Cathay Forest delays filing financial statements

TORONTO, ON -- Cathay Forest Products Corp. ("Cathay Forest" or the "Company") (TSX VENTURE:CFZ) announces that it will not be in a position to file its consolidated audited financial statements as at and for the year ended December 31, 2010, accompanying management's discussion and analysis, related CEO and CFO certification and Annual Information Form for the year ended December 31, 2010 within the prescribed 120 day period as prescribed under National Instrument 51-102 and National Instrument 51-109, respectively (the "2010 Financial Filings"). Cathay Forest cannot presently estimate when it will be in a position to file the 2010 Annual Filings. The delay stems from the following:
* Forestry certificates for the Shandong plantation
* Deposits related to properties in Guizhou and Jiangxi provinces
* Investment in Eco-Energy China Group Inc.

Management has spent significant effort during the last several months reviewing all aspects of the Company's affairs. The above items, in addition to those identified by the Venture Exchange disclosed in our last press release, have come to light and are the subject of ongoing investigation.

As previously publicly disclosed on March 31, 2011, the Company is also continuing to prepare submissions to the TSX Venture Exchange Compliance & Disclosure Group so that it can complete its review of several transactions entered into by the Company during prior periods and of the Company's internal disclosure procedures and corporate governance practices.

Forestry Certificates for the Shandong Plantation

Cathay Forest, through its subsidiary, Shanghai Shengtai Forest Co. Ltd., was provided with the rights to plant and harvest a total of 11,531 hectares of poplar plantations under a Master Agreement in Shandong Province. The majority of the forestry right certificates totaling 11,333 hectares which had been issued to the Company have now expired. Cathay Forest understands that the local government is willing to allow the Company to reacquire these certificates. However, considering the current prices of poplar in the region, the economic feasibility of reacquiring the plantations does not appear to be viable at this time considering the amount of the deferred and accrued land lease payments for such plantations over the years.

If the Company decides not to proceed with the reacquisition of such plantations a write down of plantation assets and related deferred and accrued land lease payments liabilities will be required for an amount of approximately $79 million.

Deposits related to properties in Guizhou and Jiangxi provinces

The Company previously reported as at September 30, 2010, deposits amounting to $4.8 million relating to potential property transactions in the Chinese provinces of Guizhou and Jiangxi. The Company has recently uncovered information suggesting that certain irregularities could have occurred with respect to the payment of these deposits by Cathay Forest. The Company has engaged local legal counsel to investigate this matter. At this time, the investigation is on-going and no formal conclusion can be reached with regards to the status of the deposit amounts in question.

Investment in Eco-Energy China Group Inc. ("EEC")

Cathay Forest has been advised by management of EEC that EEC is not able to complete the preparation of audited financial statements for the year ended December 31, 2010 due to financial constraints. Such financial statements are required by Cathay Forest to complete its 2010 Financial Filings in relation to the investment by Cathay Forest in EEC.

The Company is continuing to work with its auditors to resolve these matters and complete the 2010 Financial Filings as expeditiously as possible.

About Cathay Forest Products

Cathay Forest is a forest products company that manages approximately 1,000,000 hectares of forest properties in Russia and China. Cathay Forest's customer base includes the domestic Chinese pulp and paper industry and other wood products customers in the Chinese and Japanese markets.

SOURCE: Cathay Forest Products


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