring and Guiyang Silvan Touch;
~~Net~~“Silvan ~~Income.~~Industries” ~~For~~refers ~~the~~to ~~six~~Silvan ~~months ended June 30~~Industries, ~~2011,~~ ~~we generated a net income of $3~~Inc.~~4 million~~, a ~~decrease~~Nevada ~~of $1.1 million, or~~corporation ~~24.31%,~~ (formerly ~~from~~China ~~$4.5~~Forestry ~~million~~Industry ~~for the same period in 2010~~Group, ~~as a result of the cumulative effect of the foregoing factors~~Inc.);
~~Liquidity~~“Bingwu ~~and~~Forestry” ~~Capital~~refers ~~Resources~~to China Bingwu Forestry Group Limited, a Hong Kong company;
As“Aosen ofForestry” ~~June~~refers ~~30,~~to ~~2011,~~Qian weXi ~~had~~Nan ~~cash~~Aosen ~~and~~Forestry ~~cash~~Company, ~~equivalents~~Limited, ~~of $2.1~~a ~~million.~~ PRC ~~The~~company; ~~following table summarizes the key cash flow metrics from our condensed consolidated statements of cash flows for the six months ended June 30, 2011 and 2010.~~
~~Cash~~“Silvan ~~Flow~~Flooring” refers to Qian Xi Nan Silvan Flooring Company, Limited, a PRC company;

		Six Months Ended June 30,
		2011			2010
Net cash (used in) provided by operating activities	$	(892,315	)	$	5,155,579
Net cash (used in) investing activities		(7,904,331	)		(6,691,815	)
Net cash provided by financing activities		8,606,060			2,951,940
Effects of exchange rate changes in cash		39,094			183,548
Net (decrease) increase in cash and cash equivalents		(151,492	)		1,599,252
Cash and cash equivalents at beginning of the period		2,334,910			1,471,729
Cash and cash equivalent at end of the period	$	2,183,418		$	3,070,981

“Guiyang Silvan Touch” refers to Guiyang Silvan Touch Flooring Co., Limited, a PRC company;

~~Operating~~“Hong ~~Activities~~Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
~~Net~~“PRC” ~~cash~~and ~~used~~“China” inrefer ~~operating activities was $892,315 on for the six months ended June 30, 2011, as compared~~ to ~~net cash provided by operating activities of $5.2 million for~~ the ~~same~~People’s ~~period~~Republic ~~in 2010. The drop in net cash from operating activities was primarily due to a decrease~~ of $1.0 million in net income, an approximately $4.5 million cash outflow in inventory purchases and a $3.8 million outflow in accounts receivable, which more than offset a cash inflow of $1.9 million in taxes recoverable and $1.4 million in deposits and prepaid expenses. The significant increase in inventory during the six months ended June 30, 2011 was attributable to increased inventory and raw materials purchases in anticipation of the development of our sales network in some selected markets in China.;
~~Investing~~“SEC” ~~Activities~~refers to the Securities and Exchange Commission;
~~Net~~“Exchange ~~cash~~Act” ~~used~~refers ~~in investing activities for~~ the ~~six~~Securities ~~months~~Exchange ~~ended June~~Act ~~30, 2011 was $7.9 million, as compared to $6.7 million for the same period in 2010. The net cash used in investing activities was primarily due to our purchase~~ of ~~land use rights for approximately $2.3 million during the six months ended June 30~~1934, ~~2011. In addition, we paid approximately $5.4 million~~ as ~~prepayment~~ ~~for~~amended; ~~properties under construction for the expansion of the Company facilities.~~
~~Financing~~“Securities ~~Activities~~Act” refers to the Securities Act of 1933, as amended;
~~Net~~“Renminbi” ~~cash~~and ~~provided~~“RMB” byrefer ~~financing activities for the six months ended June 30, 2011 was $8.6 million, as compared~~ to ~~$3.0 for~~ the ~~same~~legal ~~period~~currency ~~in 2010.~~of ~~The increase in net cash provided by financing activities was primarily due to a $3.9 million loan from~~ China; ~~Merchant Bank, a loan from Bank of Chongqing for $2.2 million~~ and two loans from the Guiyang City Nanming Rural Credit Cooperative Bank for $3.8 million and $4.0 million, respectively. Such increase was offset by repayment of a short term bank loan of $3 million that matured in June 2011. In addition, we paid off $2.9 million payable to Mr. Yulu Bai for the purchase cost of the forestry land use right that Mr. Bai had paid on behalf of the Company.
30“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

~~Loan~~Overview ~~Commitments~~of Our Business

AsWe ofproduce ~~June~~and ~~30,~~sell ~~2011,~~floor ~~the~~materials ~~amount,~~and ~~maturity~~related ~~date~~products to residential and ~~term~~commercial ofcustomers ~~each~~in China. Our product lines include oflaminate ~~our~~flooring ~~bank~~and ~~loans~~fiber ~~were~~floor asboards ~~follows:~~that are manufactured in a variety of colors, dimensions and designs.

		Interest
Bank	Amount*	Rate	Maturity Date	Duration
Xingyi City Rural Cooperative Bank	$1,547,149	8.72%	April 29, 2012	1 year
China Merchant Bank	3,867,874	6.06%	March 7, 2012	1 year
Xingyi City Rural Cooperative Bank	773,575	8.10%	July 16, 2011	1 year
Xingyi City Rural Cooperative Bank	2,166,009	8.72%	April 29, 2012	1 year
Guiyang City Nanming Rural Credit Cooperative Bank	3,867,873	8.78%	November 18, 2012	22 months
Guiyang City Nanming Rural Credit Cooperative Bank	4,022,588	8.78%	January 18, 2013	2 years
Total	16,245,069

*The ~~Calculated~~primary ~~based~~raw onmaterial ~~the~~used ~~exchange~~in ~~rate~~our products is wood, which we currently procure from third party suppliers. We expect that commencing in late 2012, we will be able to procure approximately 20% of $1our =wood ~~RMB~~from 6a 2,250 hectares (approximately, 22.~~4635~~5 km2) of fir forest in Guizhou Province.

WeOur ~~believe~~manufacturing ~~that~~facility ~~our~~in ~~cash on hand and cash flow from operations will meet part of our present cash needs and we will require additional cash resources~~Qianxinan, ~~including~~Guizhou ~~loans,~~Province ~~to meet our expected capital expenditure and working~~has ~~capital~~an ~~for~~annual ~~the~~production ~~next~~capacity 12of ~~months.~~six Wemillion ~~may~~square ~~require~~meters ~~additional cash resources in the future due to changed business conditions, implementation~~ of ~~our~~laminate ~~strategy to~~flooring ~~ramp up our marketing efforts~~ and ~~increase brand awareness~~75,000 orcubic ~~acquisitions~~meters ~~we may~~of ~~decide~~industrial tofiber ~~pursue~~boards. IfWe ~~our own financial resources~~ are ~~insufficient~~constructing totwo ~~satisfy~~new ~~our~~manufacturing ~~capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit~~ facilities. ~~The~~next ~~sale of additional equity securities could result in dilution~~ to our ~~stockholders.~~current ~~The~~facility ~~incurrence~~to ~~of indebtedness~~expand ~~would~~our ~~result in increased debt service obligations and could~~laminate ~~require~~flooring usproduction toline ~~agree to operating~~ and ~~financial~~industrial ~~covenants~~fiber ~~that~~board ~~would~~production ~~restrict our operations~~line. ~~Financing~~We ~~may not be available in amounts or on terms acceptable to~~expect ~~us,~~that ifthis atexpansion ~~all.~~will ~~Any~~increase ~~failure~~our byoverall uscapacity to ~~raise~~200,000 ~~additional~~cubic ~~funds on terms favorable to~~meters ~~us,~~of orfiber atboards ~~all,~~and ~~could~~12 ~~limit~~million ~~our~~square ~~ability~~meters toof ~~expand~~laminate ~~our business operations and could harm our overall business prospects~~floor.

~~Obligations~~We ~~Under~~market ~~Material~~and ~~Contracts~~sell our products through five branch offices and 504 contracted flooring specialty retail stores, concentrated mostly in southwestern China. We also sell some of our products through eight retail stores which we refer to as “flagship” stores because they are generally larger and better equipped with samples, promotional material and product inventory, as compared to regular retail stores, and as a result, they better promote our image and the quality of our products. We are also seeking commercial arrangements for the sale of our products through home supply stores, such as our recent agreement to sell our products at Red Star Macalline Furniture Mall’s Guiyang store. Red Star Macalline Furniture Mall is a large home products supply store chain in China, similar to Home Depot and Lowe’s in the U.S., with over 30 malls and stores across China. We believe that home supply stores are an important channel for the sale of building/home renovation materials and we plan to increase our efforts to work with more home supply stores in the future.

In ~~addition~~March to2011, ~~the~~we ~~loan~~established ~~obligations~~Guiyang ~~disclosed~~Silvan ~~above,~~Touch wein ~~have~~order to expand our sales channels. Guiyang Silvan Touch’s principal activity is the wholesaling ~~following~~of ~~material~~wood ~~contractual~~flooring, ~~obligations:~~furniture and decorations.

OnRecent February 2, 2010, we entered into a financial advisory agreement to appoint Asia Regal Financial Capital Group Co., Ltd. and Shenzhen Junwei Investment and Development Co., Ltd. as financial advisors. Pursuant to the agreement, we are obligated to issue to the financial advisors 100,000 shares of common stock at $0.10 per share prior to December 31 of every year within 5 years from the quotation of our stock in the OTC markets. The agreement contains an exclusivity provision whereby we have agreed to engage them as our sole financial advisors for a 2-year period following such stock quotation and contains a $1 million liquidated damages provision for breach of such exclusivity. Developments

On ~~August~~October 253, ~~2006~~2011, we ~~entered~~filed ~~into~~ a ~~contract~~Certificate ~~for~~of ~~property~~Amendment ~~under~~to our ~~construction,~~ Articles ~~requiring~~of ~~payments~~Incorporation ~~totaling~~with ~~$9,695,281~~the ~~(RMB62,665,450).~~Nevada AsSecretary of State to change the name ~~June~~ of ~~30,~~the ~~2011,~~Company wefrom ~~had~~“China ~~paid~~Forestry ~~$6,575,385~~Industry ~~(RMB42~~Group,~~500,000)~~ Inc.” ~~These~~to ~~payments~~“Silvan ~~were~~Industries, ~~recorded~~ Inc.” inPlease ~~deposits~~see ~~and~~our ~~prepaid~~current ~~expenses.~~report ~~The~~on ~~remaining~~Form ~~$3,119,896 (RMB20,165,450)~~8-K ~~will~~filed bewith ~~paid by~~ the ~~end~~SEC ofon October 6, 2011. for more information.
31On May 17, 2010, our Chairman and CEO, Mr. Yulu Bai, entered into an option agreement with Ms. Ren Ping Tu, his wife, pursuant to which Mr. Bai was granted an option to acquire all of the 20,500,000 shares of the Company’s common stock currently owned by Ms. Tu for an exercise price of $2,500,000. On September 6, 2011, Mr. Bai exercised the option to acquire all 20,500,000 shares of the Company’s common stock. After Mr. Bai exercised this option, he directly owns 68.33% of the Company’s issued and outstanding common stock.

~~The~~Third ~~table~~Quarter ~~below~~Financial ~~sets~~Performance ~~forth our contractual obligations as of June 30, 2011.~~ Highlights

~~Payment~~The ~~due~~following bysummarizes ~~period~~certain key financial information for the third quarter of 2011:

Contractual Obligations		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	16,245,069	$	8,354,607	$	7,890,462		-		-
Due to Related Companies		-		-		-		-		-
Operating Lease Obligations		148,432		60,877		57,305		30,249		-
Capital Lease Obligations		-		-		-		-		-
Capital Expenditures		3,119,896		3,119,896		-		-		-
Purchase Obligations		3,599,151		3,599,151		-		-		-
Total	$	23,112,548	$	15,134,531	$	7,947,767	$	30,250	$	-

Revenue: Revenue was $10.7 million for the three months ended September 30, 2011, an increase of $1.9 million, or 22.1%, from $8.8 million for the same period last year.

~~Seasonality~~Gross Profit and Margin: Gross profit was $3.4 million for the three months ended September 30, 2011, an increase of $0.45 million, or 15.3%, from $2.9 million for the same period last year. Gross margin was 31.5% for the three months ended September 30, 2011, as compared to 33.3% for the same period last year.
~~Our~~Net ~~operating~~Income: ~~results~~Net ~~and~~income ~~operating~~was ~~cash~~$1.3 ~~flows~~million ~~historically have~~for ~~not~~the ~~been~~three ~~subject~~months ended toSeptember ~~seasonal~~30, ~~variations.~~2011, ~~This~~a ~~pattern~~decrease ~~may~~of ~~change,~~$0.8 ~~however~~million, as aor ~~result~~40.7%, offrom ~~new~~$2.1 million ~~market~~for ~~opportunities~~the orsame ~~new~~period ~~product~~last ~~introduction~~ year.
~~Inflation~~Fully diluted net income per share: Fully diluted net income per share for the three months ended September 30, 2011 was $0.04, as compared to $0.09 for the same period last year.

~~Inflation~~Results ~~and~~of ~~changing~~Operations prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.

~~Off~~Comparison ~~Balance~~of ~~Sheet~~Three ~~Arrangements~~Months Ended September 30, 2011 and September 30, 2010

WeThe dofollowing ~~not~~table ~~have~~shows ~~any~~key ~~off~~components ~~balance~~of ~~sheet~~our ~~arrangements~~results ~~that have or~~of ~~are~~operations ~~reasonably~~during ~~likely~~the tothree ~~have~~months aended ~~current~~September or30, ~~future~~2011 ~~effect~~and ~~on our financial condition~~2010, ~~changes~~ in ~~financial~~both dollars ~~condition,~~and ~~sales~~as ora ~~expenses,~~percentage ~~results~~ of ~~operations,~~ ~~liquidity or capital expenditures, or capital resources that are material to an investment in~~ our ~~securities~~revenue.

~~Critical Accounting Policies~~3

~~Critical~~(All accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts, ~~being~~other ~~reported~~than ~~under~~percentages, ~~various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed~~ in ~~our Annual Report on Form 10-K for the fiscal year ended December 31, 2010~~U.S. Dollars)

Recent Accounting Pronouncements

		Three Months Ended				Three Months Ended
		September 30, 2011				September 30, 2010
				% of				% of
		Dollars		Revenue		Dollars		Revenue
Revenue	$	10,711,139		100.00%	$	8,771,019		100.00%
Cost of revenue		7,342,247		68.55%		5,848,371		66.68%
Gross profit		3,368,892		31.45%		2,922,648		33.32%
Operating expenses
Selling expenses		269,467		2.52%		27,834		0.32%
General and administrative expenses		697,341		6.51%		322,625		3.68%
Total operating expenses		966,808		9.03%		350,459		4.00%
Income from operations		2,402,084		22.43%		2,572,189		29.33%
Other income (expenses)
Interest income		642		0.01%		-		0.00%
Interest expenses		(464,170	)	-4.33%		(173,244	)	-1.98%
Other (expenses) income		(1,559	)	-0.01%		-		0.00%
Value added tax refund		-		0.00%		526,399		6.00%
Government grant		31,184		0.29%		-		0.00%
Total other income (expenses)		(433,903	)	-4.05%		353,155		4.03%
Income before income taxes		1,968,181		18.38%		2,925,344		33.35%
Less: income tax expense		702,862		6.56%		791,257		9.02%
Net income	$	1,265,319		11.81%	$	2,134,087		24.33%

~~See~~Revenue. ~~Note~~We 2generate torevenue from the sales of our ~~unaudited~~industrial ~~condensed~~fiber ~~consolidated~~boards, ~~financial~~laminate flooring, wooden flooring, and related ~~statements~~flooring ~~included~~products. ~~elsewhere~~Our revenue increased to $10.7 million for the three months ended September 30, 2011, from $8.8 million for the same period in ~~this~~2010, representing ~~report~~a 22.1% increase. The increase in revenue was mainly due to an increase in average unit sales price with stable sales volume across all product categories.

~~ITEM~~In 3terms of product lines, sales of our laminate flooring and fiber board products accounted for approximately 62.6% ~~QUANTITATIVE~~and ~~AND~~37.4% ~~QUALITATIVE~~of ~~DISCLOSURES~~our ~~ABOUT~~revenue, respectively, ~~MARKET~~for ~~RISK~~the three months ended September 30, 2011, as compared to approximately 64.5% and 35.5%, respectively, for the same period in 2010. We did not sell any hard wood flooring products in the third quarter because we are still developing this new product market.

~~Not~~The ~~Applicable~~average unit sales price of our laminate flooring products increased slightly by approximately 2.3% for the three months ended September 30, 2011. We sold approximately 1.00 million square meters of laminate flooring products during the three months ended September 30, 2011, as compared to approximately 1.07 million square meters of laminate flooring products for the same period in 2010. We were able to maintain the relatively stable sales volume as last year with the increased average unit sales price mainly due to our continued promotion and market expansion efforts for this product line.

32The average sales price of our fiber board products increased approximately 26% in the third quarter of 2011 as compared to the same period last year. A larger portion of our products sold in this quarter was 15mm fiber board which generally has a higher sales price than our 12mm fiber board which was the major products sold in the same quarter last year. Sales volume remained fairly stable. We sold approximately 0.6 million pieces of fiber boards during the three months ended September 30, 2011 as compared to approximately 0.59 million pieces of fiber boards for the comparative period in 2010.

~~ITEM~~Cost 4of revenue. ~~CONTROLS~~Our ~~AND~~cost ~~PROCEDURES~~of revenue is primarily comprised of the costs of our raw materials, labor and overhead. Our cost of revenue increased $1.5 million, or 26%, to $7.3 million for the three months ended September 30, 2011, from $5.8 million for the same period in 2010. The cost of revenue as a percentage of revenue increased from 67% for the three months ended September 30, 2010 to 69% for the three months ended September 30, 2011. Such increase was primarily due to the significant increase in cost of raw materials primarily including wood, chemical boards and papers. Unit cost for these raw materials has increased 19 to 20% compared to the same period in 2010. The rise in raw material cost is due to macro inflationary environment in China, which in turn resulted in the increase in unit cost and until selling price of our products.

~~Evaluation of Disclosure Controls and Procedures~~ 4

WeGross ~~maintain~~profit ~~disclosure~~and ~~controls~~gross margin. Our gross profit is equal to the difference between our revenue and ~~procedures~~our ~~(as~~cost ~~defined~~of inrevenue. Our ~~Rule~~gross ~~13a-~~profit increased $0.5 million, or 15~~(e)~~%, ~~under~~to $3.4 million for the ~~Exchange~~three months ~~Act)~~ended September 30, 2011, from $2.9 ~~Disclosure~~million ~~controls~~for ~~and~~the ~~procedures~~same ~~refer~~period in 2010. Gross profit as a topercentage ~~controls~~of ~~and~~net ~~other~~revenue ~~procedures~~(gross ~~designed~~margin) towas ~~ensure~~31% ~~that~~and ~~information~~33% ~~required~~for tothe three months beended ~~disclosed~~September 30, 2011 and 2010, respectively. The decrease in the ~~reports~~gross margin wewas ~~file~~primarily ordriven ~~submit~~by ~~under~~ the ~~Exchange~~decreased ~~Act~~gross ismargin of our laminate ~~recorded,~~flooring ~~processed,~~products. ~~summarized~~The respective gross margins for our laminate flooring and fiber ~~reported~~board ~~within~~products were 25% and 25% for the ~~time~~three ~~periods~~months ~~specified~~ended September 30, in2011, ~~the~~as ~~rules~~compared to 32% and ~~forms~~21% offor the ~~SEC~~same ~~and~~period ~~that~~in ~~such~~2010. ~~information~~The isdrop ~~accumulated~~in ~~and~~the ~~communicated~~gross tomargin of our ~~management,~~laminate ~~including~~flooring ~~our~~product ~~Chief~~line ~~Executive~~was ~~Officer~~mainly ~~and~~attributable ~~Chief~~to a ~~Financial~~greater ~~Officer,~~percentage asincrease ~~appropriate,~~in toaverage ~~allow~~cost ~~timely~~than ~~decisions~~the ~~regarding~~percentage ~~required~~increase in ~~disclosure~~average sales price.

AsSelling ~~required~~expenses. byOur ~~Rule~~selling ~~13a-15(e)~~expenses are comprised primarily of sales commissions, ~~our~~the ~~management~~cost ~~has~~of ~~carried~~advertising ~~out~~and anpromotional ~~evaluation~~materials, ~~with~~salaries ~~the~~and ~~participation~~fringe benefits of sales personnel, travel expense, consulting fees and ~~under~~other ~~the~~sales ~~supervision~~related ofcosts. ~~our~~Our ~~Chief~~selling expenses ~~Executive~~increased ~~Officer~~by $241,633, ~~Mr.~~or ~~Yulu~~868%, ~~Bai~~to $269,467 ~~and~~for ~~Chief~~the ~~Financial~~three ~~Officer~~months ended September 30, ~~Mr.~~2011, ~~Jiyong~~from He$27,834 of for the ~~effectiveness~~same ofperiod ~~the~~in ~~design~~2010. ~~and~~The ~~operation~~increase was primarily a result of the expansion of our ~~disclosure~~sales ~~controls~~network leading to increased salary, welfare expenses and advertisement and exhibition expenses. Our salary expenses ~~procedures,~~for asthe ofthree ~~June~~months ended September 30, 2011. ~~Based~~amounted ~~upon~~to $144,315, ~~and~~compared asto $12,171 offor the ~~date~~same ofperiod ~~this evaluation,~~in ~~Messrs~~2010. ~~Bai~~Our ~~and~~welfare ~~He,~~expenses ~~determined~~for ~~that~~the three months ended September 30, ~~because~~2011 ofamounted ~~the~~to ~~material weaknesses~~$36,100, ~~described~~compared into ~~Item~~$1,447 9Afor ~~“Controls~~the ~~and~~same period ~~Procedures”~~in of2010. ~~our~~Our ~~Annual~~advertisement ~~Report on~~and ~~Form~~exhibition ~~10-K~~expenses for the ~~year~~three months ended ~~December~~September 3130, ~~2010,~~2011 ~~which~~amounted weto ~~are~~$49,806, ~~still~~compared into $623 for the same ~~process~~period ofin ~~remediating~~2010. asDue ofto ~~June~~continued ~~30,~~efforts ~~2011,~~to promote our ~~disclosure~~brand ~~controls~~recognition and ~~procedures~~marketing ~~were~~in ~~not~~the ~~effective.~~PRC, ~~Investors~~our ~~are~~travel ~~directed~~and consultation expenses also increased and contributed to ~~Item~~the 9Aincrease of ~~our~~selling ~~Annual~~and marketing expenses. Our travel ~~Report~~expenses onfor ~~Form~~the three months ended September 30, 2011 amounted to $22,182, compared to $10-K,137 for the ~~year~~same period in 2010. Our consultation expenses for the three months ended ~~December~~September 3130, ~~2010~~2011 amounted to $9,093, compared to $721 for the ~~description~~same ~~of these~~period ~~weaknesses.~~in 2010.

~~Changes~~General and administrative expenses. General and administrative expenses consist primarily of compensation and benefits to our management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in ~~Internal~~connection ~~Control~~with ~~over~~general ~~Financial~~operations. ~~Reporting~~Our general and administrative expenses increased $374,716, or 116%, to $697,341 for the three months ended September 30, 2011, from $322,625 for the same period in 2010. This increase was mainly due to the hiring of additional staff to manage our expanding business, particularly in our finance department, to assist with the increased administrative duties associated with being a public company. This also led to increases of related welfare expenses.

Other income (expense). We ~~regularly~~had ~~review~~$433,903 ~~our~~in ~~system~~other expenses offor ~~internal~~the ~~control~~three ~~over financial~~months ~~reporting~~ended ~~and~~September ~~make~~30, ~~changes~~2011, as compared to ~~our~~other income ~~processes~~of ~~and~~$353,155 ~~systems~~for the same period in 2010. Compared to ~~improve~~same period in 2010, ~~controls~~we ~~and~~incurred ~~increase~~more ~~efficiency~~expenses in this quarter mainly because of a higher interest expense of $290,926 ~~while~~resulting ~~ensuring~~from ~~that~~increased webank ~~maintain~~borrowings anduring ~~effective~~the three ~~internal~~months ~~control~~ended ~~environment~~September 30, 2011. ~~Changes~~We ~~may~~had ~~include~~approximately ~~such~~$19.6 ~~activities~~million bank loans as of September 30, 2011 as compared to $4.5 million as of September 30, 2010. ~~implementing~~In ~~new~~addition, ~~more~~a ~~efficient~~majority ~~systems~~of the 2010 other income was attributable to a $0.53 million value added tax refund. According to a tax refund approval notice issued by the Tax Administration of the Ministry of Finance of the PRC, ~~consolidating~~certain ~~activities~~items, including our wood flooring and wooden fiber sheets are qualified for the refund ~~migrating~~of ~~processes~~VAT in 2009 and 2010. No such tax refund approval notice was issued for 2011. During the three months ended September 30, 2011, we received $31,184 in government grant income for use in research and development of applied technology as compared to $0 for the same period in 2010.

~~During~~Income ~~its~~taxes. ~~evaluation~~Our ofincome ~~the~~taxes ~~effectiveness~~decreased ofby ~~internal control~~$0.09 ~~over~~million, ~~financial~~or ~~reporting as of December 31~~11%, ~~2010, management concluded that we need~~ to ~~increase~~$0.7 ~~our~~million ~~qualified~~for ~~accounting~~the ~~personnel~~three ~~and~~months ~~enhance~~ended ~~the~~September ~~supervision~~30, ~~monitoring~~ ~~and reviewing of financial statements preparation processes. We have~~2011, ~~already~~from ~~taken measures to remediate these material weaknesses by seeking an additional financial reporting and accounting staff member~~$0.8 ~~The~~million ~~Company~~for ~~is currently seeking additional seasoned finance and accounting professionals and experienced financial reporting personnel with relevant knowledge in~~ the ~~preparation~~ ofsame ~~financial~~period ~~statements~~ in ~~accordance with U~~2010.S. ~~GAAP~~The ~~and~~decrease ~~financial reporting~~was ~~disclosure~~due ~~requirements under SEC rules~~ to ~~strengthen~~ the ~~accounting~~ ~~department.~~decrease ~~In addition, the Company is actively seeking a new CFO who is knowledgeable and experienced~~ in USour ~~GAAP~~taxable ~~and SEC reporting matters~~income. ~~The Company has been interviewing potential candidates to seek for these qualified accounting staff and CFO.~~

InNet income. For the ~~meantime~~three months ended September 30, ~~the~~2011, ~~Company~~we ~~has~~generated ~~hired~~a annet ~~external~~income ~~consultant~~of $1.3 million, a decrease of $0.8 million, toor ~~assist~~40.7%, ~~with~~from $2.1 million for the ~~preparation~~same ofperiod USin ~~GAAP~~2010, ~~financial~~as ~~statements~~a ~~and~~result ~~assisting with~~of the cumulative ~~Form~~effect ~~10K~~of ~~and~~the ~~10Q~~foregoing ~~preparation~~factors.

~~Other~~Comparison ~~than~~of ~~the~~Nine ~~foregoing~~Months ~~changes,~~Ended ~~there~~September ~~were~~30, no2011 ~~changes in our~~and ~~internal~~September ~~controls over financial reporting during the second quarter of 2011 that have materially affected~~30, ~~or are reasonably likely to materially affect our internal control over financial reporting.~~2010

~~PART~~The IIfollowing ~~OTHER~~table ~~INFORMATION~~shows key components of our results of operations during the nine months ended September 30, 2011 and 2010, in both dollars and as a percentage of our revenues.

~~ITEM 1. LEGAL PROCEEDINGS.~~5

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

ITEM 1A. RISK FACTORS.

		Nine Months Ended				Nine Months Ended
		September 30, 2011				September 30, 2010
				% of				% of
		Dollars		Revenue		Dollars		Revenue
Revenue	$	29,611,048		100.00%	$	25,696,546		100.00%
Cost of revenue		19,390,075		65.48%		17,085,785		66.49%
Gross profit		10,220,973		34.52%		8,610,761		33.51%
Operating expenses
Selling expenses		995,699		3.36%		146,481		0.57%
General and administrative expenses		1,602,111		5.41%		1,062,610		4.14%
Total operating expenses		2,597,810		8.77%		1,209,091		4.71%
Income from operations		7,623,163		25.74%		7,401,670		28.80%
Other income (expenses)
Interest income		24,217		0.08%		-		0.00%
Interest expenses		(1,099,182	)	-3.71%		(231,761	)	-0.90%
Other (expenses) income		(31,923	)	-0.11%		43,988		0.17%
Value added tax refund		-		0.00%		1,950,176		7.59%
Government grant		76,598		0.26%		-		-
Total other income (expenses)		(1,030,290	)	-3.48%		1,762,403		6.86%
Income before income taxes		6,592,873		22.26%		9,164,073		35.66%
Less: Provision for income taxes		1,884,480		6.36%		2,012,055		7.83%
Net income	$	4,708,393		15.90%	$	7,152,018		27.83%

~~Not~~Revenue. ~~Applicable~~Our revenue increased to $29.6 million for the nine months ended September 30, 2011, from $25.7 million for the same period in 2010, representing a 15% increase. The increase in revenue was mainly due to higher sales volume in the first quarter of 2011 after the expansion of our sales and distribution network, coupled with increase in unit sales price of both our laminate flooring and fiber boards. During the nine months ended September 30, 2011, we sold approximately 2.9 million square meters of laminate flooring products and approximately 1.6 million pieces of fiber boards, as compared to approximately 1.6 million square meters of laminate flooring products and approximately 2.2 million pieces of fiber boards for the same period in 2010. In addition, we started selling hard wood flooring products in the first quarter of 2011 and sold approximately 0.05 million square meters of hard wood flooring products in the nine months ended September 30, 2011. Our respective sales of laminate flooring products, fiber board products and hard wood flooring products accounted for approximately 64.0%, 35.9% and 0.1% of our revenue for the nine months ended September 30, 2011, as compared to 46.1%, 53.9% and 0% for the same period in 2010.

33Cost of revenue. Our cost of revenue increased $2.3 million, or 13%, to $19.4 million for the nine months ended September 30, 2011, from $17.1 million for the same period in 2010. The increase was generally in line with the increase in sales volume. Cost of revenue as a percentage of revenue remain relatively consistent as we had a slight decrease from 66% for the nine months ended September 30, 2010 to 65% for the nine months ended September 30, 2011 primarily attributable to our fiber board product line. As a percentage of revenue, cost of revenue for our fiber board product line was 74% for the nine months ended September 30, 2011, as compared to 78% for the same period in 2010. The decrease was due to the fact that the percentage increase in the unit selling price of fiber boards outpaced the percentage increase in the raw material cost. The unit cost of major raw materials had a percentage increase between 2% to 29% while the unit selling price of 12mm and 15mm fiber boards increased by 7% and 25%, respectively. To minimize the impact of continuing rise in raw material cost, we hope that through our research and development efforts, we can improve our manufacturing technology of this product line which we expect to result in lower consumption of raw materials.

~~ITEM~~Gross profit and gross margin. Our gross profit increased $1.6 million, or 19%, to $10.2 million for the nine months ended September 30, 2011, from $8.6 ~~UNREGISTERED~~million ~~SALES~~for OFthe ~~EQUITY~~same ~~SECURITIES~~period ~~AND~~in ~~USE~~2010. OFSuch ~~PROCEEDS~~increase in overall gross profit was mainly due to an approximately 27% increase in gross profit generated from sales of fiber boards which more than offset an approximately 6% decrease of gross profit from sales of laminate flooring products. Gross profit as a percentage of net revenue (gross margin) was 35% and 34% for the nine months ended September 30, 2011 and 2010, respectively. The slight increase in gross margin was primarily driven by increased gross margin of fiber board products. Gross margins for our laminate flooring products and fiber board products were 26% and 26%, respectively, for the nine months ended September 30, 2011, as compared to 34% and 22%, respectively, for the same period in 2010. The gross margin of new hard wood flooring products was 24.8% for the nine months ended September 30, 2011. The improved gross margin of fiber board product line was due to the decrease in cost of revenue as noted above. The drop in gross margin of laminate flooring products was mainly attributable to a combined effect of decrease in their unit sales price and increase in unit cost. The average sales price of laminate flooring products per square meter dropped approximately 10% from the nine months ended September 30, 2010 as a result of intense competition in the market for similar products.

~~None.~~ 6

~~ITEM~~Selling expenses. Our selling expenses increased significantly by $0.8 million, or 580%, to $1.0 million for the nine months ended September 30, 2011, from $0.1 million for the same period in 2010. The increase was primarily a result of the expansion of our sales network leading to increased salary, welfare expenses and advertisement and exhibition expenses. Our salary expenses for the nine months ended September 30, 2011 amounted to $0.7 million, compared to $0.3 million for the same period in 2010. ~~DEFAULTS~~Our ~~UPON~~welfare expenses ~~SENIOR~~for ~~SECURITIES~~the nine months ended September 30, 2011 amounted to $0.1 million, compared to $5,859 for the same period in 2010. Our advertisement and exhibition expenses for the nine months ended September 30, 2011 amounted to $0.2 million, compared to $55,045 for the same period in 2010. Due to continued efforts to promote our brand and marketing in the PRC, we also incurred more travel and consultation expenses. Our travel expenses for the nine months ended September 30, 2011 amounted to $72,292, compared to $17,974 for the same period in 2010. Our consultation expenses for the nine months ended September 30, 2011 amounted to $96,325, compared to $721 for the same period in 2010.

~~None~~General and administrative expenses. Our general and administrative expenses increased $0.5, million or 51%, to $1.6 million for the nine months ended September 30, 2011, from $1.1 million for the same period in 2010. This increase was mainly due to the hiring of additional staff to manage our expanding business, particularly in our finance department, to assist with the increased administrative duties associated with being a public company. This also led to increases of related welfare expenses.

~~ITEM~~Other 4.income (~~REMOVED~~expense). ~~AND~~We ~~RESERVED~~had $1.0 million in net other expenses for the nine months ended September 30, 2011, as compared to net other income of $1.8 million for the same period in 2010. The $2.8 million decrease in other income (expense) was primarily due to value added tax refund of $1.9 million received in the nine months ended September 30, 2010 coupled with higher interest expense of $1.1 million resulting from increased bank borrowings during the nine months ended September 30, 2011, as compared to $0.2 million interest expense for the comparative period in 2010.

~~ITEM~~Income 5taxes. ~~OTHER~~Our ~~INFORMATION~~income taxes decreased by $0.1 million, or 6%, to $1.9 million for the nine months ended September 30, 2011, from $2.0 million for the same period in 2010. The decrease was due to the decrease in our taxable income.

WeNet ~~have~~income. noFor ~~information~~the tonine ~~disclose~~months ~~that~~ended ~~was~~September 30, ~~required~~2011, towe begenerated in a ~~report~~ onnet ~~Form~~income ~~8-K~~of ~~during~~$4.7 ~~the~~million, ~~period~~a ~~covered~~decrease byof ~~this~~$2.4 ~~report~~million, or ~~but~~34%, ~~was~~from ~~not reported~~$7.2 ~~There~~million ~~have~~for ~~been no material changes to~~ the ~~procedures~~same byperiod ~~which security~~in ~~holders~~2010, ~~may~~as ~~recommend~~a ~~nominees~~result toof ~~our~~the cumulative ~~board~~effect of ~~directors~~the foregoing factors.

~~ITEM~~Liquidity 6.and ~~EXHIBITS.~~Capital Resources

As of September 30, 2011, we had cash and cash equivalents of $72,045. The following ~~exhibits~~table ~~are~~summarizes ~~filed~~the askey ~~part~~cash flow metrics from our condensed consolidated statements of ~~this~~cash ~~report~~flows orfor ~~incorporated~~the nine months ended bySeptember ~~reference:~~30, 2011 and 2010.

Exhibit No.		Description
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Interactive data files pursuant to Rule 405 of Regulation S-T*

Cash Flow

* Furnished herewith

		Nine Months Ended September 30,
		2011			2010
Net cash (used in) provided by operating activities	$	(3,715,575	)	$	2,744,432
Net cash used in investing activities		(8,334,032	)		(6,202,457	)
Net cash provided by financing activities		11,756,689			3,350,958
Effects of exchange rate change in cash		2,153			329,050
Net (decrease) increase in cash and cash equivalents		(290,765	)		221,983
Cash and cash equivalents at beginning of the period		362,810			748,493
Cash and cash equivalent at end of the period	$	72,045		$	970,476

34Operating Activities

~~SIGNATURES~~Net cash used in operating activities was $3.7 million for the nine months ended September 30, 2011, as compared to net cash provided by operating activities of $2.7 million for the same period in 2010. The decrease in net cash from operating activities was primarily due to a decrease of $2.4 million in net income, an approximately $5.6 million cash outflow in inventory purchases which was primarily offset with a corresponding increase in bills payable which are utilized to pay our suppliers for raw material purchases, a $7.3 million outflow in deposits and prepaid expenses primarily for deposits paid to suppliers of raw materials and goods supplies. In addition, as a result of increase in our bills payable, our cash outflow for the restricted cash balance, which serves as collaterals for bills payable, increased by $2.6 million. The significant increase in inventory during the nine months ended September 30, 2011 was attributable to increased inventory and raw materials purchases in anticipation of the development of our sales network in some selected markets in China, as evidenced by our $12.9 million inventory balance as of September 30, 2011 and our $9.5 million sales order backlog.

~~In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~ 7

Date: August 22, 2011	CHINA FORESTRY INDUSTRY GROUP, INC.
	By:	/s/ Yulu Bai
		Yulu Bai, Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Jiyong He
		Jiyong He, Chief Financial Officer
		(Principal Financial Officer and Principal
		Accounting Officer)

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2011 was $8.3 million, as compared to $6.2 million for the same period in 2010. The net cash used in investing activities was primarily due to our purchase of land use rights for approximately $2.5 million during the nine months ended September 30, 2011. In addition, we paid approximately $5.8 million as prepayment for properties under construction for the expansion of our facilities.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2011 was $11.8 million, as compared to $3.4 million for the same period in 2010. The increase in net cash provided by financing activities was primarily due to increased bank borrowings of $17.7 million to fund our expansion. Such increase was offset by repayment of two short term bank loans totaled $3.1 million that matured in June and July 2011. In addition, we paid off $2.9 million payable to Mr. Yulu Bai for the purchase cost of the forestry land use right that Mr. Bai had paid on behalf of the Company.

Loan Commitments

As of September 30, 2011, the amount, maturity date and term of each of our bank loans were as follows:

Interest

Bank

Amount*

Rate

Maturity Date

Duration

China Merchant Bank

3,913,282

8.484%

March 7, 2012

1 year

Xingyi City Rural Cooperative Bank

3,756,751

8.715%

April 29, 2012

1 year

Bank of Chongqing

3,130,625

7.572%

July 3, 2012

1 year

Xingyi City Rural Cooperative Bank

782,656

9.5667%

August 2, 2012

1 year

Guiyang City Nanming Rural Credit Cooperative Bank

3,913,282

8.775%

November 18, 2012

22 months

Guiyang City Nanming Rural Credit Cooperative Bank

4,069,813

8.775%

January 18, 2013

2 years

Total

19,566,409

* Calculated based on the exchange rate of $1 = RMB 6.3885

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

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

Obligations Under Material Contracts

In addition to the loan obligations disclosed above, we have the following material contractual obligations:

On February 2, 2010, we entered into a financial advisory agreement to appoint Asia Regal Financial Capital Group Co., Ltd. and Shenzhen Junwei Investment and Development Co., Ltd. as financial advisors. Pursuant to the agreement, we are obligated to issue to the financial advisors 100,000 shares of common stock at $0.10 per share prior to December 31 of every year within 5 years from the quotation of our stock in the OTC markets. The agreement contains an exclusivity provision whereby we have agreed to engage them as our sole financial advisors for a 2-year period following such stock quotation and contains a $1 million liquidated damages provision for breach of such exclusivity.
As of September 30, 2011, the total estimated contract costs to complete the production line for wooden fiber sheet are approximately $58.3 million (RMB372.4 million) of which the Company has completed and paid for approximately $6.1 million (RMB39.2 million). The remaining of $52.2 million (RMB333.2 million) will be completed and paid by the end of 2013.
As of September 30, 2011, the total estimated contract costs to complete the production line for wooden floor are approximately $23.7 million (RMB151.6 million) of which the Company has completed and paid for approximately $0.2 million (RMB1.6 million). The remaining of $23.5 million (RMB150.0 million) will be completed and paid by the end of 2013.
As of September 30, 2011, the total estimated contract costs to complete a property are approximately $9.8 million (RMB62.7 million) of which the Company has completed and paid for approximately $6.7 million (RMB42.5 million). The remaining of $3.1 million (RMB20.2 million) will be completed and paid by the end of 2011.
As of September 30, 2011, we have operating lease commitments for four store leases and two warehouse leases, the leases expire through year 2013. Our future minimum lease payments are as follow: $19,988 for the remainder of 2011, $81,060 for 2012, $74,567 for 2013 and $10,380 for 2014.

Seasonality

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

Inflation

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

Off Balance Sheet Arrangements

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

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Yulu Bai, and Chief Financial Officer, Mr. Jiyong He, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2011. Based upon, and as of the date of this evaluation, Messrs. Bai and He, determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2010, which we are still in the process of remediating as of September 30, 2011, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2010 for the description of these weaknesses.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2010, management concluded that we need to increase our qualified accounting personnel and enhance the supervision, monitoring and reviewing of financial statements preparation processes. We have already taken measures to remediate these material weaknesses by seeking an additional financial reporting and accounting staff member. We are currently seeking additional seasoned finance and accounting professionals and experienced financial reporting personnel with relevant knowledge in the preparation of financial statements in accordance with U.S. GAAP and financial reporting disclosure requirements under SEC rules to strengthen the accounting department. In addition, we are actively seeking a new CFO who is knowledgeable and experienced in US GAAP and SEC reporting matters. We have been interviewing potential candidates to seek for these qualified accounting staff and CFO.

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

Other than the foregoing changes, there were no changes in our internal controls over financial reporting during the third quarter of 2011 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

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

ITEM 1A.

RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

(REMOVED AND RESERVED).

ITEM 5.

OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.

EXHIBITS.

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

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith)

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 21, 2011	SILVAN INDUSTRIES, INC.

	By:	/s/ Yulu Bai
		Yulu Bai, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Jiyong He
		Jiyong He, Chief Financial Officer
		(Principal Financial Officer and Principal
		Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith)

Filing Compare · Silvan Industries, Inc.