China Forestry Industry Group Reports Fourth Quarter and Fiscal Year 2010 Financial Results

Fourth Quarter 2010 Highlights

• Revenue grew 206.1% year-over-year to $11.3 million
• Gross profit increased 164.8% to $3.1 million, from $1.2 million in the fourth quarter of fiscal year 2009
• Operating income was $2.6 million, an increase of 159.0% compared to $1.0 in the year-ago period
• Net income increased 169.2% to $2.1 million, or $0.08 per diluted share, as compared to approximately $0.8 million, or $0.04 per diluted share a year ago
• The Company completed a reverse acquisition transaction with China Bingwu Forestry Group Limited, a Hong Kong company, as a result of which, the Company changed its name to China Forestry Industry Group, Inc. and is engaged through Bingwu's subsidiaries, in the business of producing and selling floor materials and related products to residential and commercial customers in China

Full Year 2010 Highlights

• Revenue increased 178.8% to $37.0 million, from $13.3 million in 2009  
• Gross profit increased 257.1% to $11.7 million
• Gross margin increased 695 basis points to 31.7%, from 24.8% in 2009
• Operating income increased 288.4% to $10.0 million
• Operating margin increased to 27.1%, from 19.5%
• Net income increased 313.7% to $9.3 million, or $0.42 per diluted share, as compared to $2.2 million or $0.11 per diluted share in 2010.

"We are pleased to report strong growth in revenues, operating margins, and earnings in 2010," said Mr. Yulu Bai, Chairman and Chief Executive Officer of China Forestry.  "This performance was mainly driven by our strategy to expand into flooring products, develop forestry resources and build a large distribution network for floor products in southwestern China. The increase in sales was mainly due to the expansion of our product portfolio from fiber boards to include laminate flooring, following Silvan Flooring's November 2009 commencement of operations, and the expansion of our distribution network to include 8 retail stores and over 500 contracted flooring specialty stores as of December 31, 2010. As a result of economies of scale from our growing production and sales volume and the inclusion of higher-margin laminate flooring, our gross profit margin and net income increased as well."

Fourth Quarter Fiscal 2010 Results

For the three months ended December 31, 2010, revenues were $11.3 million, an increase of 206.1%, from $3.7 million for the corresponding period in 2009.  The increase was primarily due to the incorporation of the laminate flooring business unit and the expansion of the Company's sales and distribution network.

Laminate flooring accounted for $10.1 million, or 88.7% of total sales for the fourth quarter 2010, an increase of 461.3%, from $1.8 million, or 48.4% of total sales for the corresponding quarter previous year. The increase was mainly due to the incorporation of Silvan Flooring, the Company's laminate flooring business, in the middle of the fourth quarter 2009 and an expansion of its retail distribution network from 7 retail stores and 473 specialty stores as of December 31, 2009 to 8 retail stores and 504 specialty stores as of December 31, 2010.

Fiber board accounted for $1.3 million, or 11.3% of total sales for the fourth quarter 2010, compared to $1.9 million, or 51.6% of total sales, for the corresponding quarter prior year. The decrease was mainly due to a higher level of vertical product integration where a large portion of the Company's own fiber board production was internally sold to the laminate flooring division, and was thus not considered revenue on a consolidated basis.

Cost of sales for the fourth quarter of 2010 was $8.2 million, an increase of 225.4%, from $2.5 million for the fourth quarter of 2009.  The increase was primarily due to a corresponding increase in sales.  Gross profit was $3.1 million, an increase of 164.8% from the corresponding period in the previous year.  Gross margin was 27.6%, compared to 31.9% in the corresponding three month period of the previous year.  The decrease in gross margin was primarily due to the Company lowering its selling prices for certain laminate flooring products in order to capture market share.

Selling and marketing expenses for the fourth quarter of 2010 were $105,561, an increase of 331.7%, from $24,450 for the corresponding period previous year. The increase was due to increased transportation and advertisement expenses resulting from the expansion of the Company's sales network.

General and administrative expenses for the fourth quarter of 2010 were $384,019, an increase of 177.4% from $138,454 for the corresponding period previous year. The increase was primarily attributable to higher management expenses related to expanded operations during the 2010 period.

Operating income was $2.6 million, an increase of 159.0% from $1.0 million previous year. Operating margin was 23.3%, compared to 27.5% for the corresponding period previous year.

The Company recorded $0.7 million in provision for income taxes for the three months ended December 31, 2010, compared to $0.4 million for the corresponding period during the previous year.    

As a result, net income was $2.1 million, or $0.08 per diluted share, for the fourth quarter of 2010, compared to $0.8 million, or $0.04 per diluted share, for the corresponding three-month period during the previous year.  The Company had 26,843,333 weighted average diluted shares outstanding for the three months ended December 31, 2010, compared with 20,500,000 for the corresponding period in 2009.

Fiscal Year 2010 Results

For the fiscal year ended December 31, 2010, revenues were $37.0 million, an increase of 178.8% from $13.3 million in 2009. The increase in sales was mainly attributable to the incorporation of the laminate flooring business unit and the expansion of the Company's sales and distribution network. Gross profit was $11.7 million, an increase of 257.1% from gross profit of $3.3 million in 2009. Gross margin was 31.7%, compared to 24.8% in fiscal 2009. Operating expenses for 2010 were $1.7 million, as compared to $0.7 million for the same period a year ago. Income from operations was $10.0 million, an increase of 288.4% from $2.6 million in 2009. Net income for 2010 was $9.3 million, or $0.42 per diluted share, an increase of 313.7% from $2.2 million, or $0.11 per diluted share, previous year.

Financial Condition

As of December 31, 2010, the Company had cash and cash equivalents of $2.3 million, accounts receivable of $5.4 million, and working capital of $14.6 million. The Company has no long term debt.  Shareholders' equity was $32.9 million as of December 31, 2010.  For the twelve months ended December 31, 2010, the Company used $1.3 million in cash in operating activities, mainly due to an increase in deposits and prepaid expenses in connection with deposits for raw materials and goods supplies, an increase in accounts receivable and a decrease in accounts payable.

Subsequent Events

In January 2011, the Company retained CCG Investor Relations to design and execute its investor relations campaign.

In January 2011, the Company's operating subsidiary, QianXiNan Aosen Forestry Co., Ltd., participated in SURFACES 2011 in Las Vegas, Nevada, one of the largest floor covering events.

Business Outlook

The Company expects to continue capitalizing on the growing urban residential housing market in southwestern China. In the upcoming years, the Company plans to continue expanding the sale of its goods through its affiliated retail stores and its sales and distribution networks, enhance brand awareness through strategic marketing campaigns, increase its fiber board and laminate flooring production capacity, cultivate timberland resources to provide sufficient raw material, and acquire forestry assets and leading regional flooring companies in key regions.

Mr. Bai concluded: "We are optimistic about our business and believe that we are well positioned to benefit from the rising demand for flooring and fiberboard in China. We believe that our vertically integrated business model will help us to become a leading player in the flooring industry in southwestern China. We also expect that the availability of raw materials from our own forestry lands by 2012 will enable us to keep our raw material costs stable and support our gross margin going forward. "

About China Forestry Industry Group, Inc.

China Forestry Industry Group, Inc., through its operating subsidiaries, Aosen Forestry and Silvan Flooring, is involved in the production and sale of floor materials and related products to residential and commercial customers in China. The Company's product lines include laminate flooring and fiber floor boards which are manufactured in a variety of colors, dimensions and designs. The Company's manufacturing facility in Qianxinan, Guizhou Province has an annual production capacity of 6 million square meters of laminate flooring and 75,000 cubic meters of industrial fiber boards. The Company is headquartered in Guiyang, Guizhou Province.

Safe Harbor Statement

This release may contain certain "forward-looking statements" relating to the business of China Forestry Industry Group, Inc. and its subsidiaries. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives, including its ability to continue capitalizing on residential housing market in southwestern China, continue expanding the sale of its goods through current networks, enhance brand awareness through strategic marketing campaigns, increase production capacity, obtain sufficient raw material from its own forestry lands by 2012 and keep raw material costs stable, and acquire forestry assets in key regions; the business strategy, plans, and objectives of the Company and its subsidiaries, including its plan to become a leading player in the flooring industry in southwestern China; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov.

All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume any duty to update these forward-looking statements.

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