Master Silicon Carbide Industries, Inc. - FORM 10-Q

Attached files

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EX-31.1 - Master Silicon Carbide Industries, Inc.	v192905_ex31-1.htm
EX-32.1 - Master Silicon Carbide Industries, Inc.	v192905_ex32-1.htm
EX-31.2 - Master Silicon Carbide Industries, Inc.	v192905_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(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 30, 2010

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

For the transition period from ____________ to ____________

Commission File Number 000-52988

MASTER SILICON CARBIDE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

558 Lime Rock Road, Lakeville, Connecticut 06039

(Address of principal executive offices)

(860) 435-7000

(Registrant's telephone number)

Indicate by check mark whether the issuer (1) 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 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 ¨ 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 ¨ 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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 11, 2010, the registrant had: (i) 3,119,782 shares of Common Stock, par value $.001 per share (“Common Stock”), issued and outstanding; (ii) 996,186 shares of Series A Convertible Preferred Stock, par value $.001 per share (“Series A Stock”), issued and outstanding; and (iii) 920,267 shares of Series B Convertible Preferred Stock, par value $.001 per share (“Series B Stock”), issued and outstanding.

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements.	F-1

	Consolidated Balance Sheets As of June 30, 2010 (Unaudited) and December 31, 2009	F-2

	Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	F-3

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)	F-4

	Notes to the Interim Consolidated Financial Statements (Unaudited)	F-5 to F-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures.	14

PART II OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15

Item 4.	Removed and Reserved	15

Item 6.	Exhibits	16

Signatures		17

Exhibits/Certifications

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

Master Silicon Carbide Industries, Inc.

June 30, 2010

Index to Consolidated Financial Statements

Contents		Page(s)

Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009		F-2

Consolidated Statements of Operations and Comprehensive Profit (Loss) for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)		F-3

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)		F-4

Notes to the Interim Consolidated Financial Statements (Unaudited)		F-5 to F-15

F-1

MASTER SILICON CARBIDE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	4,055,741		$	6,194,047
Notes receivable		15,115			30,875
Accounts receivable, net		42,712			74,400
Tax refundable		560,332			617,380
Inventories		2,376,372			1,001,285
Prepaid expenses		27,466			62,723

Total current assets		7,077,738			7,980,710

Deposits-fixed assets		3,019,605			3,859,366
Other receivables		53,022			28,530
Amount due from related party		1,000,000			-
Property, plant and equipment, net		1,047,476			999,369
Construction in progress		11,310,925			7,555,461
Intangible assets, net		1,411,791			1,428,078

Total assets	$	24,920,557		$	21,851,514

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities	$	1,553,038		$	1,257,657
Advance from customers		278,682			113,189
Other payables		174,095			142,718
Amount due to related parties		858,122			860,060
Dividends accrued		150,000			150,000

Total current liabilities		3,013,937			2,523,624

Long-term loans		4,417,677			1,464,515

Total liabilities		7,431,614			3,988,139

Redeemable Preferred Stock-A ($0.001 par value, 996,186 shares issued) net of discount of $266,849 at June 30, 2010, liquidation preference of $10.038 per share and accrued dividends		9,733,151			9,466,295

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

Stockholders’ equity (deficit):
Common stock, $0.001 par value, 100,000,000 shares authorized; 2,970,349 and 2,671,483 shares issued and outstanding, respectively		2,970			2,671
Additional paid-in capital		4,347,227			4,047,524
Retained (deficit)		(6,674,182	)		(5,662,269	)
Accumulated other comprehensive income		79,777			9,154

Total stockholders’ equity (deficit)		(2,244,208	)		(1,602,920	)

Total liabilities, redeemable preferred stock and stockholders' equity (deficit)	$	24,920,557		$	21,851,514

See accompanying notes to consolidated financial statements

F-2

MASTER SILICON CARBIDE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE PROFIT (LOSS) (UNAUDITED)

(In US Dollars)

	Three Months Ended						Six Months Ended
	6/30/2010			6/30/2009			6/30/2010			6/30/2009

Revenues:
Revenues	$	2,411,868		$	507,164		$	3,240,365		$	994,795
Cost of revenues		1,862,207			471,213			2,716,514			893,747

Gross profit		549,661			35,951			523,851			101,048

General and administrative expenses		590,494			371,713			1,032,146			756,198

Total operating expenses		590,494			371,713			1,032,146			756,198

Loss from operations		(40,833	)		(335,762	)		(508,295	)		(655,150	)

Interest income		11,433			5,120			38,554			29,078
Other income (expenses)		23,766			(8,178	)		26,687			(60,254	)

Total other income (loss)		35,199			(3,058	)		65,241			(31,176	)

Loss before income taxes		(5,634	)		(338,820	)		(443,054	)		(686,326	)

Income tax provision		-			557			2,003			35,940

Net Loss	$	(5,634	)	$	(339,377	)	$	(445,057	)	$	(722,266	)

Accretion on redeemable preferred stock	$	133,428		$	133,428		$	266,856		$	266,856

Dividends on preferred stock		150,000			150,000			300,000			300,000

Net loss attributable to common stockholders	$	(289,062	)	$	(622,805	)	$	(1,011,913	)	$	(1,289,122	)

Comprehensive profit (loss):

Net Loss	$	(5,634	)	$	(339,377	)	$	(445,057	)	$	(722,266	)

Foreign currency translation adjustment		67,031			4,575			70,623			(4,575	)

Comprehensive profit (loss)	$	61,397		$	(334,802	)	$	(374,434	)	$	(726,841	)

Basic and diluted net loss per share	$	(0.10	)	$	(0.27	)	$	(0.35	)	$	(0.57	)

Weighted average common shares outstanding - basic and diluted		2,968,707			2,343,283			2,894,394			2,244,065

See accompanying notes to consolidated financial statements

F-3

MASTER SILICON CARBIDE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In US Dollars)

	Six Months Ended
	6/30/2010			6/30/2009

Cash flows from operating activities:
Net loss	$	(445,057	)	$	(722,266	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation		63,805			52,932
Stock based compensation		-			49,800
Amortization		20,501			30,742
Changes in operating assets and liabilities:
Notes receivable - trade		15,773			(67,510	)
Accounts receivable		31,935			55,744
Other receivables		(24,213	)		69,865
Prepaid expenses		35,319			(80,571	)
Inventories		(1,362,705	)		18,812
Accounts payable and accrued liabilities		294,362			(129,610	)
Other current liabilities		20,579			20,226
Advance from customers		164,042			(783,213	)
Taxes refundable		62,662			(273,990	)

Net cash provided by (used in) operating activities		(1,122,997	)		(1,759,039	)

Cash flows from investing activities:
Deposits - fixed assets and construction in progress		(2,944,875	)		(4,800,596	)
Advances to related parties receivable		(2,172,500	)		-
Proceeds from related parties receivables		1,172,500			859,428

Net cash used in investing activities		(3,944,875	)		(3,941,168	)

Cash flows from financing activities:
Proceeds from loans		2,930,317			-
Due to related parties		(6,628	)		-

Net cash provided by (used in) financing activities		2,923,689			-

Effect of exchange rate changes on cash		5,878			3,419

Net decrease in cash and cash equivalents		(2,138,305	)		(5,696,788	)

Cash and cash equivalents, beginning of year		6,194,046			6,817,950

Cash and cash equivalents, end of year	$	4,055,741		$	1,121,162

Supplemental disclosures of cash flow information:
Cash paid for interest		-			-
Cash paid for taxes		2,003			-

Noncash investing and financing activities:

Conversion of Series A preferred stock dividend		300,000			300,000

See accompanying notes to consolidated financial statements

F-4

Master Silicon Carbide Industries, Inc.

June 30, 2010

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 - ORGANIZATION AND OPERATIONS

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

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

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

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

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

Merger of Paragon New Jersey

On September 27, 2007, the Company entered into a Reorganization and Stock Purchase Agreement (the “Reorganization Agreement”) with Paragon New Jersey. Pursuant to the Reorganization Agreement, the Company issued 675,000 shares of its common stock at the time representing approximately 81.82% of the issued and outstanding shares of its common stock for the acquisition of all of the outstanding capital stock of Paragon New Jersey. As a result of the ownership interests of the former shareholder of Paragon New Jersey, for financial statement reporting purposes, the merger between the Company and Paragon New Jersey has been treated as a reverse acquisition with Paragon New Jersey deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with “Business Combinations” (“FASB ASC 805”). The reverse merger is deemed a capital transaction and the net assets of Paragon New Jersey (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Paragon New Jersey which are recorded at historical cost. The equity of the Company is the historical equity of Paragon New Jersey retroactively restated to reflect the number of shares issued by the Company in the transaction.

Merger of C3 Capital, Limited

On September 2, 2008, pursuant to a Stock Purchase Agreement entered into by the parties and consummated on such date, Yili Carborundum USA, Inc. (“Yili US”), a recently formed Delaware corporation which is wholly-owned by the Company, a Delaware corporation (hereafter referred to as the “Company”, “we” or “us”, as applicable), acquired from Mr. Tie Li, for a cash purchase price of $10,000, all of the outstanding capital stock of C3 Capital, Limited, a company incorporated in the British Virgin Islands (“C3 Capital”). C3 Capital in turn has an agreement to purchase all of the equity interests of Yili Master Carborundum Production Co., Ltd. (“Yili China”), a wholly-owned foreign enterprise (“WOFE”) in the People’s Republic of China (the “PRC”) (“Yili China”), pursuant to which the Company paid $555,096 in cash for the acquisition of the equity interests of Yili China with the proceeds of the Private Placement (as defined below) closed on September 2, 2008. In addition, C3 Capital entered into (i) an agreement to purchase 90% of the equity interests in Xinjiang Ehe Mining and Metallurgy Co., Ltd., a corporation incorporated under the laws of the PRC on August 7, 2008 (“Ehe China”) from Mr. Zhigang Gao; and (ii) a Memorandum of Understanding with Mr. Zhigang Gao and Mr. Ping Li, for an option to purchase the assets to be secured by Xinjiang Paragon Master Mining Co., Ltd., a corporation to be formed under the laws of the PRC (“Quartz Mine China”). Ehe China and Quartz Mine China are currently inactive with no assets or operations. Ehe China intends to build a 40,000 ton green silicon carbide project in the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental permissions and approvals, and Quartz Mine China intends to obtain the exploration and mining rights for a quartz mine in Wenquan County of Xinjiang Uygur Autonomous Region of the PRC.

F-5

Dissolution of Paragon New Jersey

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

Reincorporation

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

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

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

These consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $6,674,182, but future profit is anticipated in the development of its business. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to address the going concern issue by funding future operations through the sale of equity capital.

Business combination

In accordance with FASB ASC 805 “Business Combinations”, the Company allocates the purchase price of acquired entities to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

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

Use of estimates

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

F-6

Cash and cash equivalents

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

As of June 30, 2010, the cash balance in financial institutions in the United States was $3,047,384. Accounts at these financial institutions are insured by the Federal Deposit insurance Corporation (“FDIC”) up to $250,000. At June 30, 2010, the Company had deposits that were in excess of the FDIC insurance limit.

Accounts receivable

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

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

Inventories

The Company values inventories, consisting of finished goods, work in process and raw materials, at the lower of cost or market. Cost is determined on the weighted average cost method. Cost of work in process and finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company follows FASB ASC 330-10-30 “Inventory-Overall-Initial Measurement” for the allocation of production costs and charges to inventories. The Company allocates fixed production overheads to inventories based on the normal capacity of the production facilities expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. Judgment is required to determine when a production level is abnormally low (that is, outside the range of expected variation in production). Factors that might be anticipated to cause an abnormally low production level include significantly reduced demand, labor and materials shortages, and unplanned facility or equipment down time. The actual level of production may be used if it approximates normal capacity. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of abnormally low production or idle plant and unallocated overheads of underutilized or idle capacity of the production facilities are recognized as period costs in the period in which they are incurred rather than as a portion of the inventory cost.

The Company regularly reviews raw materials and finished goods inventories on hand and, when necessary, records a provision for excess or obsolete inventories based primarily on current selling price and sales prices of confirmed backlog orders. As of June 30, 2010, the Company determined reserves for obsolescence were immaterial.

Property, plant and equipment

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

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

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

F-7

Land use right

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

Impairment of long-lived assets

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

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company determined that there were no impairments of long-lived assets as of June 30, 2010.

Redeemable preferred stock

On September 2, 2008, the Company completed the sale to China Hand Fund I, LLC and/or its designees or assignees of 996,186 units for total proceeds of $10,000,000, each unit consisting of one share of the Company’s Series A Convertible Preferred Stock and one warrant to purchase twenty-five shares of the Company’s common stock. The preferred stock pays annual dividends of 6% regardless of the Company’s profitability. Each preferred share is convertible into ten shares of common stock. On December 30, 2010, the Company is required to redeem for cash the outstanding preferred stock, if not previously converted by the holders, for $1.0038 per share plus accrued but unpaid dividends. Because the Company is required to redeem the preferred stock on December 30, 2010, if it has not been previously converted by the holders, in accordance with EITF Topic D-98, the preferred stock is classified outside of stockholders’ equity.

In accordance with FASB ASC 470-20-25, “Debt-Debt with Conversion Options-Recognition”, the Company allocated the proceeds received between the preferred stock and the warrants. The resulting discount from the face amount of the preferred stock is being amortized using the effective interest method over the period to the required redemption date. After allocating a portion of the proceeds to the warrants, the effective conversion price of the preferred stock was lower than the market price at the date of issuance and therefore a beneficial conversion feature was recorded. The dividends on the preferred stock, together with the periodic accretion of the preferred stock to its redemption value, are charged to retained earnings.

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

Fair value of financial instruments

The Company follows FASB ASC 825-10-50-10 “Financial Instruments-Overall-Disclosure” for its financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, customer deposits, taxes payable, accrued expenses and other current liabilities, approximate their fair values because of the short maturity of these instruments.

F-8

Revenue recognition

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

Shipping and handling costs

The Company accounts for shipping and handling fees in accordance with FASB ASC 705 “Cost of Sales and Services”. Shipping and handling costs related to costs of raw materials purchased is included in cost of revenue. While amounts charged to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.

Research and development

Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment and material and testing costs for research and development.

Advertising costs

Advertising costs are expensed as incurred.

Stock-based compensation

The Company adopted the fair value recognition provisions of FASB ASC 718“Compensation-Stock Compensation”.

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

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

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

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

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

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

Income taxes

The Company accounts for income taxes under FASB ASC 740 “Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

F-9

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

Segment reporting

FASB ASC 280, “Segment Reporting” requires use of the management approach model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

In accordance with FASB ASC 280, the Company has reviewed its business activities and determined that multiple segments do not exist that need to be reported.

Foreign currency translation

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with FASB ASC 830 “Foreign Currency Matters” and are included in determining net income or loss.

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

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

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

June 30, 2010
Balance sheet		RMB 6.7909 to US$1.00
Statement of operations and comprehensive loss		RMB 6.8252 to US$1.00

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

F-10

Comprehensive income (loss)

The Company has adopted FASB ASC 220 “Comprehensive Income”. This statement establishes rules for the reporting of comprehensive income (loss) and its components. Comprehensive income (loss), for the Company, consists of net income (loss) and foreign currency translation adjustments and is presented in the Statements of Operations and Comprehensive Profit (Loss) and Stockholders’ Equity.

Net loss per common share

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

	For three months		For three months		For six months		For six months
	ended June 30,		ended June 30,		ended June 30,		ended June 30, 2009
	2010		2009		2010

Numerator for basic and diluted net loss per share - Deficit from continuing operations	$	-289,062	$	-622,805	$	-1,011,913	$	-1,289,122
Denominator for basic and diluted net loss per share - Weighted average shares of common stock outstanding		2,968,707		2,343,283		2,894,394		2,244,065
Basic and diluted net loss per share	$	-0.10	$	-0.27	$	-0.35	$	-0.57

The following table shows the weighted-average number of potentially dilutive shares excluded from the diluted net loss per share calculation for three months ended June 30, 2010 and 2009 and six months ended June 30, 2010 and 2009:

	For three months		For three months		For six months		For six months ended
	ended June 30, 2010		ended June 30, 2009		ended June 30,		June 30, 2009
					2010
Series A preferred stock		9,961,860		9,961,860		9,961,860		9,961,860
Series B preferred stock		9,202,670		-		9,202,670		-
Warrants		-		27,414		-		52,074
Total		19,164,530		9,989,274		19,164,530		10,013,934

Common Stock

As of June 30, 2010, the Company had 2,970,349 shares of Common Stock issued and outstanding.

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

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

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

F-11

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

From September 2, 2008 through June 30, 2010, an aggregate of 944,749 shares of Common Stock were issued to the holders of Series A Preferred Stock as dividends.

Dividend

During the second quarter of 2010, the Company accrued $150,000 in dividends pursuant to the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock, dated August 29, 2008. During the first quarter of 2010, the Company issued 149,433 shares of common stock, or $150,000 at a fair market value of Common Stock, as payment of the dividend of Series A Preferred Stock. As of June 30, 2010, dividend payable remains $150,000 unpaid.

Recently issued accounting pronouncements

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

Statement of Financial Accounting Standards (“SFAS”) SFAS No. 165 (ASC Topic 855), “Subsequent Events”, SFAS No. 166 (ASC Topic 810), “Accounting for Transfers of Financial Assets – an Amendment of FASB Statement No. 140”, SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R)”, and SFAS No. 168 (ASC Topic 105), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.

Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and Various other ASU’s No. 2009-2 through ASU No. 2010-21 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

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

Going Concern

As shown in the accompanying consolidated financial statements, the Company had an accumulated deficit incurred through June 30, 2010, which raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

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

F-12

NOTE 3 – INVENTORIES

Inventories at June 30, 2010 and December 31, 2009 consisted of the following:

	30-Jun-10		31-Dec-09

Raw materials	$	619,007	$	471,690

Finished goods		1,497,498		462,314

Work in progress		259,867		67,281

Total	$	2,376,372	$	1,001,285

NOTE 4 – RELATED PARTY

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

On February 10, 2010, the Company (“Creditor”) signed a loan agreement with China Silicon Corporation, a Delaware corporation (“Debtor”) to extend a loan of One Million U.S. Dollars (US$1,000,000) to Debtor to fund working capital needs. The actual controlling shareholder of Creditor and Debtor is the same one. The interest rate of this loan is six percent (6%) per annum. Debtor promises to pay to Creditor the principal sum of One Million U.S. Dollars on December 31, 2010. Debtor delivered a promissory note of US$1,000,000 to Creditor.

On April 14, 2010, the Creditor extended a second loan (the “Second Loan”) of One Million One Hundred Seventy Two Thousand Five Hundred Dollar ($1,172,500) to the Debtor to fund its working capital. The Second Loan was interest free and was repaid on April 21, 2010.

As of June 30, 2010, the Company owed Changchun Master Company $858,122 whose stockholder is Zhigang Gao, who is the director of the Company. The loan payable is non-interest bearing, unsecured, and is payable on demand.

NOTE 5 – DEPOSITS – FIXED ASSETS

Deposits to purchase fixed assets included the deposits to establish the buildings and equipment for the three production lines. Deposits at June 30, 2010 and December 31, 2009 consisted of the following:

	30-Jun-10		31-Dec-09

Deposit for buildings	$	479,101	$	1,469,348

Deposit for equipment		2,540,504		2,390,018

Total	$	3,019,605	$	3,859,366

NOTE 6 – INTANGIBLE ASSETS

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

Intangible assets at June 30, 2010 and December 31, 2009 consisted of the following:

	30-Jun-10			31-Dec-09

Land use right	$	795,708		$	790,934

Production license		691,691			688,214

Software		3,059			3,041

Less: accumulated amortization		(78,667	)		(54,111	)

Total	$	1,411,791		$	1,428,078

F-13

Amortization expense for the three months ended June 30, 2010 was $10,131.

NOTE 7 – PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2010 and December 31, 2009 consisted of the following:

	30-Jun-10			31-Dec-09

Buildings	$	245,313		$	243,972

Machinery and equipment		639,365			614,565

Motor vehicles		288,586			236,933

Office equipment		80,910			45,691

Less: accumulated depreciation		(206,698	)		(141,792	)

Property and equipment, net	$	1,047,476		$	999,369

Depreciation related to property and equipment used in production is reported in cost of revenues. Depreciation expense for the three months ended June 30, 2010 was $32,959, of which $16,477 was included in G&A expense and $16,482 was included in cost of revenue. Depreciation expense for the six months ended June 30, 2010 was $63,805, of which $24,529 was included in G&A expense and $39,276 was included in cost of revenue.

NOTE 8 – CONSTRUCTION IN PROGRESS

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

	30-Jun-10		31-Dec-09

Buildings	$	3,708,262	$	1,235,278

Construction in progress		3,450,349		3,020,106

Equipment		2,995,914		2,586,123

Capitalized interest		171,627		17,730

Others		984,773		696,224

Total	$	11,310,925	$	7,555,461

Capitalized interest for the three months ended June 30, 2010 was $60,658. Capitalized interest for the six months ended June 30, 2010 was $153,017.

NOTE 9 – LONG-TERM LOANS

On October 23, 2009, Yili China borrowed a three-year long-term loan with principal of $1,472,559 from the Yili branch, Bank of China with an interest rate at 6.48% annually and the maturity date on October 21, 2012. On January 4, 2010, Yili China borrowed a three-year long-term loan with principal of $2,945,118 from the Yili branch, Bank of China with an interest rate at 6.48% annually and the maturity date on January 3, 2013. These loans are secured by the building, machinery and equipment of Yili China. The principal amount will be due at maturity date.

F-14

	Interest			Maturity			Interest payments
	Rate			Date	Amount		2010		2011		2012		2013

Yili branch, Bank of China		6.48	%	22-Oct-12	$	1,472,559	$	95,422	$	95,422	$	77,663	$	-

Yili branch, Bank of China		6.48	%	3-Jan-13		2,945,118		189,254		190,844		190,844		1,590
					$	4,417,677	$	284,676	$	286,266	$	268,507	$	1,590

NOTE 10 – INCOME TAXES

USA

The Company and its subsidiaries and branch divisions are subject to income taxes on an entity basis on income arising in, or derived, from the tax jurisdiction in which they operate. As the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of June 30, 2010 and December 31, 2009. However, the Company has to pay corporate tax due to the rules of certain states.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Yili China. The current year tax provision was $2,003 and $35,940 for the six months ended June 30, 2010 and 2009, respectively.

	For three months		For three months		For six months		For six months
	ended June 30, 2010		ended June 30, 2009		ended June 30, 2010		ended June 30, 2009
Income Tax Expenses:
Current tax		-		-		2,003		35,940
Total		-		-		2,003		35,940

Current tax of $2,003 for the six months ended June 30, 2010 was corporate tax paid to Connecticut as a foreign corporation of Connecticut due to office/payroll purposes.

NOTE 11 - FOREIGN OPERATIONS

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

NOTE 12 – SUBSEQUENT EVENT

On July 1, 2010, an aggregate of 149,433 shares of Common Stock were issued to the holders of Series A Preferred Stock as dividends.

The Company has evaluated subsequent events from the balance sheet date through when the report is issued.

F-15

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

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

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

Overview

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

The Company’s present SiC production capacity is 20,000 tons per annum. It is anticipated that our production capacity can reach 28,500 tons per year by the end of August 2010, when the construction of the third 8,500-ton production line in Yili Hasake Autonomous State of Xinjiang Autonomous Region of China is finished. The planned completion of the construction of the third production line was delayed due to the severe weather condition of heavy rains in China during June and July, 2010.

The Company has developed several proprietary techniques utilized during the smelting process of the SiC. The carbon monoxide gas recovery technology, among other technologies that were developed by the Company, can collect the waste carbon monoxide gas that is created during the smelting process and reuse it to produce heat which reduces energy costs. The Company plans to patent this technique in the future.

The Company is planning a 34,000 ton green SiC project in the Aletai Area of Xinjiang Uygur Autonomous Region of the PRC pending governmental approvals. The Company selected the site at Aletai for the project because of its proximity to sources of electricity, petroleum and quartz.

Recent Developments

On February 10, 2010, the Company signed a loan agreement with China Silicon Corporation, a Delaware corporation (“CSC”) to extend a loan of One Million U.S. Dollars (US $1,000,000) to fund CSC’s working capital needs (the “First Loan”). The interest rate of this loan is six percent (6%) per annum. CSC agrees to pay to the Company the principal sum of One Million U.S. Dollars on December 31, 2010. On April 14, 2010, the Company extended another loan (the “Second Loan”) of $1,172,500 to CSC. The Second Loan was made to fund CSC’s working capital. The Second Loan is interest free and was repaid on April 21, 2010. Such two loans are related party transactions since the Company and CSC share a majority shareholder, certain officers and directors.

Results of Operations for the Six Months ended June 30, 2010 and 2009

The following tables and analysis show the operating results of the Company for the six months ended June 30, 2010 and 2009.

	Six Months Ended June 30, 2010			Six Months Ended June 30, 2009			Percentage change

Revenues	$	3,240,365		$	994,795			226	%

Cost of revenues		2,716,514			893,747			204	%

Gross (loss) profit		523,851			101,048			418	%

General and administrative expenses		1,032,146			756,198			36	%

Total operating expenses		1,032,146			756,198			36	%

Loss from operations		(508,295	)		(655,150	)		-22	%

Interest income		38,554			29,078			33	%
Other income (expense)		26,687			(60,254	)		144	%

Total other income (loss)		65,241			(31,176	)		309	%

Loss before income taxes		(443,054	)		(686,326	)		-35	%

Income tax provision		2,003			35,940			-94	%

Net loss	$	(445,057	)	$	(722,266	)		-38	%

Net Revenues

We generated sales revenues of $3,240,365 for the six months ended June 30, 2010, compared to $994,795 for the same period in 2009, representing an increase of $2,245,570, or 226%. A breakdown of the total revenues is set forth in the following table:

Item	Six Months Ended June 30, 2010		Six Months Ended June 30, 2009		Percentage change

Green silicon:
Selling volume (ton)		2,593		827		214	%
Average price in US dollars		1,202.75		997.85		21	%
Subtotal		3,118,740		825,221		278	%

Black silicon:
Selling volume (ton)		175		287		-39	%
Average price in US dollars		695		590.85		18	%
Subtotal		121,625		169,574		-28	%

Total		3,240,365		994,795		226	%

During the first six months of 2010, the main reason for the 226% increase in our sales revenue is that our two new 8,500-ton production lines were finished and began to produce green SiC in April. Moreover, the trial production of these two lines was finished in May 2010 and started to produce green SiC in full capacity in June 2010.

During the first quarter of 2010, the first new 8,500-ton production line was in trial production and the second 8,500-ton production line was not yet in trial production as the installation of the raw material feeding system was not completed. In this trial production period of the first new line, the output of green SiC was relatively low for the following two reasons: firstly, it usually takes three to four months for a new production line to reach full manufacturing capacity. It’s necessary to have trial production of a newly installed production line, so that all its parts may function efficiently and the engineers may be able to test different formulas of manufacturing high quality SiC. Secondly, we discovered some problems of the furnace and crane of the first production line during the trial period, which caused the production to stop for two weeks in February. Such problem has been fixed and the first line resumed trial production in March. The output of the first new 8,500-ton production line was 652 tons of green SiC in the first quarter and 1,827 tons of green SiC in the second quarter of 2010. Since the first production line started full operation in June 2010, the output in the second quarter was much higher than the first quarter of 2010.

During the second quarter of 2010, the second 8,500-ton production line was in trial production. The Company took two months to finish the technical improvement of the second production line and to fix production problems. In June, 2010, these two 8,500-ton production lines began to produce green SiC in full capacity and the quality of products was much better than the first five months of this year.

Compared to the same period last year, the market prices of green SiC and black SiC have increased due to the recovery of the silicon carbide industry from the global economic recession in 2009. The market prices of green SiC and black SiC increased by 21% and 18% respectively, compared to those in the six months ended June 30, 2009.

Cost of Goods Sold

Cost of goods sold is primarily comprised of the costs of our raw materials and packaging materials, direct labor, manufacturing overhead expenses, depreciation, amortization, inventory count loss and freight charges. The raw materials include quartz, petrol coke and electricity power. These materials generally account for 8%, 60% and 32% of total raw material costs. Our cost of goods sold for the six months ended June 30, 2010 was $2,716,514, compared to the same period last year, an increase of $1,822,767 or nearly 204%.

The increase of cost of goods sold was due to the following two reasons. Firstly, our total revenue increased by nearly 226%, the cost of goods sold therefore increased accordingly. Secondly, during the trial production period, the output was low, yet the quantity of the consumed raw materials was large; therefore the fixed cost of production was relatively high. The production cost during the first quarter of 2010 increased by nearly 30%, compared with the same period last year. However, during the second quarter of 2010, especially since the new production lines operated with full capacity in June 2010, the quantity of the consumed raw materials per ton of SiC manufactured was much lower than the previous months in 2010. The unit production cost of the first six months of 2010 was 5% lower than the same period of 2009.

Gross Profit

During the first six months of 2010, we had a gross profit of $523,851 and the gross profit margin was nearly 16%. In the same period last year, our gross profit margin was approximately 10%. The increase of our profit is due to the following two reasons: (1) the trial production of the new lines was finished during the second quarter of 2010 and the Company’s production is in full capacity since June 2010, which resulted in a great increase of the Company’s output; and (2) the quantity of the consumed raw materials per ton of SiC manufactured was much lower than the comparable period in 2009.

General and Administrative Expenses

Our general and administrative expenses consist primarily of rental expenses, related salaries, business development, depreciation, travel expenses, and legal and professional expenses. General and administrative expenses were $1,032,146 for the six months ended June 30, 2010, as compared to $756,198 for the six months ended June 30, 2009, an increase of $275,948. This increase was mainly due to the increased operating expenses such as new employee’s salaries and welfare, increased freight fee and travel expenses due to Yili China‘s expanding production and sales. In April 2010, the Company set up a sales office and hired three sales persons in Zhengzhou of Henan Province. The Company deploys a relatively direct marketing strategy by conducting extensive market research and sending our sales personnel to visit and communicate with customers in person. This approach also enables the Company to quickly obtain customers’ feedback on its products therefore to improve the quality of its products.

	Six Months Ended June 30, 2010		Six Months Ended June 30, 2009		Percentage change

G&A

Stock-based compensation	$	-	$	49,800		-100	%

Shipping and outbound freight fee		282,988		82,995		241	%

Professional fees		77,399		87,602		-12	%

Travel expenses		37,019		29,036		27	%

Products tax and related taxes		1,435		990		45	%

Welfare and benefits		277,117		210,515		32	%

Social insurance		18,905		16,091		17	%

Depreciation expenses		16,300		10,164		60	%

Amortization expenses		7,595		7,723		-2	%

Business Development		54,828		18,567		195	%

Motor car expenses		23,548		20,549		15	%

Office expenses		136,785		100,848		36	%

Others		98,227		121,318		-19	%

Total	$	1,032,146	$	756,198		36	%

Operating Loss

Our operating loss was $508,295 for the six months ended June 30, 2010, as compared to a loss of $655,150 for the comparable period of 2009, a decrease of $146,855. Our operating loss was mainly attributable to the relatively high amount of production costs of green SiC and general and administrative expenses for the six months ended June 30, 2010.

Income Taxes

Our business operations are solely conducted by our subsidiaries incorporated in the PRC and we were governed by the PRC Enterprise Income Tax Laws. PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP. In accordance with the Income Tax Laws, a PRC domestic company is subject to enterprise income tax at the rate of 25% and value added tax at the rate of 17% for most of the goods sold.

Incorporated in Xinjiang province in 2005, Yili China is subject to enterprise income tax at the rate of 25%. There was no income tax provision for Yili China during the first six months of 2010. Income tax provision of $2,003 for the six months ended June 30, 2010 was the corporate tax paid to Connecticut by the Company as a foreign corporation in Connecticut for office and payroll purposes.

Net Loss

Net loss for the six months ended June 30, 2010 was $445,057, compared to a loss of $722,266 for the six months ended June 30, 2009. Such decrease of net loss by $277,209 was a result of the increase in the revenues generated by the Company for the six months ended June 30, 2010 exceeding the aggregate increase of expenses and costs. Since two new 8,500-ton production lines were in full capacity production in the second quarter of 2010, the production cost of green SiC was lower than the same period last year. Therefore, the cost of goods sold was lower than the sales revenues. However, due to our expanded production and sales, the general and administrative expenses have also increased. All these reasons contributed to a lower net loss compared to the same period last year.

Results of Operations for the Three Months ended June 30, 2010 and 2009

The following tables and analysis show the operating results of the Company for the three months ended June 30, 2010 and 2009.

	Three Months Ended June 30, 2010			Three Months Ended June 30, 2009			Percentage change

Revenues	$	2,411,868		$	507,164			376	%

Cost of revenues		1,862,207			471,213			295	%

Gross (loss) profit		549,661			35,951			1,429	%

General and administrative expenses		590,494			371,713			59	%

Total operating expenses		590,494			371,713			59	%

Loss from operations		(40,833	)		(335,762	)		-88	%

Interest income		11,433			5,120			123	%
Other income (expense)		23,766			(8,178	)		391	%

Total other income (loss)		35,199			(3,058	)		1,251	%

Loss before income taxes		(5,634	)		(338,820	)		-98	%

Income tax provision		-			557			-100	%

Net loss	$	(5,634	)	$	(339,377	)		-98	%

Net Revenues

We generated sales revenues of $2,411,868 for the three months ended June 30, 2010, compared to $507,164 for the same period in 2009, representing an increase of $1,904,704, or 376%. A breakdown of total revenues is set forth in the following table:

Item	Three Months Ended June 30, 2010		Three Months Ended June 30, 2009		Percentage change

Green silicon:
Selling volume (ton)		1,877		378		397	%
Average price in US dollars		1,264.36		1,049.99		20	%
Subtotal		2,373,201		396,898		498	%

Black silicon:
Selling volume (ton)		55		185		-70	%
Average price in US dollars		703.44		596.03		18	%
Subtotal		38,667		110,266		-65	%

Total		2,411,868		507,164		376	%

During the second quarter of 2010, the main reason for the 376% increase in our sales revenue is that the trial production of the two new 8,500-ton production lines was finished in May 2010 and started to produce green SiC in full capacity in June 2010.

In April and May of 2010, our technical engineers finished the technical inspection and improvement of the two production lines and fixed production problems. In June, these two 8,500-ton production lines began to produce green SiC in full capacity and the quality of products was much better than the previous months in this year. The combined output of these two new 8,500-ton production lines was 3,062 tons of green SiC in the second quarter of 2010. Particularly, the output of the new lines in June was 1,494 tons which exceeded their estimated full capacity of 1,417 tons per month.

Compared to the second quarter of last year, the market prices of green SiC and black SiC have increased due to the recovery of the silicon carbide industry from the global economic recession in 2009. The market prices of green SiC and black SiC increased by 20% and 18% respectively, compared to the three months ended June 30, 2009.

Cost of Goods Sold

Cost of goods sold is primarily comprised of the costs of our raw materials and packaging materials, direct labor, manufacturing overhead expenses, depreciation, amortization, inventory count loss and freight charges. The raw materials include quartz, petrol coke and electricity power. These materials generally account for 8%, 60% and 32% of total raw material costs. Our cost of goods sold for the three months ended June 30, 2010 was $1,862,207, compared to the same period last year, an increase of $1,390,994 or nearly 295%.

The cost of goods sold increased 295% since our total revenue increased nearly 376%. During the second quarter, especially in June, the output of green SiC was much higher than the same period of last year. Moreover, the quantity of the consumed raw materials was also much lower than the same period of last year since the new production lines reached the full capacity in June 2010. Therefore, the average production cost of the second quarter of 2010 was much lower than the same period of 2009.

Gross Profit

During the second quarter of 2010, we had a gross profit of $549,661 and the gross profit margin was nearly 23%. In the same period last year, our gross profit margin was approximately 7%. The increase of our profit is due to the following two reasons: (1) the trial production of the new lines was finished during the second quarter of 2010 and the Company was in full capacity production in June, 2010 which resulted in a great increase of the Company’s output; and (2) the quantity of the consumed raw materials per ton of SiC manufactured was much lower than the first quarter of 2010.

General and Administrative Expenses

	Three Months Ended June 30, 2010		Three Months Ended June 30, 2009		Percentage change

G&A

Stock-based compensation	$	-	$	24,900		-100	%

Shipping and outbound freight fee		230,104		43,053		434	%

Professional fees		31,107		55,996		-44	%

Travel expenses		30,277		6,126		394	%

Products tax and related taxes		-		146		-100	%

Welfare and benefits		138,263		103,389		34	%

Social insurance		5,712		14,612		-61	%

Depreciation expenses		8,248		6,294		31	%

Amortization expenses		3,678		3,970		-7	%

Business Development		4,847		8,542		-43	%

Motor car expenses		10,369		11,125		-7	%

Office expenses		71,453		38,302		87	%

Others		56,436		55,258		2	%

Total	$	590,494	$	371,713		59	%

Operating Loss

Our operating loss was $40,833 for the three months ended June 30, 2010, as compared to a loss of $335,762 for the comparable period of 2009, a decrease of $294,929. Our operating loss was mainly attributable to the relatively high amount of production cost of green SiC and general and administrative expenses for the three months ended June 30, 2010. During the second quarter of 2010, the sales volume and prices of the Company’s products both had substantial increase and the production cost was lower than the comparable period of last year. This resulted in an increase of nearly 1,429% of our gross profit. Although the increase in our gross profit could not entirely cover the general and administrative expenses, the operating loss was much lower than the same period of last year.

Income Taxes

Incorporated in Xinjiang province in 2005, Yili China is subject to enterprise income tax at the rate of 25%. There was no income tax provision for Yili China during the second quarter of 2010.

Net Loss

Net loss for the three months ended June 30, 2010 was $5,634, compared to a loss of $339,377 for the three months ended June 30, 2009. Such decrease of net loss by $333,734 was a result of the increase of the revenues generated by the Company for the three months ended June 30, 2010 exceeding the aggregate increase of the expenses and costs. Since the two new 8,500-ton production lines were in full capacity production, the production cost of green SiC was lower than the same period last year. Therefore, the cost of goods sold was lower than the sales revenues. However, due to our expanded production and sales, the general and administrative expenses have also increased. All these reasons contributed to a lower net loss compared to the same period last year.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents of $4,055,741. The following table sets forth a summary of our cash flows for the periods indicated:

	Six Months Ended June 30, 2010			Six Months Ended June 30, 2009			Percentage change

Net cash provided by (used in) operating activities	$	(1,122,997	)	$	(1,759,039	)		-36	%

Net cash used in investing activities		(3,944,875	)		(3,941,168	)		0.1	%

Net cash provided by (used in) financing activities		2,923,689			-			N/A

Effect of exchange rate changes on cash		5,878			3,419			72	%

Net increase (decrease) in cash and cash equivalents		(2,138,305	)		(5,696,788	)		-62	%

Cash and cash equivalents, beginning of period		6,194,046			6,817,950			-9	%

Cash and cash equivalents, end of period	$	4,055,741		$	1,121,162			262	%

Operating Activities

Net cash used in operating activities was $1,122,997 for the six months ended June 30, 2010, compared to an amount of $1,759,039 net cash that was used in operating activities for the six months ended June 30, 2009. The decrease of net cash used in operating activities was mainly due to the fact that the Company sold more green SiC than the same period last year, which resulted in more cash provided by operating activities. The Company spent more cash on the purchase of raw materials during the period ended June 30, 2010, yet gained more cash from the sales of SiC products. Therefore, the total cash used in operating activities was lower than same period of last year. During this period, the Company’s total revenues increased by nearly 226%.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2010 was $3,944,875, compared to an amount of $3,941,168 net cash that was used in investing activities for the six months ended June 30, 2009. The cash was partly used for the construction of new production lines including construction costs and new equipment. Because two new production lines were finished by May 2010, we spent less on the construction of our production facilities, compared with the comparable period of last year. However, on February 10, 2010, the Company made a loan of $1,000,000 to China Silicon Corporation. Therefore, the net cash used in investing activities was similar to the comparable period of last year.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2010 totaled $2,923,689, compared to $0 provided by financing activities for the corresponding period ended June 30, 2009. The increased $2,923,689 of the cash provided by financing activities was mainly attributable to a bank loan of $2,930,317 that the Company received on January 4, 2010 from Bank of China.

Inventories

Inventories consisted of the following as of June 30, 2010 and December 31, 2009:

	30-Jun-10		31-Dec-09

Raw materials		619,007		471,690

Finished goods		1,497,498		462,314

Work in progress		259,867		67,281

Total		2,376,372		1,001,285

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

Property and Equipment

The following is a summary of property and equipment at June 30, 2010 and December 31, 2009:

	30-Jun-10			31-Dec-09

Buildings		245,313			243,972

Machinery and equipment		639,365			614,565

Motor vehicles		288,586			236,933

Office equipment		80,910			45,691

Less: accumulated depreciation		(206,698	)		(141,792	)

Property and equipment, net		1,047,476			999,369

Accounts Payable

Accounts payable amounted to $1,553,038 and $1,257,657 as of June 30, 2010 and December 31, 2009, respectively. Accounts payable primarily resulted from our purchases of raw materials and equipment. The increase of $295,381 in accounts payable was mainly due to our increased purchase of raw materials. Our biggest supplier is Yihe Power Center, the payables to which accounted for more than 30% of the total amount of accounts payable as of June 30, 2010.

Critical Accounting Policies and Estimates

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

Revenue Recognition

Product sales are recognized when the products are shipped and title has passed. Sales revenue represents the invoiced value of goods, net of a value added tax (“VAT”). All of the Company's products that are sold in the PRC are subject to a Chinese VAT at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing its finished products.

Property, Plant and Equipment

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

Bad Debts

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

Related Party Transactions

On February 10, 2010, the Company signed a loan agreement with China Silicon Corporation, a Delaware corporation (“CSC”) to extend a loan of One Million U.S. Dollars (US $1,000,000) to fund CSC’s working capital needs (the “First Loan”). The interest rate of this loan is six percent (6%) per annum. CSC agrees to pay to the Company the principal sum of One Million U.S. Dollars on December 31, 2010. On April 14, 2010, the Company extended another loan (the “Second Loan”) of $1,172,500 to CSC. The Second Loan was made to fund CSC’s working capital. The Second Loan was interest free and was repaid on April 21, 2010. Such two loans are related party transactions since the Company and CSC share a majority shareholder, certain officers and directors.

Off-Balance Sheet Arrangements

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Mr. John Kuhns, our Chief Executive Officer, and Mr. Lin Han, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Report. Based on that evaluation, our officers concluded that due to the material weaknesses in the internal control over financial reporting as of June 30, 2010 as discussed immediately below, our disclosure controls and procedures were ineffective and are not adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

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

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

The Company’s management considered the impact of the foregoing accounting misstatements on the effectiveness of the Company’s internal control over financial reporting and determined that they amounted to a material weakness. As a result, management concluded that the Company's internal controls over financial reporting were not effective as of June 30, 2010.

Remediation Initiative

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

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

Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting that occurred during the three months period ended June 30, 2010 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

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

During the three-month period ended June 30, 2010, the Company has issued to the holders of Series A Convertible Preferred Stock of the Company (“Series A Stock”) an aggregate of 149,433 shares of Common Stock as dividend shares of the Series A Stock. An additional 149,433 shares were issued as dividend shares of the Series A Stock on July 1, 2010.

Such issuance of the Company’s securities was effectuated pursuant to the exemption from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, provided by Section 4(2) of the Act and/or Regulation D, and Regulation S promulgated thereunder.

Item 4. Removed and Reserved

Item 6. EXHIBITS

(a) Exhibits

31.1 – Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Mr. John D. Kuhns.

31.2 – Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Mr. Lin Han.

32.1 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Messrs John D. Kuhns and Lin Han.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

	MASTER SILICON CARBIDE INDUSTRIES, INC.

Date: August 12, 2010	BY:	/s/ John D. Kuhns
		John D. Kuhns
		President and Chief Executive Officer
		(principal executive officer)

Date: August 12, 2010	BY:	/s/ Lin Han
		Lin Han
		Chief Financial Officer
		(principal financial officer and accounting officer)

Master Silicon Carbide Industries, Inc. - FORM 10-Q - August 12, 2010

Attached files

Master Silicon Carbide Industries, Inc. Reports