UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



(Mark One)

FORM
10-K/A

(Amendment
No. 2)



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



For the fiscal year ended
_____________________________________________



or



| | x | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition period
from July 1, 2010 to December 31, 2010



Commission file number: 000-52832



CHINA
INTERNET CAFÉ HOLDINGS GROUP, INC.

(Exact
name of registrant as specified in its charter)



|Nevada                                                               |  | 98-0500738                          
|-------------------------------------------------------------------- |  | ------------------------------------
|State of other jurisdiction of
        incorporation or organization |  | (I.R.S. Employer Identification No.)



|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|#1707, Block A, Genzon Times Square                      |  |           
|Longcheng Blvd, Centre City, Longgang District           |  |           
|Shenzhen, Guangdong Province, People’s Republic of China |  | 518172    
|(Address of principal executive offices)                 |  | (Zip Code)



Registrant’s telephone
number, including area code: 86-755-8989-6008



Securities registered
pursuant to Section 12(b) of the Act:



|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|Not Applicable      |  | Not Applicable                           



Securities
registered pursuant to section 12(g) of the Act:



Common Stock, $0.00001 par value






Title of Class



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ̈YesxNo



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ̈YesxNo



Note –
Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.



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

xYes ̈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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



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 companyx



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

 ̈YesxNo



State the aggregate market
value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter.



Note.—If
a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort
and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions
reasonable under the circumstances, provided that the assumptions are set forth in this Form.



The aggregate market
value of the voting and non-voting common stock of the issuer held by non-affiliates as of December 31, 2010 was
approximately $18,232,434 (9,116,217 shares of common stock held by non-affiliates) based upon the closing price of $2.00 per
share of common stock as quoted by OTC Bulletin Board on March 18, 2011.



APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:



Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ̈Yes ̈No



(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)



Indicate the number of
shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.



As of March 4, 2011 there
are 21,124,967 shares of common stock, par value $0.00001 issued and outstanding.











DOCUMENTS
INCORPORATED BY REFERENCE



List hereunder the following
documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated:
(1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1980).



EXPLANATORY
NOTE



This Amendment No. 2 to
Form 10-K (this “Amendment”) amends the Transition Report on Form 10-K for the transition period from July 1, 2010
to December 31, 2010, filed on March 31, 2011 (the “Original 10-K”) of China Internet Café Holdings Group, Inc.
(the “Company”) and amended on August 16, 2011.  Specifically, the amendments include:



| | · | Revision to Risk Factors, Report of Independent Registered Public
Accounting Firm, Note 22 to the Financial Statements, Item 9A. Controls and Procedures.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Addition of Note 23 to the Financial Statements.
| | - | ------------------------------------------------



For convenience, this
Amendment sets forth the original filing in its entirety, as amended where necessary to reflect the aforementioned amendments.
This Amendment should be read in conjunction with the Original 10-K, and the Company’s other filings made with the Securities
and Exchange Commission subsequent to the filing of the Original 10-K on March 31, 2011. The Original 10-K has not been amended
or updated to reflect events occurring after March 31, 2011, except as specifically set forth in this Amendment.











TABLE
OF CONTENTS

|         | Page                                                                                                            
|-------- | ----------------------------------------------------------------------------------------------------------------
|         |                                                                                                                 
|PART I  
|Item 1.  | Business                                                                                                        
|Item 1A. | Risk Factors                                                                                                    
|Item 1B. | Unresolved Staff Comments                                                                                       
|Item 2.  | Properties                                                                                                      
|Item 3.  | Legal Proceedings                                                                                               
|Item 4.  | (Removed and Reserved)                                                                                          
|         |                                                                                                                 
|PART II 
|Item 5.  | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|Item 6.  | Selected Financial Data                                                                                         
|Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                           
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                      
|Item 8.  | Financial Statements and Supplementary Data                                                                     
|Item 9.  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                            
|Item 9A. | Controls and Procedures                                                                                         
|Item 9B. | Other Information                                                                                               
|         |                                                                                                                 
|PART III
|Item 10. | Directors, Executive Officers and Corporate Governance                                                          
|Item 11. | Executive Compensation                                                                                          
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  
|Item 13. | Certain Relationships and Related Transactions, and Director Independence                                       
|Item 14. | Principal Accountant Fees and Services                                                                          
|         |                                                                                                                 
|PART IV 
|Item 15. | Exhibits and Financial Statement Schedules                                                                      











PART
I



Item 1.         Business.



Our Corporate Structure



China
Internet Café Holdings Group, Inc. (“we”, “us”, or the “Company”) is a Nevada holding
company for our direct and indirect subsidiaries in the British Virgin Islands (“BVI”) and the People’s Republic
of China (“PRC”). We own all of the issued and outstanding capital stock of Classic Bond, a BVI corporation. Classic
Bond is a holding company that owns 100% of the outstanding capital stock of Shenzhen Zhonghefangda Internet Technology Co., Limited
(“Zhonghefangda”), a PRC company.



Current
PRC laws and regulations impose substantial restrictions on foreign ownership of the internet café business in the PRC.
Therefore, our principal operations and sales and marketing activities in the PRC are conducted through Shenzhen Junlong Culture
Communications Co., Ltd (“Junlong”), our variable interest entity (“VIE”), which holds the licenses and
approvals for conducting the internet café business in the PRC.



Junlong
was incorporated in the PRC in December 2003. It obtained its license to operate internet cafés in 2005. We control the
VIE through a series of contractual arrangements. These contracts include a Management and Consulting Services Agreement, an Option
Agreement, an Equity Pledge Agreement, and a Voting Rights Proxy Agreement. The Management and Consulting Services Agreement, dated
June 11, 2010, is between our indirect, wholly owned subsidiary, Zhonghefangda, and our VIE. The rest of the agreements, also dated
June 11, 2010, are among Zhonghefangda, our VIE and its shareholders. These contracts are summarized below. Please also refer to
the full text of the contracts, which are filed as exhibits to this report.



| | · | Management and Consulting Services Agreement.Under
the Management and Consulting Services Agreement between Junlong and Zhonghefangda, Zhonghefangda provides management and consulting
services to the VIE in exchange for service fees up to 100% of the VIE’s Aggregate Net Profits (as defined in the agreement).
In consideration for its right to receive the VIE’s aggregate net profits, Zhonghefangda will reimburse to the VIE the full
amount of Net Losses (as defined in the Agreement) incurred by the VIE. During the term of the agreement, the VIE may not contract
with any other party to provide services that are the same or similar to the services to be provided by Zhonghefangda pursuant
to the agreement. The term of this agreement is 20 years, renewable for succeeding periods of the same duration until terminated
pursuant to terms of the agreement.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Option Agreement.Under the Option Agreement, the
shareholders of the VIE, Mr. Dishan Guo, Mr. Jinzhou Zeng and Ms. Xiaofen Wang, or the VIE Shareholders, who collectively own 100%
of the equity interest in the VIE, granted Zhonghefangda an exclusive, irrevocable option to purchase all or part of their equity
interests in the VIE, exercisable at any time and from time to time, to the extent permitted under PRC law. The purchase price
of the equity interest will be equal to the original paid-in registered capital of the transferor, adjusted proportionally if less
than all of the equity interest owned by the transferor is purchased.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Equity Pledge Agreement.The VIE Shareholders have
pledged their entire equity interest in the VIE to Zhonghefangda pursuant to the Equity Pledge Agreement. The equity interests
are pledged as collateral to secure the obligations of the VIE under the Management and Consulting Services Agreement and the VIE
Shareholders’ obligations under the Option Agreement and the Proxy Agreement.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Voting Rights Proxy Agreement.Pursuant to the
Voting Rights Proxy Agreement, each of the VIE Shareholders has irrevocably granted and entrusted Zhonghefangda with all of the
voting rights as a shareholder of the VIE for the maximum period of time permitted by law. Each VIE Shareholder has also covenanted
not to transfer his or her equity interest in the VIE to any party other than Zhonghefangda or a designee of Zhonghefangda.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
believe that the terms of these agreements are no less favorable than the terms that we could obtain from disinterested third parties.
According to our PRC counsel, China Commercial Law Firm, our conduct of business through these agreements complies with existing
PRC laws, rules and regulations.



3







As
a result of these contractual arrangements, Junlong became our controlled VIE. A variable interest represents a contractual or
ownership interest in another entity that causes the holder to absorb the changes in fair value of the other entity’s net
assets. Potential variable interests include: holding economic interests, voting rights, or obligations to an entity; issuing guarantees
on behalf of an entity; transferring assets to an entity; managing the assets of an entity; leasing assets from an entity; and
providing financing to an entity. In such cases consolidation of the VIE is required by the enterprise that controls the economic
risks and rewards of the entity, regardless of ownership. We have consolidated Junlong’s historical financial results in
our financial statements as a variable interest entity pursuant to U.S. generally accepted accounting principles (“GAAP”).



The
following chart reflects our organizational structure as of the date of this report.







*Contractual
agreements consisting of a management and consulting service agreement, equity pledge agreement, option agreement and proxy agreement,
which allow the Company to control Junlong.



Our Corporate History



We
were incorporated under the name China Unitech Group, Inc. in the State of Nevada on March 14, 2006. From our office in China,
we planned to operate in the online travel business using the website www.chinabizhotel.com. The website was planned
to offer viewers the ability to book hotel rooms in China and earn us booking fees from the respective hotels. However, we did
not engage in any operations and were dormant from our inception until our reverse acquisition of Classic Bond on July 2, 2010.
As a result of the reverse acquisition, we ceased to be a shell company on July 2, 2010.



4







Acquisition of Classic
Bond



On
July 2, 2010, we completed a reverse acquisition transaction through a share exchange with Classic Bond and its shareholders, whereby
we acquired 100% of the issued and outstanding capital stock of Classic Bond, in exchange for 19,000,000 shares of our common stock,
which shares constituted 94% of our issued and outstanding shares on a fully-diluted basis, as of and immediately after the consummation
of the reverse acquisition. As a result of the reverse acquisition, Classic Bond became our wholly owned subsidiary and the former
shareholders of Classic Bond, became our controlling shareholders. The share exchange transaction with Classic Bond was treated
as a reverse acquisition, with Classic Bond as the acquirer and China Internet Café Holdings Group, Inc. as the acquired
party. Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior
to the consummation of the reverse acquisition, we are referring to the business and financial information of Classic Bond and
its consolidated subsidiaries.



Upon
the closing of the reverse acquisition, Xuezheng Yuan, our sole director and officer, submitted a resignation letter pursuant to
which he resigned, with immediate effect, from all offices that he held and from his position as our sole director that became
effective on the August 13 2010, ten days following the mailing by us of an information statement to our stockholders complying
with the requirements of Section 14f-1 of the Exchange Act (the “Information Statement”). Also upon the closing of
the reverse acquisition, our board of directors increased its size from one to five members and appointed Dishan Guo, Zhenquan
Guo, Lei Li, Wenbin An and Lizong Wang to fill the vacancies created by the resignation of Xuezheng Yuan and such increase. Mr.
Dishan Guo's appointment became effective upon closing of the reverse acquisition, while the remaining appointments became effective
on August 13, 2010, the tenth day following our mailing of the Information Statement to our stockholders. In addition, our executive
officers were replaced by the Classic Bond executive officers upon the closing of the reverse acquisition as indicated in more
detail below.



As
a result of our acquisition of Classic Bond, we now own all of the issued and outstanding capital stock of Classic Bond. Classic
Bond was incorporated in the British Virgin Islands on November 2, 2009 to serve as an investment holding company. Junlong was
incorporated in the PRC in December 2003. It obtained its first licenses from the Ministry of Culture to operate an internet café
chain in 2005 and opened its first internet café in April 2006.



On
July 2, 2010, our board of directors approved a change in our fiscal year end from June 30 to December 31, which was effectuated
in connection with the reverse acquisition transaction described above.



On
January 20, 2011, China Internet Café Holdings Group, Inc. (the “Company”) filed with the Nevada Secretary of
State an amendment to its Amended and Restated Articles of Incorporation to give effect to a name change from “China Unitech
Group, Inc.” to “China Internet Café Holdings Group, Inc.” The Amended and Restated Articles of Incorporation
were approved by our board of directors on July 30, 2010 and were approved by a stockholder holding 59.45% of our outstanding common
stock by written consent on July 30, 2010.  In connection with the name change, on January 25, 2011, the Company filed an
Issuer Company-Related Action Notification Form with the Financial Industry Regulatory Authority (“FINRA”) requesting
a name change from “China Unitech Group, Inc.” to “China Internet Café Holdings Group, Inc.” as
well as an OTC voluntary symbol change from “CUIG” to “CICC.” These changes became effective on February
1, 2011. Our common stock began trading under the Company’s new name on the Over-the Counter Bulletin Boards on Tuesday,
February 1, 2011 under our new trading symbol “CICC”.



On
February 16, 2011, the Company filed with the Secretary of State of Nevada a Certificate of Designation, Preferences and Rights
for the 5% Series A Convertible Preferred Stock (the “Certificate of Designation”) as an amendment to its Articles
of Incorporation.  Capitalized terms not defined herein shall have the meaning ascribed to them in the Certificate of Designation.



For
each outstanding share of Series A Preferred Stock, dividends shall be payable quarterly, at the rate of 5% per annum, on or before
each date that is thirty days following the last day of each June, September, December and March of each year.  Dividends
on the Series A Preferred Stock shall accrue and be cumulative from and after the date of the initial issuance of the Series A
Preferred Stock.



5







Upon
liquidation of the Company, holders of Series A Preferred Stock are entitled to be paid, prior to any distribution to any holders
of common stock, or any other class or series of stock issued hereafter or junior to the Series A Preferred Stock, an amount equal
to $1.35 per share plus the amount of any accrued but unpaid dividends thereon, as of the date of liquidation (the “Series
A Liquidation Preference Amount”).



Each
share of Series A Preferred Stock at the option of the holder may be convertible into a number of fully paid and nonassessable
shares of Common Stock equal to the quotient of (i) the Series A Liquidation Preference Amount divided by (ii) the Conversion Price
in effect as of the date of the Conversion Notice.



Until
conversion, the Preferred Stock shall have no voting rights other than with respect to matters that may adversely affect the rights
of the holders of the Series A Preferred Stock.



The
description of the Series A Preferred Stock above is qualified in its entirety by reference to a copy of the Certificate of Designation
attached to this Annual Report on Form 10-K.



On
February 22, 2011, in connection with a security purchase agreement between the Company and the investors identified on Exhibit
A thereto (collectively, the “Investors”), we closed a private placement of approximately $6.4 million from offering
a total of 474,967 units (the “Units”) at a purchase price of $13.50 per Unit, each consisting of:(i) nine shares of
the Company’s 5% Series A Convertible Preferred Stock, par value $0.00001 per share (the “Preferred Shares”),
convertible on a one to one basis into nine shares of the Company’s common stock, par value $0.00001 per share (the “Common
Stock”); (ii) one share of Common Stock; (iii) two three-year Series A Warrants (the “Series A Warrants”),each
exercisable for the purchase of one share of Common Stock, at an exercise price of $2.00 per share; and (iv) two three-year Series
B Warrants (the “Series B Warrants”), each exercisable for the purchase of one share of Common Stock, to purchase one
share of Common Stock, at an exercise price of $3.00 per share.



Business Overview



We
operate a chain of 46 internet cafés in Shenzhen, Guangdong, PRC that are generally open 24 hours a day, seven days a week.
We provide top quality internet café facilities and we believe we are the largest internet café chain in Shenzhen.
We provide internet access at reasonable prices to students and migrant workers. Although we sell snacks, drinks, and game access
cards, over 95% of our revenue comes from selling access time to our computers. We sell internet café memberships to our
customers. Members purchase prepaid IC cards (a pocket-sized card with embedded integrated circuits that can be used for identification,
authentication, data storage and application processing), which include stored value that will be deducted based on time usage
of a computer at the internet café. The cards are only sold at our cafés. We deduct the amount that reflects the
access time used by a customer when the customer’s IC card is inserted into the IC card slot on the computer.



Our Industry



Background on Internet
Cafés in the PRC



Internet
cafés have been booming in the PRC in the recent years. According to the "Survey of China Internet Café Industry"
by the Ministry of Culture in 2005, the PRC had 110,000 internet cafés, with more than 1,000,000 employees and contributing
RMB 18,500,000,000 to China's GDP. According to an article entitled “China Surpasses U.S. in Number of Internet Users” written
by David Barboza on the New York Times July 26, 2008 issue, the number of internet users in the PRC reached about 253 million in
June 2008, thereby, putting China ahead of the United States as the world’s biggest internet market. According to the research
conducted by China Internet Network Information Center(CNNIC) in March 2011, the amount of internet users in China in 2009 was
385 million, 135 million of which (35.1%) surf the internet via internet cafes.  By the end of 2010, the amount of internet
users in China reached 457 million, 35.7% of which surf the internet via internet cafes.  It is clear that internet cafés
have been a fast growing segment of the Chinese internet market.



6







The
internet café market in the PRC, like most places worldwide, originally started out simply as a location to access the internet.
However, PRC internet cafés have changed into full service entertainment centers where people can relax outside work and
home. These cafés provide services that are vastly different from the internet cafés initially established in the
PRC. They provide decent facilities at a reasonable fee, with specific configuration for online games and audio visual entertainment.
They are a source of cost effective entertainment for low-income earners who cannot afford computers, game consoles or an internet
connection, such as migrant workers and students. In internet cafés, customers have access to popular online games and can
either socialize or entertain themselves. Players gather together in internet cafés for games such as World of Warcraft
(WOW) and Call to Arms, played either with their friends in the café or with users across the globe.





Due
to tightened regulations on the operations of internet cafés, there are currently around 81,000 internet cafés in
the PRC (Source: “Internet café ban call draws Chinese hacker wrath”. AFP 3 Mar 2010. http://www.google.com/hostednews/afp/article/ALeqM5gJus4tWVAaeWI8IoS-n238PYpFjw).The
largest chain has over 1,000 locations. There are currently 10 chains which have licenses to operate nationally.



Computer Gaming
Industry in China



According
to Pearl Research, a business intelligence and consulting firm, the PRC online game market rose 63% in 2008 to $2.8 billion, rose
36% in 2009 to $3.8 billion, and rose 26% in 2010 to $4.8 billion. Given the relatively low rate of computer ownership in the PRC
as compared to Western countries, internet cafés have become the primary distribution point for games in the PRC. A substantial
number of game players access online games through internet cafés and these players are crucial for survival of internet
cafés. The chart below shows the robust revenue growth of online game companies from 2003 to 2010.



7













The
following diagram prepared by Morgan Stanley depicts the interdependent relations between online game developers and internet cafés.
(Source: Ji Richard and Meeker, Mary. "Creating Consumer Value in Digital China" Morgan Stanley Equity Research Global.
September 12, 2005.)



8













Given
the pivotal position of internet cafés, many online game companies have been making great efforts to support internet cafés
to expand their customer base.



Partnerships between
Internet Cafés and Other Online Information Providers



Besides
games, internet cafés are able to develop partnerships with other online information providers. These companies provide
games as well as other information services. As can be seen by the chart below, these providers have significant revenues and profits.



Table
1 Major Internet Company Revenues

|                 |  | 2010 Q4 Revenue |       |  |     |  |        |            |  |   |          |  |  |            |       
|---------------- |  | --------------- | ----- |  | --- |  | ------ | ---------- |  | - | -------- |  |  | ---------- | ------
|Company          |  | Million US$     |       |  | YOY |  |        | Net Profit |  |   | %Net     |  |  | Market Cap |       
|Tencent Q3       |  | $               | 5,277 |  |     |  | 55.10  | %          |  | $ | 2,168.0  |  |  |            | 41.18 
|Shanda           |  | $               | 174   |  |     |  | -13.70 | %          |  | $ | 55.4     |  |  |            | 31.84 
|Netease          |  | $               | 254   |  |     |  | 30.77  | %          |  | $ | 108.0    |  |  |            | 42.43 
|ChangYou         |  | $               | 92    |  |     |  | 30     | %          |  | $ | 47.8     |  |  |            | 52.13 
|Giant            |  | $               | 56    |  |     |  | 33.40  | %          |  | $ | 35.0     |  |  |            | 62.72 
|Perfect World Q3 |  | $               | 98    |  |     |  | 12     | %          |  | $ | 31.9     |  |  |            | 32.42 
|Kingsoft Q3      |  | $               | 35    |  |     |  | -6.95  | %          |  | $ | 12.9     |  |  |            | 37.12 
|NetDragon Q3     |  | $               | 19    |  |     |  | -15    | %          |  | $ | 0.4      |  |  |            | 2.21  
|DragonCity Q2    |  | $               | 3.7   |  |     |  | -0.91  | %          |  | $ | 0.5      |  |  |            | 0.1351
|Total            |  | $               | 5,959 |  |     |  |        |            |  | $ | 2,459.96 |  |  |            |       



(Source: I Research. “China
Online Game Quarterly Research Report” Jan 2011. )



9







Competitive Strengths



We
believe that the following competitive strengths enable us to compete effectively in and to capitalize on growth in the internet
café market in the PRC:



| | · | Company-owned Cafés.Unlike most of our
competitors who franchise their internet cafés, all of our cafés are direct outlets. This model makes it easier to
carry out management decisions at each of our cafés. It also allows us to maximize operating profit and create a consistent
name brand.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Good Scale of Operation.We have a registered capital
of RMB 10 million (approximately $1.47 million) with 36 cafés. The scale of operations allows us to control cost and standardize
store management.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Proprietary Software.We developed the software
“SAFLASH” that provides fast and stable internet connections. Its automatic flow control prevents users from being
disconnected when there is a disruption of internet traffic. Stability is a key requirement for online gamers. Our research and
development team is working constantly to improve the software.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Government and Industry Relations. We have developed
an excellent working relationship with the government that has assisted us to better comply with internet café related laws
and regulations and to understand regulatory trends in our industry. Our CEO and CFO, Mr. Dishan Guo, is the executive president
of Shenzhen Longgang District Internet Industry Association. This association is an associated department of the Ministry of Culture
and sets the internet café industry standards. As a result of his involvement, Mr. Guo gains valuable insight into new standards
and may also have the opportunity to influence industry standards.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Centralized Oversight. All of our café managers
are trained by, and under the supervision of, our centralized operations manager, who is based at our headquarters. As a result,
our local managers are able to effectively handle operational issues at the cafés. The local managers are trained to provide
a service level that meets Junlong’s service standards, and our operations manager is able to effectively enforce policies
and procedures implemented by us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Growth Strategy



We
are committed to enhancing our sales, profitability and cash flows through the following strategies:



| | · | We will seek to grow by business expansion. We
plan to expand in the southwest and mid-east regions of the PRC through acquisitions of local small chains, in order
to meet the requirements of applying for a national chain license. The national chain license requires 30 internet cafés
in three provinces.  We plan to accomplish acquisitions of internet cafés in Guizhou in the third quarter,
and Sichuan in the fourth quarter in order to help us satisfy the requirements of obtaining a national chain license.
We also want to fully develop our wholly-owned branches through effective integration of resources. Most of our current competitors
that offer franchising simply provide a franchise license to entrepreneurs to get started in exchange for a yearly fee.  Junlong,
on the other hand, is deeply involved in the operational management of its company-owned cafés. After we obtain a national
chain license, we will focus on developing high-end internet cafés in the more developed cities to create new concepts of
internet café operation.  We expect to spread to the less developed cities in three years in order to gain competitive
market shares. We plan to put 20% of our resources to the less developed cities for market integration after we are granted a national
license, which will effectively lay the foundation for us in those cities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | We will seek to grow by improving our company structure. To
optimize our resources and operations, we plan to improve our company structure so that 20% of our internet cafés will be
large stores, each with 300 or more computers mainly focusing on movies, high-end games and entertainment; 50% of cafés
will be medium stores with 150 to 300 computers and a few movie suites focusing on high-end games; 10% of cafés will be
small stores in the developed cities to spread our reputation with 100 to 150 computers. In order to penetrate the less developed
cities, we want to open 20% of our stores in those cities. Our mission is to set up internet cafés all over the PRC to become
a real national chain and the industry leader, and we have begun to implement these plans in the first quarter of 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We will seek to grow by location selection. Running
internet cafés is a retail business. Internet cafés are located in highly populated areas so as to attract customers.
Junlong’s internet cafés are located at busy and well attended areas such as industrial zones and business quarters.
We conducted market research in Sichuan, Guizhou, and Yunan provinces and Chonqing municipalities in March2011. As a result of
this market research, we have identified the university areas in Sichuan and Chongqing, the residential areas and business quarters
in Yunan and Guizhou as prime areas for the establishment of internet cafés. Our future expansion in the south-western region
will be built on the basis of these locations beginning with Guizhou in the second quarter of 2011, Yunnan in the fourth quarter
of 2011, and Sichuan in the year 2012.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10







Use of Prepaid IC Cards



Internet
café members purchase prepaid IC cards which include stored value that is deducted based on time usage of a computer at
the internet café. The cards are only sold at our cafés. We deduct from the stored value amount to reflect customer
usage when the customers’ IC cards are inserted into the IC card slot on the computer. Revenues derived from the prepaid
IC cards at the internet café are recognized when services are provided. Below is our IC card sample.







Outstanding
customer balances on the IC cards are included in deferred revenue on the balance sheets. We do not charge any service fees that
cause a decrease in customer balances.



The
basic membership comes with the IC card and costs RMB 10 (approximately $1.52) on top of the initial credits deposited. Members
receive a discount (e.g. RMB 50 (approximately $7.60) deposit gets RMB 60 (approximately $9.12) credit in the IC card). There is
no expiration date for IC cards, but money deposited into the IC cards is not refundable.



Software on the Computers



We
have on average 239 computers in each location and a total of 10,989 computers for the 46 cafés as of March 23, 2011. We
install more than 100 online games on each of our computers. We also provide movies, music and online chatting software. We use
Microsoft Word compatible software called “WPS,” which is a freeware provided by Kingsoft, a Chinese software company,
so that we do not pay for the higher priced Microsoft Office license.



Third Party Gaming
Cards, Snacks and Drinks



We
also sell third party on-line gaming cards, snacks and drinks. The commission for the sale of gaming cards is generally 20% of
the value of the cards. Concessions (snacks and drinks) are also sold to customers.



New products or services



We
are considering opening more “luxury” cafés in the future to meet the needs of high income groups. This strategy
is only in the planning stage. Further, although this is potentially a very interesting marketing and branding tool, we do not
expect these locations to significantly increase our overall revenues.



11







Franchising



We
own all of our cafés.  However, beginning in 2012 we anticipate utilizing a modified franchise model as well. 
We expect that our franchisees will pay the startup costs for a new internet café.   After the initial investment,
we will select the location and staff and provide the staff with intensive training to run the café.   Once the
café becomes operational, our employees will run the café and provide management support.  We expect the franchisee
to be more akin to an investor than an owner/operator.  We will pay the franchisee a percentage of the café’s
profit for providing the funds necessary to open the café and operate it.



Our Customers



Our
customers are individuals who come into the location to surf the internet and/or play online games with their friends locally and
remotely with individuals around the world.



Internet
café users are mainly young males with low incomes, mainly migrant workers. At our cafés, migrant workers are provided
a convenient channel at low cost to communicate with their families and friends. For example, VOIP (Voice over IP) service at the
café is much cheaper than any other telecommunications method. Low income earners can arrange a time to chat online with
their friends and families in their home cities.



We
estimate that at our internet café approximately 50% of computer time is spent on gaming, 30% for other entertainment (e.g.
online chatting, online movies, or online music); and 20% for other purposes (e.g. work).



In
the last few years there has been a decrease in the number of internet café users as a result of increased availability
of internet connections at home. However, we believe that we will be able to maintain organic growth by providing quality services
to our core customers. Even if someone has internet access in their home or dormitory, these locations do not provide the atmosphere
and services provided by internet cafés at a reasonable cost. For example, if a computer is set up in the limited space
of a dormitory, an additional internet connection would need to be purchased. A computer suitable for online gaming costs RMB 5,000
(approximately $760.47) or more. The monthly rent for an ADSL connection costs an additional RMB 100 (approximately $15.21) and
even this may not be good enough for some online games such as WOW. In these types of games, there is a very important play mode
called RAID, where, for example, 40 people are needed on a team to kill some monster in the dungeon. This requires all players
to have very stable internet connections. A typical low-end computer and ADSL connection would suffer significant lags and cause
performance issues. Internet cafés, on the other hand, can provide high speed computers and internet connections at much
lower cost to the players.



In
the year 2012 we plan to open internet cafés around university areas in the south-western provinces including Sichuan and
Chongqing. Students spend more time in internet cafés because their time is very flexible. We believe that major users of
internet cafés in the future will be young game players.



Competition



There
are approximately 130,000 Internet cafés in the PRC in 2010. (Source: http://www.cnnic.com “The 27th CNNIC Report”
(accessed January 2010)) The market is extremely fragmented. One of the largest national chains which has around 1,000 locations
has less than 2% of the national market. The following describes some of the local, regional and national competitors.



Local Competitors
in Shenzhen



| | · | Shenzhen Weiwo Internet Café Chain Company.Weiwo
was founded in 1997. Currently, Weiwo has 14 cafés. The company mainly operates a franchise model, with only 3 company owned
cafés. The cafés are mainly located in Futian district, Shenzhen City. The company concentrates on mid-range market.
Each café is relatively small with 100 to150 computers (for a total of around 1,600 computers). Its franchised stores are
charged a franchising fee per month of approximately RMB 5,000 (approximately $735.29). Weiwo is the smallest internet café
chain company in Shenzhen.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Shenzhen Bian Internet Co. Ltd.Although the company entered
into the internet café industry in 2003, its current structure was founded on February 22, 2007 and obtained its regional
internet café chain license in 2007. The company operates mostly as a franchise model with 30 registered café, only
3 of which are directly owned by the company. Each café has 80-150 computers. It also has a few large cafés with
more than 200 computers. The estimated total number of computers owned by the company is 4,500. There is a significant turnover
in franchise ownership with around one third of the franchise cafés transferring their licenses to other internet café
owners.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12







| | · | Quansu Internet Café Chain Company. Quansu was
founded in 1998 as a subsidiary investment project of the Shenzhen Commercial Bank Investment Co. Ltd. The company owns 36 cafés,
8 of which are directly owned and 28 of which are franchises. Each café has 80-150 computers. The total number of computers
is approximately 6,200. The cafés are located in Baoan District, Futian District and Luohu District. In May 2009, Quansu
switched its major business towards its internet cable connection business and public telephone business.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



National Competitors



Currently
there are ten national internet café chains:



| | · | Zhongqing Network Home Co., Ltd.
| | - | --------------------------------

| | · | Beijing Cultural Development Co., Ltd.
| | - | --------------------------------------

| | · | China Digital Library Co., Ltd.
| | - | -------------------------------

| | · | Yalian Telecommunication Network Co., Ltd.
| | - | ------------------------------------------

| | · | China Heritage Information Center
| | - | ---------------------------------

| | · | Capital Networks Limited
| | - | ------------------------

| | · | Great Wall Broadband Network Service Co., Ltd.
| | - | ----------------------------------------------

| | · | China United Telecommunications Co., Ltd. (China Unicom)
| | - | --------------------------------------------------------

| | · | CLP Chinese Tong Communication Co., Ltd.
| | - | ----------------------------------------

| | · | Reid Investment Holding Company
| | - | -------------------------------



The
ten national chains generally have strong financial support. However, to our knowledge these chains have not been successful in
expanding their operations.



Competitors in Potential
Markets



As
we plan to expand our operations in other major cities, we identify the following competitors in the potential new markets where
we expect to operate in the future:



| | · | Kunming – Yunnan Jin-Zhao Yuan Culture Communication
Network Co., Ltd.The company was founded on May 1, 2003 by the Yunnan Provincial Department of Culture. It
obtained its business license and registration to operate a chain of Internet cafés from the Industrial and Commercial Bureau
of Yunnan Province on April 31, 2004. It has a registered capital of RMB 10 million. The company has opened approximately 19cafés
with an average of 200 computers in each café and a total of nearly 4,000 computers.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Chengdu
                                                                                                               – Chengdu
                                                                                                               Shang Dynasty Networks
                                                                                                               Co., Ltd.The
                                                                                                               company was founded
                                                                                                               in 2002 with a
                                                                                                               registered capital
                                                                                                               of RMB 12 million.
                                                                                                               It would be most
                                                                                                               accurately described
                                                                                                               as a multifunctional
                                                                                                               entertainment facility
                                                                                                               with coffee bars
                                                                                                               and multi-function
                                                                                                               rooms. Its facilities
                                                                                                               have full range
                                                                                                               of digital entertainment
                                                                                                               including hardware
                                                                                                               and software products,
                                                                                                               and professional
                                                                                                               e-sport training.
                                                                                                               The company has
                                                                                                               four wholly owned
                                                                                                               cafés, and
                                                                                                               has more than 20,000
                                                                                                               registered members.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Intellectual Property



Trademark



Junlong
owns the trademark Junlong, as specified in the Registration Certificate No. 4723040 issued by the Trademark Office under the State
Administration of Industry and Commerce of the PRC. The registration is valid from January 28, 2009 to January 27, 2019.



13







Domain Name



We
own and currently utilize the domain name, www.cnculture.com.cn. We have recently also acquired the domain name www.chinainternetcafé.com,
which we believe better reflects our business.  We will transition from our old domain name to our new one during the third
quarter of 2010.



Software



The
main piece of intellectual property for Junlong is the SAFLASH software. This software, developed on a Microsoft Windows platform,
increases internet connection stability. Its automatic flow control prevents users from being disconnected when there is a disruption
in internet traffic. The stability is a key requirement for online gamers.



Although
there are no patents or copyrights for this software, it is only used internally on our computer systems and is not available for
download. We also entered into a confidentiality agreement with the IT manager Zhenfan Li whose team developed this software. Our
competitive advantage lies in continually updating SAFLASH to assure internet connection stability.



Regulation



Because
our controlled VIE is located in the PRC, we are regulated by the national and local laws of the PRC.



In
2001, the PRC government imposed a minimum capital requirement of RMB 10 million (approximately $1.47 million) for regional café
chains and RMB 50 million (approximately $7.35 million) for national café chains. On September 29, 2002, Ministry of Information
Industry, Ministry of Public Security, Ministry of Culture and State Administration for Commerce and Industry issued “Regulations
on the Administration of Business Sites of Internet Access Services.” The regulations require a license to operate internet
cafés which may not be assigned or leased to any third parties. The regulations also have detailed provisions regarding
internet cafes’ business operations and security control.



We
have been in compliance of these regulations. In August 2004, we increased our registered capital to RMB 10 million (approximately
$1.46 million). In 2005, Junlong obtained internet café licenses of operating internet café chain in Shenzhen from
the local counterpart of Ministry of Culture.



The
Ministry of Culture of China is in charge of regulating national internet café chains. To obtain a license to operate a
national internet café chain, an applicant must, among other things, (i) a minimum registered capital of RMB 50 million,
(ii) own or control at least 30 internet cafés, which shall cover at least three provinces or municipalities under direct
administration of the State Council, and (iii) have been in full compliance with administrative regulations with respect to internet
cafés for at least one year before submitting the application. Other requirements include having appropriate computer and
ancillary facilities, necessary and qualified personnel and sound internal policy. Application for a national internet café
chain shall be first made to the provincial counterpart of the Ministry of Culture. After preliminary approval, the provincial
authority will submit the application to the Ministry of Culture for final approval. In rendering its approval, the authorities
consider such factors as the then existing number of the internet café chains.



We
are subject to PRC foreign currency regulations. The PRC government has controlled Renminbi reserves primarily through direct regulation
of the conversion of Renminbi into other foreign currencies. Although foreign currencies, which are required for “current
account” transactions, can be bought at authorized PRC banks, the proper procedural requirements prescribed by PRC law must
be met. At the same time, PRC companies are also required to sell their foreign exchange earnings to authorized PRC banks, and
the purchase of foreign currencies for capital account transactions still requires prior approval of the PRC government.



Under
current PRC laws and regulations, Foreign Invested Entities, or FIEs, may pay dividends only out of their accumulated after-tax
profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, FIEs in China are required
to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves until
the cumulative amount of such reserves reaches 50% of their registered capital. These reserves are not distributable as cash dividends.
The board of directors of an FIE has the discretion to allocate a portion of the FIEs’ after-tax profits to staff welfare
and bonus funds, which may not be distributed to equity owners except in the event of liquidation.



14







Our Employees



As
of December 31, 2010, we had 523 employees. The following table sets forth the number of employees by function:



|                  |  | Number of
|----------------- |  | ---------
|Function          |  | Employees
|Senior Management |  | 55       
|Accounting        |  | 16       
|Staff employees   |  | 452      
|Total             |  | 523      



As
required by applicable PRC law, we have entered into employment contracts with most of our officers, managers and employees. We
are working towards entering employment contracts with those employees who do not currently have employment contracts with us.
We believe that we maintain a satisfactory working relationship with our employees, and we have not experienced any significant
disputes or any difficulty in recruiting staff for our operations.



Litigation



From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
We are currently not a party to any legal proceeding and are not aware of any legal claims that we believe will have a material
adverse effect on our business, financial condition or operating results.



Item 1A.                 Risk Factors.



An
investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together
with all of the other information included in this report, before making an investment decision. If any of the following risks
actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment.



RISKS RELATED TO OUR
BUSINESS



Our limited operating
history makes evaluating our business and prospects difficult.



Our
VIE, Junlong, was established in December 2003 and obtained the license to operate internet cafés in Shenzhen in 2005. Our
limited operating history may not provide a meaningful basis for you to evaluate our business and prospects. Our business strategy
has not been proven over time and we cannot be certain that we will be able to successfully expand our business.



Fluctuations
in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively
impact the market price of our securities.  Operating results may fluctuate in the future due to a variety of factors that
could affect revenues or expenses in any particular quarter.  Fluctuations in operating results could cause the value of our
securities to decline.  Investors should not rely on comparisons of results of operations as an indication of future performance. 
As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations
of public market analysts and investors.  This could cause the market price of our securities to decline. Factors that may
affect our quarterly results include:



15







| | · | vulnerability of our business to a general economic downturn in the
PRC;
| | - | ------------------------------------------------------------------------

| | · | changes in the laws of the PRC that affect our operations;
| | - | ----------------------------------------------------------

| | · | competition from other similar service providers; and
| | - | -----------------------------------------------------

| | · | our ability to obtain necessary government certifications and/or licenses
to conduct our business.
| | - | --------------------------------------------------------------------------------------------------



We are dependent
on our management team and the loss of any key member of that team could have a material adverse effect on our operations and financial
condition.



We
attribute our success to the leadership and contributions of our managing team comprising executive directors and key executives,
in particular, to our Chief Executive Officer and Chief Financial Officer, Dishan Guo and our Chief Technology Officer Zhenfan
Li.



Our
continued success is therefore dependent to a large extent on our ability to retain the services of these key management personnel.
The loss of their services without timely and qualified replacement, will adversely affect our operations and hence, our revenue
and profits.



We have limited
internal controls due to our lack of sufficient personnel with an appropriate level of technical accounting knowledge, experience,
and training in the application of GAAP.



During
the year ended December 31, 2010, we lacked personnel with an appropriate level of technical accounting knowledge, experience,
and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements.  Due
to this lack of qualified personnel, there is a reasonable possibility that material misstatements of the financial statements
including disclosures will not be prevented or detected on a timely basis.



We have not obtained
social insurance benefits for all of our employees and could incur administrative fines and penalties that could materially affect
our financial condition and reputation.



We
have obtained social benefits coverage for employees who work at the headquarters of Junlong. For other employees, because of the
high mobility of their work, they usually work on a probationary basis and will not enter into a long employment relationship with
us. We are subject to administrative fines and penalties as a result of our failure to obtain social insurance for these employees.
The amount of these fines and penalties, in the aggregate, may adversely affect our financial condition and our public image.



Tightened regulations
on internet cafés may adversely affect our operations and revenues.



The
PRC government has been tough on internet café regulations. In 2003, the PRC government imposed a minimum capital requirement
of RMB 10 million (approximately $1.47 million) for regional café chains and RMB 50 million (approximately $7.32 million)
for national café chains. On September 29, 2002, the State Council issued “Regulations on the Administration of Business
Sites of Internet Access Services.” The regulations require a license to operate internet cafés which may not be assigned
or leased to any third parties. The regulations also have detailed provisions regarding internet cafes’ business operations
and security control. The number of internet cafés in China was reduced after these regulations went effective.



If
the PRC government decided to impose more stringent regulations on internet cafés and their operations, our business may
be adversely affected and our revenues may decrease as a result.



There may be reduced
use of internet cafés with the increase in computer ownership and internet connections at home and any such reduction would
negatively affect our financial performance.



With
the rapid economic development and growing disposable income, computer ownership and internet connections at home will gradually
increase as the price for computer hardware, software and internet access decreases. Although internet cafés provide easy
access to the latest games, movies and music, fast and stable internet connections and a sense of community, there is no guarantee
that individuals will continue to use internet cafés when they can have internet access at home.



16







Negative media coverage
of internet cafés may reduce the number of customers that visit our internet cafés and result in lower revenues.



In
the last few years there have been several negative stories in the media about internet cafés. A fatal fire in Beijing's
Lanjisu Internet café in June 2002 raised nationwide concern about the country’s burgeoning internet café business.
In 2006, a report from the China National Children's Center, a government think-tank, said that 13 percent of the PRC's 18 million
internet users under 18 were internet addicts. Responding to the problems associated with internet cafés, the PRC imposed
more stringent laws and regulations on internet cafés. In 2007, fearful of soaring internet addiction and juvenile crime,
the PRC banned the opening of new internet cafés for a year. Such negative media coverage may result in stricter government
regulations and reduced number of customers.



Interruption or
failure of our own information technology and communications systems or those of third-party service providers we rely upon could
impair our ability to effectively provide our services, which could damage our reputation and harm our operating results.



Our
ability to provide our services depends on the continuing operation of our information technology and communications systems. Any
damage to or failure of our systems could interrupt our service. Service interruptions could reduce our revenues and profits, and
damage our brand if our system is perceived to be unreliable. Our systems are vulnerable to damage or interruption as a result
of terrorist attacks, wars, earthquakes, floods, fires, power loss, telecommunications failures, undetected errors or “bugs”
in our software, and computer viruses.



Our
servers are vulnerable to break-ins, sabotage and vandalism. The occurrence of a natural disaster or a closure of an Internet data
center by a third-party provider without adequate notice could result in lengthy service interruptions.



The
steps we take to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may not
be successful in reducing the frequency or duration of service interruptions.



Our business may
be adversely affected by third-party software applications or practices that interfere with our receipt of information from, or
provision of information to, our customers, which may impair our customers’ experience.



Our
business may be adversely affected by third-party malicious or unintentional software applications that make changes to our computers
and interfere with our services. These software applications may be difficult or impossible to remove or disable, may reinstall
themselves and may circumvent other applications’ efforts to block or remove them. The ability to provide a superior user
experience is critical to our success. If we are unable to successfully combat third-party software applications that interfere
with our products and services, our reputation may be harmed.



The successful operation
of our business depends upon the performance and reliability of the Internet infrastructure and fixed telecommunications networks
in China.



Our
business depends on the performance and reliability of the Internet infrastructure in China. Almost all access to the Internet
is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the
Ministry of Industry and Information Technology (or its predecessor, the Ministry of Information Industry, before its formal establishment
in 2008), or the MIIT. In addition, the national networks in China are connected to the Internet through international gateways
controlled by the PRC government. These international gateways are the only channels through which a domestic user can connect
to the Internet.  We cannot assure you that a more sophisticated Internet infrastructure will be developed in China. We may
not have access to alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure.
In addition, the Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.



17







Any
unscheduled service interruption could damage our reputation and result in a decrease in our revenues. Furthermore, if the prices
that we pay for telecommunications and Internet services rise significantly, our gross margins could be adversely affected.



Concerns about the
security of electronic commerce transactions and confidentiality of information on the Internet may reduce use of our internet
cafes and impede our growth.



A
significant barrier to electronic commerce and communications over the Internet in general has been a public concern over security
and privacy, including the transmission of confidential information. If these concerns are not adequately addressed, they may inhibit
the growth of the Internet and other online services generally, especially as a means of conducting commercial transactions. If
a well-publicized Internet breach of security were to occur, general Internet usage could decline, which could cause our operations
to be adversely affected.



Regulation and censorship
of information disseminated over the Internet in China may adversely affect our business.



The
PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet.
Under these regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the
Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary,
obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses
to provide Internet content and other licenses and the closure of the concerned websites.



The
Ministry of Public Security has the authority to order any local Internet service provider to block any Internet website at its
sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the Internet of information
which it believes to be socially destabilizing. The State Secrecy Bureau is also authorized to block any website it deems to be
leaking state secrets or failing to meet the relevant regulations relating to the protection of State secrets in the dissemination
of online information.



Such
regulation and censorship could lead to a decrease in our customers’ interest in utilizing our internet cafes which would
cause our operations to be adversely affected.



Intensified government
regulation of Internet cafes could cause our operations to be adversely affected.



The
PRC government has tightened its regulation of Internet cafes in recent years. In particular, a large number of unlicensed Internet
cafes have been closed. In addition, the PRC government has imposed higher capital and facility requirements for the establishment
of Internet cafes. Furthermore, the PRC government’s policy, which encourages the development of a limited number of national
and regional Internet cafe chains and discourages the establishment of independent Internet cafes, may slow down the growth of
Internet cafes. In June 2002, the Ministry of Culture, together with other government authorities, issued a joint notice, and in
February 2004, the State Administration for Industry and Commerce issued another notice, suspending the issuance of new Internet
cafe licenses. In May 2007, the State Administration for Industry and Commerce reiterated its position not to register any new
Internet cafes in 2007. In 2008 and 2009, the Ministry of Culture, the State Administration for Industry and Commerce and other
relevant government authorities, individually or jointly, issued several notices that provide various ways to strengthen the regulation
of Internet cafes, including investigating and punishing Internet cafes that accept minors, cracking down on Internet cafes without
sufficient and valid licenses, limiting the total number of Internet cafes and approving Internet cafes within the planning made
by relevant authorities, screening unlawful and adverse games and websites, and improving the coordination of regulation over Internet
cafes and online games.



18







If we fail to successfully
update our computer hardware, software, and systems to customer requirements or emerging industry standards, our business, prospects
and financial results may be materially and adversely affected.



To
remain competitive, we must continue to update the computer hardware, software and systems in our internet cafes. The computer
industry is characterized by rapid technological evolution, changes in user requirements and preferences, frequent introductions
of new products and services embodying new technologies and the emergence of new industry standards and practices that could render
our existing proprietary technologies and systems obsolete. If we are unable to adapt in a cost-effective and timely manner in
response to changing market conditions or customer requirements, whether for technical, legal, financial or other reasons, our
business, prospects, financial condition and results of operations would be materially adversely affected.



We may be unable
to adequately safeguard our intellectual property or we may face claims that may be costly to resolve or that limit our ability
to use such intellectual property in the future.



Our
business is reliant on our intellectual property. Our software SAFLASH is the result of our research and development efforts, which
we believe to be proprietary and unique. However, we are unable to assure you that third parties will not assert infringement claims
against us in respect of our intellectual property or that such claims will not be successful. It may be difficult for us to establish
or protect our intellectual property against such third parties and we could incur substantial costs and diversion of management
resources in defending any claims relating to proprietary rights. If any party succeeds in asserting a claim against us relating
to the disputed intellectual property, we may need to obtain licenses to continue to use the same. We cannot assure you that we
will be able to obtain these licenses on commercially reasonable terms, if at all. The failure to obtain the necessary licenses
or other rights could cause our business results to suffer.



Further,
we rely upon a combination of trade secrets, non-disclosure and other contractual agreements with our employees as well as limitation
of access to and distribution of our intellectual property in our efforts to protect intellectual property. However, our efforts
in this regard may be inadequate to deter misappropriation of our proprietary information or we may be unable to detect unauthorized
use and take appropriate steps to enforce our rights. Policing unauthorized use of our intellectual property is difficult and there
can be no assurance that the steps taken by us will prevent misappropriation of our intellectual property.



Where
litigation is necessary to safeguard our intellectual property, or to determine the validity and scope of the proprietary rights
of others, this could result in substantial costs and diversion of our resources and could have a material adverse effect on our
business, financial condition, operating results or future prospects.



We may not have
sufficient insurance coverage and an interruption of our business or loss of a significant amount of property could have a material
adverse effect on our financial condition and operations.



We
currently do not maintain any insurance policies against loss of key personnel and business interruption as well as product liability
claims. If such events were to occur, our business, financial performance and financial position may be materially and adversely
affected.



Inability to maintain
our competitiveness would adversely affect our financial performance.



We
operate in a competitive environment and face competition from existing competitors and new market entrants. Some of these existing
competitors, especially the national chains of internet cafés have more resources than us and may provide better services
to customers.



There
is no assurance that we will be able to compete successfully in the future. Any failure by us to remain competitive would adversely
affect our financial performance.



19







We may be adversely
affected by a significant or prolonged economic downturn in the level of consumer spending in the industries and markets served
by our customers.



We
rely on the spending of our customers in our cafés for our revenues, which may in turn depend on the customers’ level
of disposable income, perceived future earning capabilities and willingness to spend. Any significant or prolonged decline of the
PRC economy or economy of such markets served by our customers will affect consumers’ disposable income and consumer spending
in these markets, and lead to a decrease in demand for consumer products.



To
the extent that such decrease in demand for consumer products translates into a decline in the demand for internet café
services, our performance will be adversely affected.



Revocation of the
license for operating internet café chain will adversely affect our business.



We
hold a license for operating a regional internet café chain in Shenzhen and each of our internet cafés obtains a
license for the internet access services. These licenses are currently valid, and will continue to be valid within the term of
the corresponding business licenses. These licenses do not need to be renewed unless there is change of information thereon. But
the competent authorities are entitled to examine and reevaluate our internet cafés any time upon their initiatives or following
orders of the higher-level authorities, and we must comply with the then prevailing standards and regulations which may change
from time to time. Failure to comply with these changing standards and regulations could result in our licenses being revoked or
suspended, which could have a material adverse effect on our operations. Furthermore, if escalating compliance costs associated
with governmental standards and regulations restrict or prohibit any part of our operations, it may adversely affect our operations
and profitability.



We may be unable
to effectively manage our expansion.



We
have identified several growth plans. These expansion plans may strain our financial resources. In addition, any significant growth
into new markets may require an expansion of our employee base for managerial, operational, financial, and other purposes.    During
any growth, we may face problems related to our operational and financial systems and controls.  We would also need to
continue to expand, train and manage our employee base.  Continued future growth will impose significant added responsibilities
upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.



If
we are unable to successfully manage our expansion, we may encounter operational and financial difficulties which would in turn
adversely affect our business and financial results.



We may require additional
funding for our growth plans, and such funding may result in a dilution of your investment.



We
attempted to estimate our funding requirements in order to implement our growth plans.



If
the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through
expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such
purposes, we may need to raise additional funds to meet these funding requirements.



These
additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure
you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain
additional financing on terms that are acceptable to us, we will not be able to implement such plans fully. Such financing even
if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent
for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate
actions.



20







Further,
if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable
or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.



Our strategy to
acquire companies may result in unsuitable acquisitions or failure to successfully integrate acquired companies, which could lead
to reduced profitability.



We
intend to expand our business through acquisitions of companies or operations similar to our own.  We may be unsuccessful
in identifying suitable acquisition candidates, or may be unable to consummate a desired acquisition.  To the extent
any future acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration
is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability.  Some
of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include:



| | · | unexpected losses of key employees or customer of the acquired company;
| | - | -----------------------------------------------------------------------

| | · | difficulties integrating the acquired company's standards, processes,
procedures and controls;
| | - | ----------------------------------------------------------------------------------------------

| | · | difficulties hiring additional management and other critical personnel;
| | - | -----------------------------------------------------------------------

| | · | difficulties increasing the scope, geographic diversity and complexity
of our operations;
| | - | -----------------------------------------------------------------------------------------

| | · | difficulties consolidating facilities, transferring processes and
know-how;
| | - | ---------------------------------------------------------------------------

| | · | difficulties reducing costs of the acquired company's business; and
| | - | -------------------------------------------------------------------

| | · | diversion of management's attention from our management.
| | - | --------------------------------------------------------



We may be exposed
to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to
by our independent auditors.



As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include
a report of management on the company’s internal controls over financial reporting in their annual reports, including Form
10-K. In addition, the independent registered public accounting firm auditing a company's financial statements must also attest
to and report on the operating effectiveness of the company’s internal controls. We were not subject to these requirements
for the fiscal year ended December 31, 2010, but we have evaluated our internal control systems in order to allow our management
to report on our internal controls as required by these requirements of SOX 404. We can provide no assurance that we will comply
with all of the requirements imposed thereby. In the event we identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors
with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.



Our holding company
structure may limit the payment of dividends.



We
have no direct business operations, other than our ownership of our subsidiaries and contractual relationship with Junlong. While
we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to
pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries
and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions
on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on
the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below.
If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the
amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars. Further, dividends paid to non-PRC
stockholders may be subject to a 10% withholding, as further discussed in a later section. Under the EIT Law, we may be classified
as a ‘resident enterprise’ of the PRC. Such classification will likely result in unfavorable tax consequences to us
and our non-PRC shareholders.”



Relevant
PRC statutory laws and regulation permit payments of dividends by the Company’s subsidiaries in the PRC only out of their
accumulated profits, if any, as determined in accordance with the PRC accounting standards and regulations.



21







Our
subsidiary in the PRC is also required to set aside a portion of its after tax profits according to PRC accounting standards and
regulations to fund certain reserve funds. Currently, our subsidiary in the PRC is the only sources of revenues or investment holdings
for the payment of dividends. If it does not accumulate sufficient profits under PRC accounting standards and regulations to first
fund certain reserve funds as required by PRC accounting standards, we will be unable to pay any dividends.



As
of December 31, 2010 and 2009, $718,744 was appropriated from retained earnings and set aside for the statutory reserve by the
Company’s subsidiaries in the PRC.As a result of these PRC laws and regulations, the Company’s subsidiaries in the
PRC are restricted in their ability to transfer a portion of their net assets to either in the form of dividends, loans or advances,
which consisted of paid-up capital and statutory reserves, amounting to $2,085,966 as of December 31, 2010 and 2009.



RISKS RELATING TO OUR
COMMERCIAL RELATIONSHIP WITH JUNLONG



Our contractual
arrangements with Junlong and its shareholders may not be as effective in providing control over them as direct ownership.



We
rely on contractual arrangements with our VIE and its shareholders to operate our business. In the opinion of our PRC legal counsel,
China Commercial Law Firm, these contractual arrangements are valid, binding and enforceable, and will not result in any violation
of PRC laws or regulations currently in effect. These contractual arrangements may not be as effective in providing us with control
over these entities as direct ownership. If we had direct ownership of these entities, we would be able to exercise our rights
as a shareholder to effect changes in the boards of directors of these entities, which in turn could effect changes, subject to
any applicable fiduciary obligations, at the management level. However, if Junlong or any of its shareholders fails to perform
its or his respective obligations under these contractual arrangements, we may not be able to enforce the relevant agreements.
If the agreements are ruled in violation of the PRC laws, even if the contracts are otherwise legal and valid, we may not be able
to enforce our rights under these contracts. We may have to incur substantial costs and resources to enforce them, and seek legal
remedies under PRC law, including specific performance or injunctive relief, and claiming damages, which may not be effective.
Accordingly, it may be difficult for us to change our corporate structure or to bring claims against any of these entities if they
do not perform their obligations under their contracts with us.



All of our revenues
are generated through our VIE, and we rely on payments made by our VIE to Zhonghefangda, our subsidiary, pursuant to contractual
arrangements to transfer any such revenues to Zhonghefangda. Any restriction on such payments and any increase in the amount of
PRC taxes applicable to such payments may materially and adversely affect our business and our ability to pay dividends to our
shareholders.



We
conduct substantially all of our operations through Junlong, our VIE, which generates all of our revenues. As Junlong is not owned
by our subsidiary, it is not able to make dividend payments to our subsidiary. Instead, Zhonghefangda, our subsidiary in China,
entered into a number of contracts with Junlong, including a Management and Consulting Services Agreement, an Equity Pledge Agreement,
an Option Agreement and a Voting Rights Proxy Agreement, pursuant to which Junlong pays Zhonghefangda for certain services that
Zhonghefangda provides to Junlong. However, depending on the nature of services provided, certain of these payments are subject
to PRC taxes at different rates, including business taxes and VATs, which effectively reduce the amount that Zhonghefangda receives
from Junlong. We cannot assure you that the PRC government will not impose restrictions on such payments or change the tax rates
applicable to such payments. Any such restrictions on such payment or increases in the applicable tax rates may materially and
adversely affect our ability to receive payments from Junlong or the amount of such payments, and may in turn materially and adversely
affect our business, our net income and our ability to pay dividends to our shareholders.



22











Dishan Guo, Jinzhou
Zeng, and Xiaofen Wang’s association with Junlong could pose a conflict of interest which may result in Junlong decisions
that are adverse to our business.



Dishan
Guo, Jinzhou Zeng and Xiaofen Wang, who hold controlling interest in Classic Bond are also controlling shareholders of our VIE.
Conflicts of interests between their dual roles as owners of both Junlong and our company may arise. We cannot assure you that
when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or that any conflict
of interest will be resolved in our favor. In addition, these individuals may breach or cause Junlong to breach or refuse to renew
the existing contractual arrangements, which will have a material adverse effect on our ability to effectively control Junlong
and receive economic benefits from it. If we cannot resolve any conflicts of interest or disputes between us and the beneficial
owners of Junlong, we would have to rely on legal proceedings, the outcome of which is uncertain and which could be disruptive
to our business.



If Junlong or the
VIE Shareholders violate our contractual arrangements with it, our business could be disrupted and we may have to resort to litigation
to enforce our rights which may be time consuming and expensive.



Our
operations are currently dependent upon our commercial relationship with Junlong. If Junlong or their shareholders are unwilling
or unable to perform their obligations under our commercial arrangements with them, including payment of revenues under the Management
and Consulting Service Agreement, we will not be able to conduct our operations in the manner currently planned.



If the PRC government
determines that the agreements establishing the structure for operating our China business do not comply with applicable PRC laws,
rules and regulations, we could be subject to severe penalties including being prohibited from continuing our operations in the
PRC.



On
August 8, 2006, six PRC regulatory agencies, including Ministry of Commerce (the “MOFCOM”), the China Securities
Regulatory Commission (the “CSRC”), the State Asset Supervision and Administration Commission (the “SASAC”),
the State Administration of Taxation (the “SAT”), the State Administration for Industry and Commerce (the “SAIC”)
and the State Administration of Foreign Exchange (the “SAFE”), jointly adopted the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule (the “M&A Rule”),
which became effective on September 8, 2006. This new regulation, among other things, governs the approval process by which
a PRC company may participate in an acquisition of assets or equity interests. In the opinion of our PRC counsel, China Commercial
Law Firm, this approval process was not required in our case because we have not acquired either the equity or assets of a company
located in the PRC, and that the VIE agreements do not constitute such an acquisition. If the PRC government were to take a contrary
view, we might be subject to fines or other enforcement action, and might be forced to amend or terminate our contractual arrangements
with Junlong, which could have an adverse effect on our business.



Uncertainties in
the PRC legal system may impede our ability to enforce the commercial agreements that we have entered into with Junlong or any
arbitral award thereunder and any inability to enforce these agreements could materially and adversely affect our business and
operation.



While
disputes under the Consulting Agreement with Junlong are subject to binding arbitration before the China International Economic
and Trade Arbitration Commission, or CIETAC, in accordance with CIETAC Arbitration Rules, the agreements are governed by PRC law
and an arbitration award may be challenged in accordance with PRC law. For example, a claim that the enforcement of an award in
our favor will be detrimental to the public interest, or that an issue does not fall within the scope of the arbitration would
require us to engage in administrative and judicial proceedings to defend an award. PRC legal system is a civil law system based
on written statutes and unlike common law systems, it is a system in which decided legal cases have little value as precedent.
As a result, PRC administrative and judicial authorities have significant discretion in interpreting and implementing statutory
and contractual terms, and it may be more difficult to evaluate the outcome of administrative and judicial proceedings and the
level of legal protection available than in more developed legal systems. These uncertainties may impede our ability to enforce
the terms of the Consulting Agreement and the other contracts that we may enter into with Junlong. Any inability to enforce the
Consulting Agreement or an award thereunder could materially and adversely affect our business and operation.



23







Our arrangements
with Junlong and the VIE Shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have
an adverse effect on our income and expenses.



We
could face material and adverse tax consequences if the PRC tax authorities determine that our contracts with Junlong and the VIE
Shareholders were not entered into based on arm’s length negotiations. Although our contractual arrangements are similar
to other companies conducting similar operations in the PRC, if the PRC tax authorities determine that these contracts were not
entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer
pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if
any.



RISKS RELATED TO DOING
BUSINESS IN THE PRC



New labor law in
the PRC may adversely affect our results of operations.



On
June 29, 2007, the National People’s Congress promulgated the Labor Contract Law of PRC, or the Labor Law, which became
effective as of January 1, 2008. On September 18, 2008, the PRC State Council issued the PRC Labor Contract Law Implementation
Rules, which became effective as of the date of issuance. The Labor Law and its implementation rules are intended to give employees
long-term job security by, among other things, requiring employers to enter into written contracts with their employees and restricting
the use of temporary workers. The Labor Law and its implementation rules impose greater liabilities on employers, require certain
terminations to be based upon seniority rather than merit and significantly affect the cost of an employer’s decision to
reduce its workforce. Employment contracts lawfully entered into prior to the implementation of the Labor Law and continuing after
the date of its implementation remain legally binding and the parties to such contracts are required to continue to perform their
respective obligations thereunder. However, employment relationships established prior to the implementation of the Labor Law without
a written employment agreement were required to be memorialized by a written employment agreement that satisfies the requirements
of the Labor Law within one month after it became effective on January 1, 2008. In the event we decide to significantly
change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to enact such changes in a manner
that is most advantageous to our business or in a timely and cost effective manner, thus materially and adversely affecting our
financial condition and results of operations.



We may be exposed
to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law, and any determination that we violated
such laws could hurt our business.



We
are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments
to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the
purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit bribery.
We have operations, agreements with third parties and make sales in the PRC, which may experience corruption. Our activities in
the PRC create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors
of our Company, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage
these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective,
and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations
of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities,
which could negatively affect our business, operating results and financial condition. In addition, the United States government
may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.



Changes in PRC political
or economic situation could harm us and our operating results.



Economic
reforms adopted by the PRC government have had a positive effect on the economic development of the country, but the government
could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations
and profitability. Some of the things that could have this effect are:



| |  ̈ | Level of government involvement in the economy;
| | - | -----------------------------------------------

| |  ̈ | Control of foreign exchange;
| | - | ----------------------------

| |  ̈ | Methods of allocating resources;
| | - | --------------------------------



24







| |  ̈ | Balance of payments position;
| | - | -----------------------------

| |  ̈ | International trade restrictions; and
| | - | -------------------------------------

| |  ̈ | International conflict.
| | - | -----------------------



The
PRC economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development,
or OECD, in many ways. For example, state-owned enterprises still constitute a large portion of the PRC economy and weak corporate
governance and a lack of flexible currency exchange policy still prevail in the PRC. As a result of these differences, we may not
develop in the same way or at the same rate as might be expected if the PRC economy was similar to those of the OECD member countries.



Our business is
largely subject to the uncertain legal environment in China and your legal protection could be limited.



The
PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents
set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to
enhance the legal protections afforded to foreign invested enterprises in the PRC. However, these laws, regulations and legal requirements
are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties
could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses
and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of
the PRC and not of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could
be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against our
PRC operations and our controlled VIE.



The PRC government
exerts substantial influence over the manner in which we must conduct our business activities.



The
PRC only recently has permitted provincial and local economic autonomy and private economic activities. The PRC government has
exercised and continues to exercise substantial control over virtually every sector of the PRC economy through regulation and state
ownership. Our ability to operate in the PRC may be harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our
operations in the PRC are in material compliance with all applicable legal and regulatory requirements. However, the central or
local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing
regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or
interpretations.



Accordingly,
government actions in the future, including any decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant
effect on economic conditions in the PRC or particular regions thereof, and could require us to divest ourselves of any interest
we then hold in PRC properties or joint ventures.



Future inflation
in the PRC may inhibit our ability to conduct business in the PRC.



In
recent years, the PRC economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the
past ten years, the rate of inflation in the PRC has been as high as 20.7% and as low as   -2.2%. These factors
have led to the adoption by the PRC government, from time to time, of various corrective measures designed to restrict the availability
of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to impose controls
on credit and/or prices, or to take other action, which could inhibit economic activity in the PRC, and thereby harm the market
for our products and our company.



25







Restrictions on
currency exchange may limit our ability to receive and use our revenues effectively.



The
majority of our revenues will be settled in Renminbi and U.S. dollars, and any future restrictions on currency exchanges may limit
our ability to use revenue generated in Renminbi to fund any future business activities outside the PRC or to make dividend or
other payments in U.S. dollars. Although the PRC government introduced regulations in 1996 to allow greater convertibility of the
Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested
enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in the PRC
authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct
investment and loans, is subject to governmental approval in the PRC, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that the PRC regulatory authorities will not impose more
stringent restrictions on the convertibility of the Renminbi.



Failure to comply
with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident
stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC controlled VIEs,
limit our PRC controlled VIEs’ ability to distribute profits to us or otherwise materially adversely affect us.



On
October 21, 2005, the State Administration for Foreign Exchange of the PRC (“SAFE”) issued a Circular
on Relevant Issues Concerning Foreign Exchange Administration on the Financing and Return Investment by Chinese Domestic Residents
through Overseas Special Purpose Companies (“Circular 75”), which became effective on November 1,
2005.  Circular 75 and its relevant implementing rules issued thereafter regulate the foreign exchange matters in relation
to the use of a “special purpose vehicle” by PRC residents to seek offshore equity financing and conduct “round
trip investment” in China.  Under Circular 75, a “special purpose vehicle” or “SPV” refers
to an offshore entity established or controlled, directly or indirectly, by PRC residents or PRC entities for the purpose of seeking
offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, while “round
trip investment” refers to the direct investment in China by PRC residents through the “SPV”, including
without limitation establishing foreign invested enterprises and using such foreign invested enterprises to purchase or control
(by way of contractual arrangements) onshore assets.  Pursuant to Circular 75, (i) a PRC resident shall register with
a local branch of the SAFE before he or she establishes or controls an overseas SPV, for the purpose of overseas equity financing
(including convertible debt financing); (ii) when a PRC resident contributes the assets of or his or her equity interests in a
domestic enterprise to an SPV, or engages in overseas financing after contributing assets or equity interests to an SPV, such PRC
resident must register his or her interest in the SPV and any subsequent changes in such interest with a local branch of the SAFE;
and (iii) when the SPV undergoes a material change outside of China, such as a change in share capital or merger or acquisition,
the PRC resident shall, within 30 days from the occurrence of the event that triggers the change, register such change with a local
branch of the SAFE.  In addition, the PRC subsidiary of the offshore SPV are prohibited from distributing their profits and
proceeds from any reduction in capital, share transfer or liquidation to their offshore special purpose vehicle parent companies
if the SPV shareholders who are PRC residents have not completed foreign exchange registration pursuant to Circular 75.  If
any PRC resident stockholder of a SPV fails to make the required SAFE registration and amended registration, the onshore PRC subsidiaries
of that offshore company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share
transfer or liquidation to the offshore entity.  Failure to comply with the SAFE registration and amendment requirements
described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.



Our
current shareholders, who are PRC residents as defined in Circular 75, (the “PRC Shareholders”) have not completed
the necessary registrations as required under Circular 75.  We have already asked our PRC Shareholders to make up the necessary
applications and registrations as required under Circular 75 and related regulations, and our PRC Shareholders have agreed to do
so immediately.  However, we cannot assure you that our PRC Shareholders will be able to make up the necessary approval
and registration procedures required by the Circular 75 and related regulations.  Failure by the PRC Shareholders to register
as required with the relevant local branch of SAFE could subject them to fines and legal sanctions and may also limit our ability
to contribute additional capital into or provide loans to (including using the proceeds from this offering) our PRC subsidiary,
limit our PRC subsidiary’s ability to pay dividends or otherwise distribute profits to us, or otherwise adversely affect
us.



26







The approval of
the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering under PRC regulations.
The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more
difficult for us to grow through acquisitions.



On
August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions
of Domestic Companies by Foreign Investors, which became effective on September 8, 2006 (the “M&A Rules”).
The M&A Rules requires offshore special purpose vehicles that are controlled by PRC companies or residents and that have been
formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies
or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. On September 21,
2006, the CSRC published a notice on its website specifying the documents and materials that special purpose vehicles are required
to submit when seeking CSRC approval for their listings outside of China. The interpretation and application of the M&A Rules
remain unclear, and this offering may ultimately require approval from the CSRC, and if it does, it is uncertain how long it will
take us to obtain the approval. If CSRC approval is required for this offering, our failure to obtain or delay in obtaining the
CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could
include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of
China, and other forms of sanctions that may materially and adversely affect our business, results of operations and financial
condition. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt
this offering before settlement and delivery of the offering.



Our
PRC counsel, China Commercial Law Firm, has advised us that, based on their understanding of the current PRC laws, regulations
and rules and the procedures announced on September 21, 2006, because (i) we established our PRC subsidiary by means
of direct investment other than by merger or acquisition of the equity or assets of Junlong, and (ii) our VIE between our
PRC subsidiary and Junlong does not constitute the acquisition of our PRC subsidiary, we are not required to apply with the CSRC
for the approval of the listing and offering on the OTCBB market.



The
M&A Rules also established additional procedures and requirements that are expected to make merger and acquisition activities
in China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified
in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that
the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises
or residents acquire affiliated domestic companies. We may grow our business in part by acquiring other companies operating in
our industry. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any
required approval processes, including approval from Ministry of Commerce, may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share.



The
M&A Rules, along with foreign exchange regulations discussed in the above subsection, will be interpreted or implemented by
the relevant government authorities in connection with our future offshore financings or acquisitions, and we cannot predict how
they will affect our business development strategy.



Under the EIT Law,
we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax
consequences to us and our non-PRC shareholders.



Under
the new PRC Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1,
2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a
“resident enterprise,” meaning that it can be treated in a manner similar to a PRC enterprise for enterprise income
tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and
control over the production and operations, personnel, accounting, and properties” of the enterprise.



27







On
April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese
Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies,
or the Notice, further interpreting the application of the EIT Law and its implementation non-PRC enterprise or group controlled
offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a PRC enterprise
or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in
charge of daily operation reside or perform their duties mainly in the PRC; (ii) its financial or personnel decisions are made
or approved by bodies or persons in the PRC; (iii) its substantial properties, accounting books, corporate chops, board and shareholder
minutes are kept in the PRC; and (iv) half of the directors with voting rights or senior management often resident in the PRC.
Such resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding
tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is
applicable to an offshore enterprise incorporated by a PRC natural person. Nor are detailed measures on imposition of tax from
non-domestically incorporated resident enterprises available. Therefore, it is unclear how tax authorities will determine tax residency
based on the facts of each case.



However,
as our case substantially meets the foregoing criteria, there is likelihood that we are deemed to be a resident enterprise by PRC
tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income
tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax
at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this
would mean that income such as interest on financing proceeds and non-PRC source income would be subject to PRC enterprise income
tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries
would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding
tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect
to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could
result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect
to gains derived by our non-PRC shareholders from transferring our shares. We are actively monitoring the possibility of “resident
enterprise” treatment for the 2008 tax year and are evaluating appropriate organizational changes to avoid this treatment,
to the extent possible.



If
we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S.
and the PRC, and our PRC tax may not be creditable against our U.S. tax.



The value of our
securities will be affected by the currency exchange rate between U.S. dollars and RMB.



The
value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies
and other currencies in which our sales may be denominated. For example, if we need to convert U.S. dollars into RMB for our operational
needs and the RMB appreciates against the U.S. dollar at that time, our financial position, our business, and the price of our
common stock may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends
on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent
of our earnings from our subsidiaries in the PRC would be reduced.



RISKS RELATED TO THE
MARKET FOR OUR STOCK



Our common stock
is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity.



Our
common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a significantly more limited market than the New York
Stock Exchange or NASDAQ stock markets. The quotation of our shares on the OTC Bulletin Board means there is a less liquid market
available for existing and potential stockholders to trade shares of our common stock. The limited liquidity could depress the
trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.



You may have difficulty
trading and obtaining quotations for our Common Stock.



Our
Common Stock does not trade, and the bid and asked prices for our Common Stock on the Over-the-Counter Bulletin Board may fluctuate
widely in the future. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price
of, our securities. This severely limits the liquidity of the Common Stock, and would likely reduce the market price of our Common
Stock and hamper our ability to raise additional capital.



28







The market price
of our Common Stock is likely to be highly volatile and subject to wide fluctuations.



Dramatic
fluctuations in the price of our Common Stock may make it difficult to sell our Common Stock. The market price of our Common Stock
is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our
control, including:



| | · | dilution caused by our issuance of additional shares of Common Stock
and other forms of equity securities, which we expect to make in the Offering and in connection with future capital financings
to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships
with other companies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | variations in our quarterly operating results;
| | - | ----------------------------------------------

| | · | announcements that our revenue or income are below or that costs or
losses are greater than analysts’ expectations;
| | - | -------------------------------------------------------------------------------------------------------------------

| | · | the general economic slowdown;
| | - | ------------------------------

| | · | sales of large blocks of our Common Stock;
| | - | ------------------------------------------

| | · | announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | · | fluctuations in stock market prices and volumes;
| | - | ------------------------------------------------



These
and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material
adverse changes to the market price of our Common Stock and/or our results of operations and financial condition.



We do not expect to
pay dividends on our Common Stock in the future.



We
have paid no cash dividends on our Common Stock in the past and do not intend to pay any cash dividends on our Common Stock in
the foreseeable future. We anticipate that we will reinvest profits from our operations, if any, into our business.  
We cannot assure you that we will ever pay dividends to holders of our Common Stock. Therefore, investors will not receive any
funds unless they sell their Common Stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors
cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the Common
Stock and the Units.



You may be diluted
if we issue additional equity securities.



We
anticipate issuing additional equity securities in the future.  There can be no assurance that the pricing of any such additional
securities will not be lower than the price at which you purchased your securities in this Offering.  If and when we issue
additional securities, it is possible that your percentage interest in us will be diluted further.



We are subject to
penny stock regulations and restrictions.



The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our common
stock becomes a “penny stock,” we may become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule.
This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes
exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make
a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior
to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market.



29







For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales
commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stock.



There
can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common
stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC
the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction
would be in the public interest.



Compliance with
changing regulation of corporate governance and public disclosure will result in additional expenses.



Changing
laws, regulations and standards relating to corporate governance and public disclosure, including SOX and related SEC regulations,
have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public
markets and public reporting.  Our management team will need to invest significant management time and financial resources
to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative
expenses and a diversion of management time and attention from revenue generating activities to compliance activities.



Certain provisions
of our Certificate of Incorporation may make it more difficult for a third party to effect a change-in-control.



Our
Certificate of Incorporation authorizes the Board of Directors to issue up to 50 million shares of preferred stock. The preferred
stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors
without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular
matters, preferences as to dividends and liquidation, conversion rights and redemption rights provisions. The issuance of any preferred
stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition,
specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets
to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage,
prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent the stockholders from recognizing
a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common
stock.





|Item 1B. | Unresolved Staff Comments.
|-------- | --------------------------



Not
applicable.



|Item 2. | Properties.
|------- | -----------



There
is no private land ownership in the PRC. Individuals and companies are permitted to acquire land use rights for specific purposes.
We currently do not have any land use rights. Instead we lease most of the property that we need to operate our business from third
parties.



Junlong
currently leases from an individual Changsheng Hao the office space for its headquarters located at Room 1010, Unit D, Block
1, Yuanjing Garden, Longxiang Road, Zhongxin Cheng, Longgang District, Shenzhen. The term of the lease was originally December
1, 2009 to December 31, 2010, but the lease has been extended until December 31, 2011.The lease has been filed with the House Leasing
Management Office of Longgang District, Shenzhen.



30







Junlong
also leases spaces from different entities or individuals for its 46 internet cafés.



|Item 3. | Legal Proceedings.
|------- | ------------------



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



|Item 4. | (Removed and Reserved).
|------- | -----------------------



PART
II



Item 5.  
                Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.



Market Information



Our
common stock is quoted on the OTC Bulletin Board and trades under the symbol “CICC”, however there is not currently,
and historically there has never been, an active trading market for our common stock, and no information is available for the prices
of our common stock.



Approximate Number
of Holders of Our Common Stock



As
of March 30, 2011, there were approximately 168 stockholders of record of our common stock, as reported by our transfer agent.
In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers
is counted as a single stockholder.



Dividends



Junlong
declared a dividend distribution to Dishan Guo, Jinzhou Zeng, Xiaojiang Yang and Xiaofen Wang on December 31, 2008, totaling RMB
20 million (approximately US$2.9 million). Our board of directors will make any future decisions regarding dividends. We currently
intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any
cash dividends within one year. Our board of directors has complete discretion on whether to pay dividends, subject to the approval
of our stockholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our
future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other
factors that the board of directors may deem relevant.



Securities Authorized
for Issuance Under Equity Compensation Plans



We
do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any
outstanding stock options.



Recent Sales of
Unregistered Securities; Use of Proceeds from Registered Securities



On
February 18, 2011 (the “Closing Date”), in connection with a security purchase agreement between the Company and
the investors identified on Exhibit A thereto (collectively, the “Investors”), we closed a private placement (the “Offering”) of
approximately $6.4 million from offering a total of 474,967 units (the “Units”) at a purchase price
of $13.50 per Unit, each consisting of:(i) nine shares of the Company’s 5% Series A Convertible Preferred Stock, par
value $0.00001 per share (the “Preferred Shares”), convertible on a one to one basis into nine shares of the
Company’s common stock, par value $0.00001 per share (the “Common Stock”); (ii) one share of Common
Stock; (iii) two three-year Series A Warrants (the “Series A Warrants”),each exercisable for the purchase of one
share of Common Stock, at an exercise price of $2.00 per share; and (iv) two three-year Series B Warrants (the “Series
B Warrants”), each exercisable for the purchase of one share of Common Stock, to purchase one share of Common Stock, at an
exercise price of $3.00 per share.



31







In
connection with the Offering, we also entered into a registration rights agreement (the “Registration Rights Agreement”) with
the Investors, in which we agreed to file a registration statement (the “Registration Statement”) with the Commission
to register for resale the Common Stock and the Common Stock issuable upon conversion of the Preferred Stock, the Series A Warrant
Shares and the Series B Warrant Shares, within 45 calendar days of the Closing Date, and to have the registration statement declared
effective within 150 calendar days of the Closing Date or within 180 calendar days of the Closing Date in the event of a full review
of the registration statement by the U.S. Securities and Exchange Commission (“SEC”). If we do not comply with the
foregoing obligations under the Registration Rights Agreement, we will be required to pay cash liquidated damages to each Investor,
at the rate of 1% of the applicable subscription amount for each 30 day period in which we are not in compliance; provided,
that such liquidated damages will be capped at 10% of the subscription amount of each investor and will not apply to any registrable
securities that may be sold pursuant to Rule 144 under the Securities Act, or are subject to an SEC comment with respect to Rule
415 promulgated under the Securities Act.



In
connection with the Offering, we also entered into a securities escrow agreement with the Investors (the “Securities Escrow Agreement”) and
Mr. Dishan Guo (the “Stockholder”), the Company’s chairman, pursuant to which, the Stockholder agrees to deliver
into an escrow account one share of our Common Stock for each $10 sold to the Purchasers in the Offering to be used as escrow shares,
equal to 641,205 shares of Common Stock (the “Escrow Shares”).  The distribution of the Escrow Shares
shall be based on a performance threshold for the Company.  With respect to the 2011fiscal year, if we earn less than
$9,500,000, then the Escrow Shares for such year will be delivered to the Investors in the amount of 10% of the Escrow Shares for
each full percentage point by which such threshold was not achieved up to a maximum of the Escrow Shares.



On
the Closing Date, we entered into a lock-up agreement (the “Lock-Up Agreement”) with Mr. Dishan Guo (the “Affiliate”),
whereby the Affiliate is prohibited from selling our securities that they directly or indirectly own (the “Lock-Up Shares”) until
9 months after the Registration Statement is declared effective by the SEC (the “Lock-Up Period”). In addition, the
Affiliate further agrees that during the 12 months immediately following the Lock-Up Period, the Affiliate shall not offer, sell,
contract to sell, assign, or transfer (the “Transfer”) more than 0.83333% of the Lock-Up Shares during each calendar
month following the Lock-Up Period, other than engaging in a Transfer in a private sale of the Lock-Up Shares if the transferee
agrees in writing to be bound by and subject to the terms of the Lock-Up Agreement.



The
description of the Securities Purchase Agreement, Registration Rights Agreement, Securities Escrow Agreement and Lock-up Agreement
is qualified in its entirety by reference to a copy of the agreements attached to this Annual Report on Form 10-K as exhibits 10.13,
10.14, 10.15, and 10.16, respectively.



The
Company engaged TriPoint Global Equities, LLC (the "Agent") as placement agent in connection with the sale of securities
in the Offering and agreed to pay the Agent (i) cash commissions equal to 7% of the gross proceeds received by the Company;
(ii) a cash management finance fee equal to 1% of the gross proceeds raised by the Company in the Offering, payable at the time
of each closing;  (iii) a non-accountable expense fee equal to 0.5% of the gross proceeds; and (iv) warrants to purchase
such number of securities equal to 9% of the aggregate number of shares of common stock issuable in connection with the Offering
(the “Agent Warrants”). The Agent’s Warrants will all have three year terms and will be exercisable at the following
prices: (i) $1.35 per share (427,470 warrants), (ii) $2,00 per share (85,494 warrants) and (iii) $3.00 per share (85,494
warrants).  The Company also agreed to compensate the Placement Agent for all of its reasonable expenses in connection
with the Offering.





Registrar and Stock
Transfer Agent



Our
independent stock transfer agent is Pacific Stock Transfer Company. Its mailing address is 4045 South Spencer Street, Suite 403,
Las Vegas, NV 89119. Its phone number is (702) 361-3033.







32







Penny Stock Regulations



Our
shares of common stock are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules
under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00
per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that
security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered
investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's
net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation
for at least three years or $5,000,000 if in operation for less than three years or the issuer's average revenues for each of the
past three years must exceed $6,000,000.



Trading
in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons
other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in
excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security
and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating
to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny
stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent
it is penny stock, and may affect the ability of shareholders to sell their shares.



Repurchase of Equity
Securities



None.



|Item 6. | Selected Financial Data.
|------- | ------------------------



Not
Applicable.



|Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



The following discussion
and analysis of our financial condition and result of operations contains forward-looking statements and involves numerous risks
and uncertainties, including, but not limited to, those described in the "Risk Factors" section of the other reports
we file with the Securities and Exchange Commission. Actual results may differ materially from those contained in any forward-looking
statements.



Overview



Prior
to the consummation of the share exchange transaction described below, we were a shell company with nominal operations and nominal
assets. Currently, operating through our wholly-owned subsidiary, Junlong Culture Communication Co. Ltd. ("Junlong"),
we believe we operate the largest Internet Café chain in Shenzhen, Guangdong, China consisting of 44 locations in high
traffic areas.  Our focus is on providing top quality internet café facilities that offer a one-stop entertainment
and media venue for customers, typically mature students and migrant workers, at reasonable prices. Although our locations do sell
snacks, drinks, and game access cards, more than 95% of our revenue comes directly from selling internet access time to our computers.



We expect our future growth
to be driven by a number of factors and trends including:



| | 1. | Our ability to expand our client base through promotion of our services
| | -- | -----------------------------------------------------------------------



33







| | 2. | Our ability to integrate cafes we acquired in the previous years
| | -- | ----------------------------------------------------------------

| | 3. | Our ability to identify and integrate JV target companies in the coming year
| | -- | ----------------------------------------------------------------------------



For
the fiscal year ended December 31, 2010, our revenue was approximately $20,460,000 and our net profit was roughly $5,750,000.  This
represented an increase of 45.74% and 30.95%, respectively, from the revenue of roughly $14,040,000 and net profit of approximately
$4,390,000 of 2009 fiscal year. As of December 31, 2010, we have 523 employees.



Because
our recent operations have been limited to the operations of Junlong, the discussion below of our performance is based upon the
audited financial statements of Junlong for the fiscal year ended December 31, 2010 and 2009 and the audited financial statements
of Junlong for the years ended December 31, 2009 and 2008, which are included in this report.



We believe that the following
factors will continue to affect our financial performance:



| | · | Improved Disposable Income. As the Shenzhen
government increases the minimum wage, migrant workers, who are our major customers, will have more disposable income. We are expecting
the inflow of migrant workers to continue to contribute to our revenue growth.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Continued Internet Café Use.Our business
may be adversely affected with increased home computer and home console ownership. However, the home computer and console penetration
rate is relatively low in China as compared to that of America and Europe. In addition, young people in China prefer internet cafes
to home computers since it is a social place for them. We expect the preference will continue and provide sustainable business.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Customer Loyalty.As we continue to expand our
operations, developing and maintaining customer loyalty will be critical to continued revenue growth.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expansion into South Western Provinces. TheCompany
currently holds an internet café chain license. In order to meet the basic requirements to acquire a national internet chain
license, the Company's primary objective is to acquire and open at least 20 internet cafes in two provinces other than Guangdong
Province. The company has conducted research in the South Western provinces including Chongqing, Sichuan, Guizhou, and Yunnan
and is focusing on targets in these areas for acquisition purposes. The Company believes the national license is imperative for
the development of a nationwide market.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Developments
and Reorganizations



On
July 2, 2010, we completed a reverse acquisition transaction through a share exchange with Classic Bond and its shareholders, whereby
we acquired 100% of the issued and outstanding capital stock of Classic Bond, in exchange for 19,000,000 shares of our common stock,
which shares constituted 94% of our issued and outstanding shares on a fully-diluted basis as of and immediately after the consummation
of the reverse acquisition. As a result of the reverse acquisition, Classic Bond became our wholly-owned subsidiary and the former
shareholders of Classic Bond, became our controlling stockholders. See “Corporate Structure and History – Acquisition
of Classic Bond” above for more information regarding Classic Bond, its subsidiary, and controlled VIE.



Upon
the closing of the reverse acquisition, Xuezheng Yuan, our sole director and officer, submitted a resignation letter pursuant to
which he resigned from all offices that he held with immediate effect and from his position as our sole director effective August
13, 2010. Also upon the closing of the reverse acquisition, our board of directors increased its size from one to five members
and appointed Dishan Guo, Zhenquan Guo, Lei Li, Wenbin An and Lizong Wang to fill the vacancies created by the resignation of Xuezheng
Yuan.  Mr. Dishan Guo's appointment became effective upon closing of the reverse acquisition, while the remaining appointments
became effective on, August 13, 2010. In addition, upon the closing of the reverse acquisition, our executive officers were replaced
by the Classic Bond executive officers as indicated in more detail below.



34







For
accounting purposes, the share exchange transaction was treated as a reverse acquisition, with Classic Bond as the acquirer and
China Internet Café Holdings Group, Inc. as the acquired party.



On
January 20, 2011, China Internet Café Holdings Group, Inc. filed with the Nevada Secretary of State an amendment to its
Amended and Restated Articles of Incorporation to give effect to a name change from “China Unitech Group, Inc.” to
“China Internet Café Holdings Group, Inc.” The Amended and Restated Articles of Incorporation were approved
by our board of directors on July 30, 2010 and were approved by a stockholder holding 59.45% of our outstanding common stock by
written consent on July 30, 2010.



In
April 2010, we acquired two new cafes in Longgang district. Lanman internet cafe opened on April 6 with two hundred and thirty-one
computers and ten employees, and Chaosu internet cafe opened on April 16 with two hundred and forty computers and fourteen employees.
In July 2010, we acquired one new cafe in the Baoan district,  Gainianshikong internet café, which opened on July
11 with two hundred and fourteen computers and ten employees. In the fiscal year ended 2010, we opened thirteen internet cafes,
and as a result, we had forty four internet cafes in Shenzhen as of December 31, 2010.



Taxation



United States



The
Company is subject to United States tax at a rate of 34%. As we had no taxable income for 2010 and 2009 no provision for income
taxes in the United States has been made.



British Virgin Islands



Classic
Bond was incorporated in the BVI.  Under the current laws of the BVI, Classic Bond is not subject to income taxes.



People’s
Republic of China



Zhonghefangda
is subject to a 5% business tax on its revenue.



Junlong
was subject to an 18% enterprise income tax (“EIT”) in 2008, 20% EIT in 2009, and 22% EIT in 2010.



In
March 2007, China passed the Enterprise Income Tax Law (“EIT Law”) and its implementing rules which became effective
on January 1, 2008. The EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced
income derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such
enterprises’ shareholders has a tax treaty with China that provides for a different withholding arrangement. In addition,
under the EIT Law, we may be deemed to be a “resident enterprise,” as discussed in “Risk Factors – Under
the EIT Law, we may be classified as a “resident enterprise” of China.”  Such classification will likely
result in unfavorable tax consequences to us and our non-PRC shareholders.”



We
incurred income taxes of $1,819,380 for the fiscal year ended December 31, 2010, a $751,118 or 70.31% increase from the taxes incurred
during 2009. The increase in taxes was due, in part, to increased revenue generated from the expansion of our business during 2010.
The additional tax  was also caused by the increase of our income tax rate from 20% in 2009 to 22% in 2010. We incurred
income taxes of $1,068,262 for the year ended December 31, 2009, an increase of $461,210 or 63.83% from the $652,052 in taxes that
we incurred during 2008.  This increase in taxes was due to the opening of additional internet cafes and a rise in the
income tax rate from 18% in 2008 to 20% in 2009.



Our
future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax
income and non-tax deductible expenses. Our management carefully monitors these legal developments and will timely adjust our effective
income tax rate when necessary.



35







Results of Operations



The
following tables set forth key components of our results of operations for the periods indicated, in dollars and as a percentage
of revenue.



CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



AUDITED



The following sets forth
certain of the Company’s income statement information for the years ended December 31, 2010 and 2009.



|                           |  | For The Years ended December 31, 2010 |            |  | For The Years ended December 31, 2009 |  |       |   |  |   |               | 
|-------------------------- |  | ------------------------------------- | ---------- |  | ------------------------------------- |  | ----- | - |  | - | ------------- | 
|                           |  | $                                     |            |  | As percentage                         |  |       | $ |  |   | As percentage | 
|                           |  |                                       |            |  |                                       |  |       |   |  |   |               | 
|Revenue                    |  | $                                     | 20,460,459 |  |                                       |  | 100   | % |  | $ | 14,038,931    | 
|Cost of revenue            |  |                                       | 11,823,456 |  |                                       |  | 58    | % |  |   | 8,409,527     | 
|Depreciation               |  |                                       | 1,615,096  |  |                                       |  | 8     | % |  |   | 1,276,415     | 
|Salary                     |  |                                       | 1,746,098  |  |                                       |  | 9     | % |  |   | 830,944       | 
|Rent                       |  |                                       | 1,089,910  |  |                                       |  | 5     | % |  |   | 814,954       | 
|Utility                    |  |                                       | 1,541,090  |  |                                       |  | 8     | % |  |   | 1,367,545     | 
|Business tax and surcharge |  |                                       | 4,839,276  |  |                                       |  | 24    | % |  |   | 3,319,554     | 
|Others                     |  |                                       | 991,986    |  |                                       |  | 5     | % |  |   | 800,115       | 
|Gross profit               |  |                                       | 8,637,003  |  |                                       |  | 42    | % |  |   | 5,629,404     | 
|Operating Expenses         |  |                                       | 634,739    |  |                                       |  | 3     | % |  |   | 166,141       | 
|Income from operations     |  |                                       | 8,002,264  |  |                                       |  | 39    | % |  |   | 5,463,263     | 
|Interest income            |  |                                       | 8,265      |  |                                       |  | 0     | % |  |   | -             | 
|Interest expenses          |  |                                       | -9,437     |  |                                       |  | -0.05 | % |  |   | -819          | 
|Other expenses             |  |                                       | -43        |  |                                       |  | 0.00  | % |  |   | -5,733        | 
|Reorganizational expenses  |  |                                       | 435,086    |  |                                       |  | 2     | % |  |   | 0             | 
|Income Before Income Taxes |  |                                       | 7,565,963  |  |                                       |  | 37    | % |  |   | 5,456,711     | 
|Income taxes               |  |                                       | 1,819,380  |  |                                       |  | 9     | % |  |   | 1,068,262     | 
|Net income                 |  | $                                     | 5,746,583  |  |                                       |  | 28    | % |  | $ | 4,388,449     | 



Comparison of Fiscal
Year Ended December 31, 2010 and 2009



Revenue. Our revenue
is primarily generated from sales of prepaid IC cards. Sales revenue increased from approximately $6.4 million, or 45.74%, to $20
million for the fiscal year ended December 31, 2010 from $14 million for the same period in 2009.  The increase was mainly
due to the revenue generated by the sixteen new cafes opened in 2010.  Management expects this trend to continue in 2011
as we continue to focus on organic growth within Shenzhen while simultaneously pursuing options for expansion through acquisition
in other provinces.  In addition, our same store sales figures increased by 5% in 2010 and management expects this trend
to continue as the overall computer usage rate in China increases and we continue to focus on developing and maintaining customer
loyalty.   The company is also currently attempting to increase the Company’s revenue percentage of the Game
Card commission.



36







Cost of Revenue.
Our cost of sales is primarily comprised of depreciation and amortization, salary, rent, utility business tax and surcharge. Our
cost of sales increased by $3.4 million, or 40.60%, to $11 million for the fiscal year ended December 31, 2010 from $8.4 million
during the same period in 2009. The increase was mainly attributable to increased labor cost and taxes in our 2010 fiscal year
as compared to the same period in 2009.  During 2010, the increased business tax was a direct result of the higher revenue
generated from the business.  We expect this trend to continue in 2011 as the Company continues to expand its revenue
base.  In addition, the company expects to slightly increase our average employee salary as the Shenzhen Government moves
forward with its plan to increase the basic local income level.



Gross Profit. Our
gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit increased by $3 million,
or 53.43%, to $8.6 million for the fiscal year ended December 31, 2010 from $5.6 million for the same period in 2009. Gross profit
as a percentage of sales was 42% for the fiscal year ended December 31, 2010, as compared to 40% during the same period in 2009.
The improvement of our gross profit margin was mainly attributable to an increase in computer usage in the 2010 fiscal year as
compared to the same period in 2009.  Management expects margins to remain relatively unchanged in 2011 as other cost
drivers increase together with the revenue growth.



Operating Expenses.
Our administrative expenses consist of the costs associated with staff and support personnel who manage our business activities.
Our administrative expenses increased by $468,598, or 282.05%, to $634,739 for the fiscal year ended December 31, 2010 from $166,141
for the same period in 2009. The increase was mainly attributable to the staff training and staff welfare.  The company
expects a slight increase in salary in 2011 due to the adjustment of the basic income level by the Shenzhen Government.



Non-operating Expenses.
Our other expenses decreased by $5,690, to $43 of expense for the fiscal year ended December 31, 2010 from $5,733 expense for the
same period in 2009. In the 2010 period, we incurred interest expenses of $9,437 of which $5,151 was for the $300,000 short term
loan from Shenzhen Yuzhilu Aviation Service Co., Ltd and $4,286 on the RMB 1 million (approximately $147,058) loan from China Construction
Bank Shenzhen Branch, while in the 2009 period the interest expense was $819 for the 1 million RMB loan from China Construction
Bank Shenzhen Branch which was granted in October 2009.



Income before Income
Taxes. Income before income taxes increased by $2,109,252, or 38.65%, to $7,565,963 for the fiscal year ended December 31,
2010 from $5,465,711 for the same period in 2009. The increase of income before income tax was mainly attributable to business
expansion. Income before income taxes as a percentage of sales dropped to 37% for the fiscal year ended December 31, 2010, as compared
to 39% for the same period in 2009 due to the occurrence of reorganizational expenses described below.



Our reorganizational expenses
increased by $435,086 from $0 for the fiscal year ended December 31, 2010 compared to the same period in 2009.  The increase
was mainly attributable to the amount incurred during the setup of the VIE structure and the purchase of the shell company.  The
reorganizational expense was a one-time expense.



Income Taxes. Our
income taxes increased by $751,118 during the fiscal year ended December 31, 2010 from $1,068,262 during the same period in 2009.
The primary reasons for the increase in income taxes was the higher taxable income generated by the new stores opened in 2010 and
an increase in the tax rate.



Net Income. Our
net income increased by $1,358,134, or 31%, to $5,746,583 during the fiscal year ended December 31, 2010 from $4,388,449 during
the same period in 2009 as a result of the factors described above.  We expect to generate higher net profit after the
expansion of our business in year 2011.



Liquidity and Capital
Resources



As
of December 31, 2010, we had cash and cash equivalents of $3,836,824 and restricted cash of $945,280. The following table provides
detailed information about our net cash flow for each financial statement period presented in this report.



37







Cash
Flow



|                                                                    |  | Fiscal Year Ended December 31, |           
|------------------------------------------------------------------- |  | ------------------------------ | ----------
|                                                                    |  | 2010                           |           
|Net cash provided by operating activities                           |  | $                              | 5,817,076 
|Net cash used in investing activities                               |  |                                | (5,414,072
|Net cash provided by financing activities                           |  |                                | 253,054   
|Effect of Foreign currency translation on cash and cash equivalents |  |                                | 118,910   
|Net cash flows                                                      |  |                                | 774,968   



Operating Activities



Net
cash provided by operating activities was $5.8 million for the fiscal year ended December 31, 2010, as compared to $4.8 million
net cash provided by operating activities for the same period in 2009. The change was mainly attributable to an increase in income
tax payable and an amount due to a director for advances made by the director.  The Company has relied on advances from
a director to pay certain public company expenses. Going forward, management intends to pay these expenses from our proceeds from
offerings.



Investing Activities



Net
cash used in investing activities was $5 million for the fiscal year ended December 31, 2010, as compared to approximately $3 million
net cash used in investing activities for the same period in 2009. The change was mainly attributable to the acquisition of new
cafes, leasehold improvements, and equipment deposits.



Financing Activities



Net
cash provided by financing activities was $253,054 in the fiscal year ended December 31, 2010, as compared to $146,180 in the same
period in 2009. The change was mainly due to shareholder’s capital contributions and proceeds from short term loans.



On
July 1, 2010, the company entered into a loan agreement with Shenzhen Yuzhilu Aviation Service Co., Ltd for $300,000 for purchasing
the shell company. This loan matured on October 1, 2010, and the company settled such loan on October 8, 2010.



On October 27, 2009, the
Company entered into a loan agreement with China Construction Bank for $146,259 (RMB1,000,000) which was secured by director’s
guarantee. This loan was due on October 25, 2010 and was settled by the Company on October 19, 2010.



On November 15, 2010,
the Company entered into a loan agreement with China Construction Bank for $151,245 (RMB1,000,000) which was secured by director’s
guarantee. This loan is due on November 14, 2011.



We
believe that we maintain good relationships with the various banks we deal with and our current available working capital, after
receiving the aggregate proceeds from our planned capital raising activities and bank loans referenced above, should be adequate
to sustain our operations at our current levels through at least the next twelve months.



Obligations under Material
Contracts



We
are party to a Loan Agreement with China Construction Bank Shenzhen Branch entered into on November 2010 for a loan of RMB 1 million
(approximately $151,245).



38







Critical Accounting
Policies



The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the
preparation of our financial statements. These accounting policies are important for an understanding of our financial condition
and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial conditions
and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial statements and because of the possibility that
future events affecting the estimate may differ significantly from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.



Revenue recognition



Internet
café members purchase prepaid IC cards which include stored value that will be deducted based on time usage of computers
at the internet cafe. Revenues derived from the prepaid IC cards at the internet café are recognized when services are provided.
This is based upon usage of computer time at the internet cafe. Outstanding customer balances in the IC cards are included in deferred
revenue on the balance sheets. The Company does not charge any service fees that cause a decrement to customer balances. There
is no expiration date for IC cards.



The
Company also records revenue from commission received from the sale of third parties on-line gaming cards, snacks and drinks. Commission
revenue amounting to 20% of the value of the on-line gaming cards, snacks and drinks is recognized at the time the items are sold
to customers.



Cost of goods sold



Cost
of goods sold consists primarily of depreciation of each café’s computer equipment and hardware and overhead associated
with the internet cafes including rental payments, utilities, business tax and surcharge. Companies in China are generally subject
to business taxes and related surcharges by various local tax authorities at rates ranging from 5% to 6% on gross revenue generated.



Property, plant
and equipment



Fixed
assets, comprising computer equipment and hardware, leasehold improvements, office furniture and vehicles are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives listed below.



|                                          |  | Estimated Useful Lives
|----------------------------------------- |  | ----------------------
|Leasehold improvement                     |  | 5 years               
|Café computer equipment and hardware      |  | 5 years               
|Café furniture and fixtures               |  | 5 years               
|Office furniture, fixtures and equipments |  | 5 years               
|Motor vehicles                            |  | 5 years               



Deferred Revenue



Deferred
revenue represents the unused balance of the IC cards. The Outstanding customer balances are $579,822 and $775,985 as at December
31, 2010 and 2009 respectively, and are included in deferred revenue on the balance sheets.



39







Comprehensive income



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



Income taxes



Income
taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Current tax is based
on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose
and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred income tax
liabilities or assets are recorded to reflect the tax consequences in future differences between the tax basis of assets and liabilities
and the financial reporting amounts at each year end. A valuation allowance is recognized if it is more likely than not that some
portion, or all, of a deferred tax asset will not be realized.



Foreign currency
translation



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



The
exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were
as follows:



|                                       |  | 2010 |        |  | 2009 | 
|-------------------------------------- |  | ---- | ------ |  | ---- | 
|Year end RMB : USD exchange rate       |  |      | 6.6118 |  |      | 
|Average yearly RMB : USD exchange rate |  |      | 6.7788 |  |      | 



The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.



Recently issued accounting
pronouncements



Accounting Standards
Codification



In
June 2009, the FASB issued a standard that established the FASB Accounting Standards Codification (the “ASC”), which
effectively amended the hierarchy of U.S. generally accepted accounting principles (“GAAP”) and established only two
levels of GAAP, authoritative and non-authoritative. All previously existing accounting standard documents were superseded, and
the ASC became the single source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities
and Exchange Commission (“SEC”), which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered,
non-SEC accounting literature not included in the ASC became non-authoritative. The ASC was intended to provide access to the authoritative
guidance related to a particular topic in one place. New guidance issued subsequent to June 30, 2009 will be communicated by the
FASB through Accounting Standards Updates. The ASC was effective for financial statements for interim or annual reporting periods
ending after September 15, 2009. We adopted and applied the provisions of the ASC for the Company’s fiscal year ended December
31, 2009, and have eliminated references to pre-ASC accounting standards throughout the financial statements. The adoption of the
ASC did not have a material impact on the Company’s financial statements.



40







In
January 2010, the FASB expanded the disclosure requirements for fair value measurements relating to the transfers in and out of
Level 2 measurements and amended the disclosure for the Level 3 activity reconciliation to be presented on a gross basis. In addition,
valuation techniques and inputs should be disclosed for both Levels 2 and 3 recurring and nonrecurring measurements. The new requirements
are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the
Level 3 activity reconciliation which are effective for fiscal years beginning after December 15, 2010. The Company adopted the
new disclosure requirements on January 1, 2010 except for the disclosure related to the Level 3 reconciliation, which will be adopted
on January 1, 2011. The adoption will not have an impact on its consolidated financial condition, results of operations or cash
flows.



In
July 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-20, “Receivables (Topic 310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  This ASU amends Topic
310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance
for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain
existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses.
For public entities, the disclosures as of   the end of a reporting period are effective for interim and annual
reporting periods ending on or after December 15, 2010. The   disclosures about activity that occurs during a reporting
period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Except for the expanded
disclosure requirements, the adoption of this ASU is not expected to have a   material impact on the Company’s
consolidated financial statements.



Seasonality



Our
operating results and operating cash flows historically have not been subject to seasonal variations. There are moderate impacts
on our business during major national holidays such as the Spring Festival and National Day. This pattern may change, however,
as a result of new market opportunities or new product introductions.





Item 7A.    Quantitative
and Qualitative Disclosures About Market Risk.



Not Applicable.



41







Item 8.    Financial
Statements and Supplementary Data.



CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                            | Page      
|----------------------------------------------------------- | ----------
|Report of Independent Registered Public Accounting Firm     | F-1       
|                                                            |           
|Consolidated Balance Sheets - at December 31, 2010 and 2009 | F-2       
|                                                            |           
|Consolidated Statements of Income and Comprehensive Income  | F-3       
|                                                            |           
|Consolidated Statements of Stockholders’ Equity             | F-4       
|                                                            |           
|Consolidated Statements of Cash Flows                       | F-5       
|                                                            |           
|Notes to Consolidated Financial Statements                  | F-6 - F-28



42







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
and

Stockholders of China
Internet Café Holdings Group, Inc. and Subsidiaries



We have audited the accompanying
consolidated balance sheets of China Internet Café Holdings Group, Inc. and Subsidiaries as of December 31, 2010 and 2009,
and the related consolidated statements of  income and comprehensive income, changes in stockholders’ equity, and
cash flows for each of the years in the two-year period ended December 31, 2010. China Internet Café Holdings Group, Inc.
and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.



We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of China Internet Café
Holdings Group, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in
the United States of America.



/s/ EFP Rotenberg, LLP



EFP Rotenberg, LLP

Rochester, New York

March 29, 2011,except note 23 as to which the date is July 12, 2011



F-1







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                                         |  | December 31, |            |  | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ---------- |  | ------------ | -
|                                                                                                                                                                         |  | 2010         |            |  | 2009         |  
|                                                                                                                                                                         |  |              |            |  |              |  
|ASSETS                                                                                                                                                                   |  |              |            |  |              |  
|Current assets:                                                                                                                                                          |  |              |            |  |              |  
|Cash                                                                                                                                                                     |  | $            | 3,836,824  |  |              | $
|Restricted cash                                                                                                                                                          |  |              | 945,280    |  |              |  
|Loan receivable                                                                                                                                                          |  |              | 2,419,916  |  |              |  
|Rental deposit                                                                                                                                                           |  |              | 55,512     |  |              |  
|Equipment deposit                                                                                                                                                        |  |              | 1,300,650  |  |              |  
|Inventory                                                                                                                                                                |  |              | 180,582    |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Total current assets                                                                                                                                                     |  |              | 8,738,764  |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Property, plant and equipment, net                                                                                                                                       |  |              | 6,848,342  |  |              |  
|Intangible assets, net                                                                                                                                                   |  |              | 191,087    |  |              |  
|Rental deposit-long term portion                                                                                                                                         |  |              | 235,509    |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Total assets                                                                                                                                                             |  | $            | 16,013,702 |  |              | $
|                                                                                                                                                                         |  |              |            |  |              |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                     |  |              |            |  |              |  
|Current liabilities:                                                                                                                                                     |  |              |            |  |              |  
|Short term loan                                                                                                                                                          |  | $            | 151,245    |  |              | $
|Accounts payable                                                                                                                                                         |  |              | 69,373     |  |              |  
|Deferred revenue                                                                                                                                                         |  |              | 579,822    |  |              |  
|Payroll and payroll related liabilities                                                                                                                                  |  |              | 199,548    |  |              |  
|Income and other taxes payable                                                                                                                                           |  |              | 987,194    |  |              |  
|Accrued expenses                                                                                                                                                         |  |              | 102,019    |  |              |  
|Amount due to a shareholder                                                                                                                                              |  |              | 465,741    |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Total current liabilities                                                                                                                                                |  |              | 2,554,941  |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Commitments and contingencies (Note 18)                                                                                                                                  |  |              |            |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Stockholders' Equity                                                                                                                                                     |  |              |            |  |              |  
|Preferred stock ($0.00001 par value, 100,000,000 shares authorized, 0 share issued and outstanding)                                                                      |  |              | -          |  |              |  
|Common stock ($0.00001 par value, 100,000,000 shares authorized, 20,200,000 and 19,000,000 shares issued and outstanding as of December 31, 2010 and 2009, respectively) |  |              | 202        |  |              |  
|Additional paid in capital                                                                                                                                               |  |              | 1,628,417  |  |              |  
|Statutory surplus reserves                                                                                                                                               |  |              | 718,744    |  |              |  
|Retained earnings                                                                                                                                                        |  |              | 10,499,454 |  |              |  
|Accumulated other comprehensive income                                                                                                                                   |  |              | 611,944    |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Total stockholders’ equity                                                                                                                                               |  |              | 13,458,761 |  |              |  
|                                                                                                                                                                         |  |              |            |  |              |  
|Total liabilities and stockholders’ equity                                                                                                                               |  | $            | 16,013,702 |  |              | $



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



F-2







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



|                                                            |  | For The Years ended |           
|----------------------------------------------------------- |  | ------------------- | ----------
|                                                            |  | December 31         |           
|                                                            |  | 2010                |           
|                                                            |  |                     |           
|Revenue                                                     |  | $                   | 20,460,459
|                                                            |  |                     |           
|Cost of revenue                                             |  |                     | 11,823,456
|Gross profit                                                |  |                     | 8,637,003 
|                                                            |  |                     |           
|Operating Expenses                                          |  |                     |           
|                                                            |  |                     |           
|General and administrative expenses                         |  |                     | 634,739   
|Total operating expenses                                    |  |                     | 634,739   
|                                                            |  |                     |           
|Income from operations                                      |  |                     | 8,002,264 
|                                                            |  |                     |           
|Non-operating income (expenses)                             |  |                     |           
|                                                            |  |                     |           
|Interest income                                             |  |                     | 8,265     
|Interest expenses                                           |  |                     | (9,437    
|Other expenses                                              |  |                     | (43       
|Reorganizational expenses                                   |  |                     | (435,086  
|                                                            |  |                     |           
|Total non-operating expenses                                |  |                     | (436,301  
|                                                            |  |                     |           
|Net income before income taxes                              |  |                     | 7,565,963 
|Income taxes                                                |  |                     | 1,819,380 
|                                                            |  |                     |           
|Net income                                                  |  | $                   | 5,746,583 
|                                                            |  |                     |           
|Other comprehensive income                                  |  |                     |           
|Foreign currency translation adjustment                     |  |                     | 400,949   
|Net comprehensive income                                    |  | $                   | 6,147,532 
|                                                            |  |                     |           
|Basis and diluted earnings per share of common stock        |  | $                   | 0.29      
|                                                            |  |                     |           
|Basis and diluted weighted average common stock outstanding |  |                     | 19,601,644



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



F-3







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY



|                                             |  | Common stock        |            |  |        |   |     |                                |  |  |                        |  |  |                       |         |  |                                            | 
|-------------------------------------------- |  | ------------------- | ---------- |  | ------ | - | --- | ------------------------------ |  |  | ---------------------- |  |  | --------------------- | ------- |  | ------------------------------------------ | 
|                                             |  | Number of
    share |            |  | Amount |   |     | Additional
    paid-in capital |  |  | Statutory
    reserves |  |  | Retained
    Earnings |         |  | Accumulated
    other comprehensive income | 
|                                             |  |                     |            |  |        |   |     |                                |  |  |                        |  |  |                       |         |  |                                            | 
|Balance at December 31, 2008 (1)             |  |                     | 19,000,000 |  |        | $ | 190 |                                |  |  | 1,367,032              |  |  |                       | 399,802 |  |                                            | 
|Contributed capital by existing shareholders |  |                     | -          |  |        |   | -   |                                |  |  | 6,452                  |  |  |                       | -       |  |                                            | 
|Transfers to statutory reserves              |  |                     | -          |  |        |   | -   |                                |  |  | -                      |  |  |                       | 318,942 |  |                                            | 
|Net income for the year                      |  |                     | -          |  |        |   | -   |                                |  |  | -                      |  |  |                       | -       |  |                                            | 
|Foreign currency translation difference      |  |                     | -          |  |        |   | -   |                                |  |  | -                      |  |  |                       | -       |  |                                            | 
|Balance at December 31, 2009 (1)             |  |                     | 19,000,000 |  |        |   | 190 |                                |  |  | 1,373,484              |  |  |                       | 718,744 |  |                                            | 
|                                             |  |                     |            |  |        |   |     |                                |  |  |                        |  |  |                       |         |  |                                            | 
|Reorganization for reverse merger            |  |                     | 1,200,000  |  |        |   | 12  |                                |  |  | 3,321                  |  |  |                       | -       |  |                                            | 
|Contributed capital by existing shareholders |  |                     | -          |  |        |   | -   |                                |  |  | 251,612                |  |  |                       | -       |  |                                            | 
|Net income for the year                      |  |                     | -          |  |        |   | -   |                                |  |  | -                      |  |  |                       | -       |  |                                            | 
|Foreign currency translation difference      |  |                     | -          |  |        |   | -   |                                |  |  | -                      |  |  |                       | -       |  |                                            | 
|Balance at December 31, 2010                 |  |                     | 20,200,000 |  |        |   | 202 |                                |  |  | 1,628,417              |  |  |                       | 718,744 |  |                                            | 



(1) See footnote 1 regarding
the recapitalization of Classic Bond Development Limited



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



F-4







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                                  |  | For The Years Ended |           
|--------------------------------------------------------------------------------- |  | ------------------- | ----------
|                                                                                  |  | December 31         |           
|                                                                                  |  | 2010                |           
|Cash flows from operating activities                                              |  |                     |           
|Net income                                                                        |  | $                   | 5,746,583 
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                     |           
|Depreciation                                                                      |  |                     | 1,664,405 
|Amortization                                                                      |  |                     | 23,540    
|                                                                                  |  |                     |           
|Changes in operating assets and liabilities:                                      |  |                     |           
|                                                                                  |  |                     |           
|Prepayment                                                                        |  |                     | (2,360,317
|Rental deposit                                                                    |  |                     | (114,027  
|Inventory                                                                         |  |                     | 30,604    
|Accounts payable                                                                  |  |                     | 31,592    
|Deferred revenue                                                                  |  |                     | (217,133  
|Payroll and payroll related liabilities                                           |  |                     | 69,171    
|Income and other taxes payable                                                    |  |                     | 432,880   
|Accrued expenses                                                                  |  |                     | 52,936    
|Amount due to a director                                                          |  |                     | 456,842   
|Net cash provided by operating activities                                         |  |                     | 5,817,076 
|                                                                                  |  |                     |           
|Cash flows from investing activities                                              |  |                     |           
|Acquisition of property, plant and equipment                                      |  |                     | (4,152,294
|Deposits paid for property, plant and equipment                                   |  |                     | (1,270,511
|Assets Acquisition of cafes                                                       |  |                     | (728,866  
|Restricted Cash                                                                   |  |                     | 737,599   
|Net cash used in investing activities                                             |  |                     | (5,414,072
|                                                                                  |  |                     |           
|Cash flows from financing activities                                              |  |                     |           
|Cash acquired from reverse merger                                                 |  |                     | 1,442     
|Capital contribution by shareholder                                               |  |                     | 251,612   
|Proceeds from short term loan                                                     |  |                     | 451,245   
|Repayment of short term loan                                                      |  |                     | (451,245  
|Net cash flows provided by financing activities:                                  |  |                     | 253,054   
|Effect of foreign currency translation on cash                                    |  |                     | 118,910   
|Net increase in cash                                                              |  |                     | 774,968   
|                                                                                  |  |                     |           
|Cash- beginning of year                                                           |  |                     | 3,061,856 
|                                                                                  |  |                     |           
|Cash- end of year                                                                 |  | $                   | 3,836,824 
|                                                                                  |  |                     |           
|Cash paid during the year for:                                                    |  |                     |           
|Interest paid                                                                     |  | $                   | 9,437     
|Income taxes paid                                                                 |  | $                   | 1,630,711 
|                                                                                  |  |                     |           
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVIES:             |  |                     |           
|Summary of Assets Acquired from Acquisitions:                                     |  |                     |           
|Net Property and Equipment                                                        |  | $                   | 503,492   
|Other Current Assets                                                              |  |                     | 15,792    
|Intangible Assets                                                                 |  |                     | 209,582   
|Net Assets Acquired                                                               |  | $                   | 728,866   
|                                                                                  |  |                     |           
|Transfer of equipment deposits paid in property and equipment                     |  | $                   | 83,811    



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



F-5











CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



| | 1. | Organization, Recapitalization and Nature of Business
| | -- | -----------------------------------------------------



China Internet Cafe
Holdings Group, Inc. (“China Internet Cafe”)

China Internet Cafe Holdings
Group, Inc. (formerly known as China Unitech Group, Inc.) ( “the Company”, “we”, “us”, “our”)
was incorporated in the State of Nevada on March 14, 2006. The Company was a development company from incorporation on June 30,
2010. On July 2, 2010, the Company successfully closed a share exchange transaction with the shareholders of Classic Bond Development
Limited, a British Virgin Islands corporation (" Classic Bond"). The Company will operate through its variable interest
entities in China to execute the current business plan of those affiliates which involves the operation of a chain of China-based
internet cafes.



On February 1, 2011, the
Company changed its name from China Unitech Group, Inc. to China Internet Cafe Holdings Group, Inc.



Recapitalization
of Classic Bond Development Limited

On July 2, 2010, the China
Internet Cafe Holdings Group, Inc. (“China Internet Cafe”), entered into a share exchange transaction with Classic
Bond Development Limited, a British Virgin Islands corporation (“Classic Bond”), and the shareholders of Classic Bond.
Pursuant to the Share Exchange Agreement, China Internet Cafe  acquired 100% of the issued and outstanding capital stock
of Classic Bond in exchange for 19,000,000 newly issued shares of the Company’s common stock, which represented approximately
94% of the 20,200,000 issued and outstanding shares of common stock after the transaction and after the coincident cancellation
of 4,973,600 shares of common stock held by the Company’s former majority stockholder which have a net effect of increase
of 1,200,000 shares. The business, assets and liabilities did not change as a result of the reverse acquisition.



This share exchange transaction
resulted in those shareholders obtaining a majority voting interest in the Company. Generally accepted accounting principles require
that the Company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting
purposes, resulting in a reverse acquisition with Classic Bond as the accounting acquirer and China Internet Cafe as the acquired
party. Accordingly, the share exchange transaction has been accounted for as a recapitalization of Classic Bond whereby Classic
Bond is deemed to be the continuing, surviving entity for accounting purposes, but through reorganization, has deemed to have adopted
the capital structure of China Internet Cafe . The equity section of the accompanying financial statements has been restated to
reflect the recapitalization of the Company due to the reverse acquisition as of the first day of the first period presented.



Accordingly, all references
to common shares of Classic Bond’s common stock have been restated to reflect the equivalent number of China Internet Cafe‘s
common shares. In other words, the 2,000,000 Classic Bond shares outstanding are restated as 20,200,000 common shares, as of July
2, 2010. Each share of Classic Bond is restated to 10.10 shares of  China Internet Cafe.



The book value of  the
net assets that for accounting purposes, were deemed to have been acquired by Classic Bond from China Internet Cafe, as of the
date of acquisition (July 2, 2010) were $3,333.



During the recapitalization,
the Company incurred restructuring expenses of $300,000, related legal and professional fee of $ 129,033 and the interest expenses
of $6,053 related to the short term loan for paying restructuring expenses. All of these expenses amounting to $435,086 in total
which recorded as reorganizational expenses in statement of income.



Classic Bond Development
Limited (“Classic Bond”)

Classic Bond Development
Limited was incorporated on November 2, 2009 in the British Virgins Islands (“BVI”) with 50,000 authorized common stock
with no par value. On November 2, 2009, 50,000 common stock at $0.129 (HK$1) each were issued for cash at $6,452 (HK$50,000) to
several shareholders including Mr. Guo Dishan who is the 65% equity interest shareholder and the sole director of the Company.



On June 23, 2010,
the Company further issued 1,950,000 shares of common stock to 42 individuals to raise fund of $84,093 (HK$651,721) for 651,721
shares and 1,308,954 shares associated with the reorganization of the Company at a value of $167,519 (HK$1,308,954) which is reflected
as contributed capital by existing shareholders of Junlong and the total amount was $251,612. At December 31, 2010 and December
31, 2009, the issued and outstanding of Common Stock were 2,000,000 and 50,000 shares.



F-6







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|1. | Organization and Nature of Business  - Continued
|-- | ------------------------------------------------



Classic Bond Development
Limited (“Classic Bond”) - Continued

Classic Bond is in the
business of operations of internet café, throughout the Lungang District of Shenzhen in Province of Guangdong of People's
Republic of China ("PRC").  The Company conducts its operations through the following subsidiaries: (a) a wholly-owned
subsidiary of the Company located in the PRC: Shenzhen Zhonghefangda Network Technology Co., Ltd. (“Zhonghefangda”)
and (b) an entity located in the PRC: Shenzhen Junlong Culture Communication Co., Ltd. (“Junlong’), which is controlled
by the Company through contractual arrangements between Zhonghefangda and Junlong, as if Junlong were a wholly-owned subsidiary
of the Classic Bond.



Shenzhen Zhonghefangda
Network Technology Co., Ltd. (“Zhonghefangda”)

Zhonghefangda , Classic
Bond’s wholly-owned subsidiary, was incorporated in People’s Republic of China (“PRC”) on June 10, 2010
with registered capital of $129,032 (HK$1 million). Zhonghefangda is engaged in provision of management and consulting services.



On June 11, 2010, to protect
the Company’s shareholders from possible future foreign ownership restrictions, Zhonghefangda and Junlong entered into a
series of agreements. Under these agreements Zhonghefangda obtained the ability to direct the operations of Junlong and to receive
a majority of the residual returns. Therefore, management determined that Junlong became a variable interest entity (“VIE”)
under the provisions of Financial Accounting Standards Board (“FASB”) ASC 810-10 and Zhonghefangda was determined to
be the primary beneficiary of Junlong. Accordingly, beginning June 11, 2010, Zhonghefangda is able to consolidate the assets, liabilities,
results of operations and cash flows of Junlong in the financial statements. Because the legal representatives and ultimate major
stockholder of Zhonghefangda and Junlong is the same person, Mr. Guo Dishan, Zhonghefangda and Junlong were deemed, until June
11, 2010, to be under the common control.



On June 10, 2010, Classic
Bond formed Shenzhen Zhonghefangda Network Technology Co., Ltd. (“Zhonghefangda”) and Mr. Guo Dishan is the legal representative
of Zhonghefangda and thereafter Zhonghefangda becomes a wholly owned subsidiary of Classic Bond and the whole reorganization is
completed.



Exclusive Management
and Consulting Agreement

On June 11, 2010, Zhonghefangda
signed exclusive management and consulting services agreement with Junlong. Pursuant to the agreement, Zhonghefangda agreed to
provide management and consulting services to Junlong, upon request, in connection with the operation of the Business. The agreement
provides that Junlong will compensate Zhonghefangda in consideration for its right to receive the aggregate net profit of Junlong
for a period of twenty (20) years and for succeeding periods of the same duration until terminated by both parties under agreed
conditions.  Zhonghefangda will reimburse to Junlong the full amount of any net losses incurred by Junlong during the
term of this agreement. As a result of entering into the exclusive management and consulting agreement, Zhonghefangda should be
deemed to control Junlong as a Variable Interest Entity and should be consolidated in the accompanying financial statements.



Shenzhen Jun Long
Culture Communication Co., Ltd. (“Junlong”)

Junlong  is
a Chinese enterprise organized in the People’s Republic of China (“PRC”) on December 26, 2003 in accordance with
the Laws of the People’s Republic of China with the registered capital of $0.136 million (equivalent to RMB 1 million). In
2001, the Chinese government imposed higher capital (RMB10 million for regional internet café chain and RMB50 million for
national internet café chain) and facility requirements for the establishment of internet cafes. On August 19, 2004, Junlong
was granted approval from Shenzhen Municipal People’s Government to increase its registered capital by $1,230,500 from $136,722
to $1,367,222 million (increased by RMB 9 million, from RMB 1 million to RMB 10 million)  The capital verification process
has been completed.



In 2005, Junlong obtained
internet cafe licenses of operating internet café chain from the Ministry of Culture, and opened the internet first cafe
in April, 2006 and our members can access the internet at our venues. We started our internet cafes in 2006 and we opened 10 internet
cafes in 2006, 3 internet cafes opened in 2007, 10 internet cafes opened in 2008,  5 internet cafes opened in 2009  and
13  internet cafes opened during the year of 2010. In addition, we acquired assets of 3 cafes in 2010 and as a result,
we own 44 internet cafes within the Longgang District of Shenzhen.



F-7







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



| | (a) | Basis of presentation
| | --- | ---------------------



The Company’s accounting
policies used in the preparation of the accompanying financial statements conform to accounting principles generally accepted in
the United States of America ("US GAAP") and have been consistently applied.



| | (b) | Principle of consolidation
| | --- | --------------------------



The consolidated financial
statements include the accounts of China Internet Cafe Holdings Group, Inc., Classic Bond Development Limited, Zhonghefangda and
the VIE-Junlong. All significant intercompany balances and transactions have been eliminated in the consolidation. The consolidated
financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated
in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.



| | (c) | Use of estimates
| | --- | ----------------



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



Significant Estimates

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



| | (d) | Revenue recognition
| | --- | -------------------



Internet café members
purchase prepaid IC cards which include stored value that will be deducted based on time usage of computer at the internet cafe.
Revenues derived from the prepaid IC cards at the internet café are recognized when services are provided. This is based
upon the usage of computer time at the internet cafe.  Outstanding customer balances in the IC cards are included in
deferred revenue on the balance sheets. The Company does not charge any service fees that cause a decrement to customer balances.   There
is no expiration date for IC cards.



The Company also records
revenue from commission received from the sale of third parties on-line gaming cards, snacks and drinks.  Commission
revenue amounted to 20% of the value of the on-line gaming cards, snacks and drinks is recognized at the time the gaming cards,
etc. are sold to customers.  During the years ended December 31, 2010 and 2009, the commission income was $162,976 and
$116,651, less than 1% of total revenue.



F-8







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies - Continued
|-- | ------------------------------------------------------



| | (e) | Cost of revenue
| | --- | ---------------



Cost of revenue consists
primarily of depreciation of Café computer equipment and hardware, overhead associated with the internet cafes, including
rental payments, utilities, business tax and surcharge. Companies in China are generally subject to business tax and related surcharges
by various local tax authorities at rates ranging from 5% to 6% on gross revenue generated from internet cafés.



| | (f) | Credit risk
| | --- | -----------



The Company may be exposed
to credit risk from its cash at bank.  An allowance has been considered for estimated irrecoverable amounts determined
by reference to past default experience and the current economic environment. No allowance is considered necessary for the period.



| | (g) | Cash and cash equivalents
| | --- | -------------------------



Cash and cash equivalents
include cash on hand, cash accounts, interest bearing savings accounts and time certificates of deposit with a maturity of three
months or less when purchased.



| | (h) | Restricted cash
| | --- | ---------------



At December 31, 2010 and
2009, restricted cash of $945,280 (equivalent to RMB6,250,000) and $1,645,411(equivalent to RMB11,250,000) represented cash held
by two escrow agents on behalf of the Company for registered capital and operating cash flow purposes of two new subsidiary companies
to be established in Yiwu city, Zhejiang province and Anshun city, Guizhou province.



| | (i) | Inventory
| | --- | ---------



Inventory represented
the IC cards we purchased from IC cards manufacturer. Inventories are stated at the lower of cost or market value. Cost is determined
using the first-in, first-out (FIFO) method.



| | (j) | Fair Value of Financial Instruments
| | --- | -----------------------------------



FASB accounting standard
requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could
be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.



For certain financial
instruments, including cash, accounts payable, short-term loans, accruals and other payables, it was assumed that the carrying
amounts approximate fair value because of the near term maturities of such obligations.



| | (k) | Stock-Based Compensation
| | --- | ------------------------



Our advisor assists the
Company for ongoing corporate compliance and development are accounted for under ASC 505-50.  ASC 505-50-30-11 (previously
EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions using
the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:



i. The date at which a
commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and

ii. The date at which
the counterparty’s performance is complete.



F-9







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies – Continued
|-- | ------------------------------------------------------



| | (l) | Equipments deposits
| | --- | -------------------



The Company prepaid the
equipments deposits to the computer suppliers for purchase of computer and equipments for the new internet cafes.



| | (m) | Property, plant and equipment
| | --- | -----------------------------



Property, plant and equipment,
comprising computer equipment and hardware, leasehold improvements, office furniture and vehicles and are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the estimated useful lives listed below.



|                                          |  | Estimated Useful Lives
|----------------------------------------- |  | ----------------------
|Leasehold improvement                     |  | 5 years               
|                                          |  |                       
|Café computer equipment and hardware      |  | 5 years               
|                                          |  |                       
|Café furniture and fixtures               |  | 5 years               
|                                          |  |                       
|Office furniture, fixtures and equipments |  | 5 years               
|                                          |  |                       
|Motor vehicles                            |  | 5 years               



| | (n) | Intangible Assets
| | --- | -----------------



Our intangible assets
consist of definite-lived assets subject to amortization such as Business License and Customer Lists. The useful lives of the Business
License is 9 to 15 years and we amortized the customer lists by 5 years. We calculate amortization of the definite-lived intangible
assets on a straight-line basis over the useful lives of the related intangible assets.



| | (o) | Deferred Revenue
| | --- | ----------------



Deferred revenue represents
unused balances of the prepaid amounts from the IC cards that are unused balance. The Outstanding customer balances are $579,822
and $775,985 as at December 31, 2010 and 2009 and are included in deferred revenue on the balance sheets.



| | (p) | Comprehensive income
| | --- | --------------------



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



| | (q) | Income taxes
| | --- | ------------



Income taxes are provided
on an asset and liability approach for financial accounting and reporting of income taxes.  Current tax is based on the
profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose and is
calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.  Deferred income
tax liabilities or assets are recorded to reflect the tax consequences in future differences between the tax basis of assets and
liabilities and the financial reporting amounts at each year end.  A valuation allowance is recognized if it is more
likely than not that some portion, or all, of a deferred tax asset will not be realized.



F-10







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies - Continued
|-- | ------------------------------------------------------



| | (r) | Consolidation of Variable Interest Entities
| | --- | -------------------------------------------



According to the
requirements of Statement of Financial Accounting Standards No. 810-10, “Variable interest Entities”, the
Company has evaluated the economic relationships of its wholly owned subsidiary, Shenzhen Zhonghefangda Network
Technology Co., Ltd. (“Zhonghefangda”) with Junlong and has determined that it is required to
consolidate Zhonghefangda and Junlong pursuant to the rules of FASB ASC Topic 810-10. Therefore Junlong
is considered to be a VIE, as defined byFASB ASC Topic 810-10, of which Classic Bond is the primary beneficiary as a result
of its wholly owned subsidiary Zhonghefangda. Classic Bond, as mentioned above, will absorb a majority of the economic risks
and rewards of all of these VIE that are being consolidated in the accompanying financial statements.



The carrying amount of
the VIEs’ assets and liabilities are as follows:



|                              |  | December 31, |            |   | December 31, |  
|----------------------------- |  | ------------ | ---------- | - | ------------ | -
|                              |  | 2010         |            |   | 2009         |  
|                              |  |              |            |   |              |  
|Current assets                |  | $            | 8,968,001  |   |              | $
|Property, plant and equipment |  |              | 6,848,343  |   |              |  
|Intangible assets             |  |              | 191,087    |   |              |  
|                              |  |              |            |   |              |  
|Total assets                  |  |              | 16,007,431 |   |              |  
|Total liabilities             |  |              | (2,182,851 | ) |              |  
|                              |  |              |            |   |              |  
|Net assets                    |  | $            | 13,824,580 |   |              | $



| | (s) | Foreign currency translation
| | --- | ----------------------------



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



The exchange rates used
to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:



|                                       |  | 12/31/2010 |        |  | 12/31/2009 | 
|-------------------------------------- |  | ---------- | ------ |  | ---------- | 
|Year end RMB : USD exchange rate       |  |            | 6.6118 |  |            | 
|Average yearly RMB : USD exchange rate |  |            | 6.7788 |  |            | 



The RMB is not freely
convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No
representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.



| | (t) | Post-retirement and post-employment benefits
| | --- | --------------------------------------------



The Company contributes
to a state pension plan in respect of its PRC employees. Other than the above, neither the Company nor its subsidiary provides
any other post-retirement or post-employment benefits.



F-11







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies - Continued
|-- | ------------------------------------------------------



| | (u) | Earnings per share (EPS)
| | --- | ------------------------



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



There is no dilution factor
occurred during the year, the basic EPS equals diluted EPS.



| | (v) | Retained earnings-appropriated
| | --- | ------------------------------



In accordance with the
relevant PRC regulations and the Company’s PRC articles of association, Junlong is required to allocate their respective
net income to statutory surplus reserve.



| | (w) | Statutory surplus reserves
| | --- | --------------------------



In accordance with the
relevant laws and regulations of the PRC and the articles of associations of the Company, Junlong is required to allocate 10% of
their net income reported in the PRC statutory accounts, after offsetting any prior years’ losses, to the statutory surplus
reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries,
any further allocation is optional.



As of December 31, 2010,
the statutory surplus reserves of the subsidiary already reached 50% of the registered capital of the subsidiary and the Company
did not have any further allocation on it.



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



| | (x) | Reclassification
| | --- | ----------------



Certain reclassifications
have been made to the prior year financial statements to conform to the current year presentation.



F-12







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|2. | Summary of Significant Accounting Policies - Continued
|-- | ------------------------------------------------------



| | (y) | Recent Accounting Pronouncements
| | --- | --------------------------------



In June 2009, the FASB
issued ASC 810, (formerly the SFAS No.167, “Amendments to FASB Interpretation No.46(R)”. ASC 810 amends FASB
Interpretation No.46(R), “Variable Interest Entities” for determining whether an entity is a variable
interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s
variable interest or interests give it a controlling financial interest in a VIE. Under ASC 810, an enterprise has a controlling
financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic
performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially
be significant to the VIE. ASC 810 also requires an enterprise to assess whether it has an implicit financial responsibility to ensure
that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly
impact the entity’s economic performance. ASC 810 also requires ongoing assessments of whether an enterprise is the primary
beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. ASC
810 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.
The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.



In December 2009, the
FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest
Entities (“ASU 2009-17”)”. ASU 2009-17 amends the variable-interest entity guidance in FASB ASC 810-10-05-8 to
clarify the accounting treatment for legal entities in which equity investors do not have sufficient equity at risk for the entity
to finance its activities without financial support. ASU 2009-17 shall be effective as of the beginning of each reporting
entity’s first annual reporting period that begins after November 15, 2009. The adoption of this standard did not have
a material impact on the Company’s consolidated financial statements.



In January 2010, the FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Topic 820 to require additional
disclosures regarding fair value measurements. One of the areas concerned is related to the inclusion of information about
purchases, sales, issuances and settlements of recurring Level 3 measurements. Such disclosure requirements will be effective
for annual reporting periods beginning after December 15, 2010. The Company is currently evaluating the impact of this standard
upon its adoption on the Company’s consolidated financial statements.



F-13







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



|3. | Business Acquisitions
|-- | ---------------------



Assets Acquisition of Langman internet café on April
6, 2010 and Chaosu internet café on April 16, 2010.



The Company acquired property,
plant and equipment, other current assets and intangible assets of Langman internet café on April 6, 2010 and Chaosu internet
café on April 16, 2010 for total gross consideration amount of $497,457 (RMB3,400,000) and the Company paid the whole purchase
consideration on July 28, 2010. The intangible assets are comprised of business licenses and customer lists. In accordance with
the purchase method of accounting, the estimated fair market value of these assets has been included in the consolidated financial
statements from the date of acquisitions.



The primary reason for
business acquisitions of Langman and Chaosu are for the development of market ownership in Longgang district. Langman and Chaosu
Internet cafes are located in the center of Longgang Center City. For each individual internet café has a coverage of 5kms,
after the acquisition of these two cafes, Junlong has developed full coverage in Longgang Center City.



All intangible and tangible
assets acquired, based on their appraised fair values, were as follows:



|Property, plant, and equipment |  | $ | 346,003 | 
|------------------------------ |  | - | ------- | 
|Other current assets           |  |   | 10,973  | 
|Intangible assets              |  |   | 140,481 | 
|                               |  |   |         | 
|Net assets acquired            |  | $ | 497,457 | 



Assets Acquisition of Gainianshikong internet café
on July 1, 2010.



The Company acquired property,
plant and equipment, other current assets and intangible assets of Gainianshikong internet café on July 1, 2010 for total
gross consideration amount of $231,409 (RMB1,550,000) and the Company paid the whole purchase consideration on October 29, 2010.
The intangible assets are comprised of business licenses and customer lists. In accordance with the purchase method of accounting,
the appraised fair market value of these assets has been included in the consolidated financial statements from the date of acquisitions.



Acquisition of Gainianshikong
internet café is for the expansion of business in Baoan District. Baoan is a recent fast developing district of west Shenzhen,
which is next to Dongguan City of Guangdong.



All intangible and tangible
assets acquired, based on their appraised fair values, were as follows:



|Property, plant, and equipment |  | $ | 157,489 | 
|------------------------------ |  | - | ------- | 
|Other current assets           |  |   | 4,819   | 
|Intangible assets              |  |   | 69,101  | 
|                               |  |   |         | 
|Net assets acquired            |  | $ | 231,409 | 



These acquisitions were
asset acquisitions, and there was no goodwill resulting from these acquisitions because the fairly market values were equal to
the purchase prices.



F-14







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



4.  Cash



Cash is summarized as
follows:



|             |  | December 31, |           |  | December 31, |  
|------------ |  | ------------ | --------- |  | ------------ | -
|             |  | 2010         |           |  | 2009         |  
|             |  |              |           |  |              |  
|Cash at bank |  | $            | 3,811,136 |  |              | $
|Cash in hand |  |              | 25,688    |  |              |  
|             |  | $            | 3,836,824 |  |              | $



Financial instruments
that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents
(Note 2).  As of December 31, 2010 and 2009, substantially all of the Company’s cash and cash equivalents were held
by major banks located in the PRC, which management believes are of high credit quality.



5.  Restricted
Cash



|                                                       |  | December 31, |         |  | December 31, |  
|------------------------------------------------------ |  | ------------ | ------- |  | ------------ | -
|                                                       |  | 2010         |         |  | 2009         |  
|Bank deposits held by:                                 |  |              |         |  |              |  
|                                                       |  |              |         |  |              |  
|Mr. Fangrong, Zheng – Anshun  city in Guizhou province |  | $            | 945,280 |  |              | $
|Mr. Jinping Zeng - Yiwu city in Zhejiang province      |  |              | -       |  |              |  
|                                                       |  | $            | 945,280 |  |              | $



At December 31, 2009,
the restricted cash represented bank deposits of $1,645,411 (equivalent to RMB11,250,000) held by two escrow agents on behalf of
the Company for registered capital and operating cash flow purposes of two new subsidiary companies to be established in Anshun
city in Guizhou province and Yiwu city in Zhejiang province.



During the year of 2010,
the escrow agent of Yiwu city in Zhejiang province returned the restricted cash to the Company because the Company did not proceed
with the establishment of the new subsidiary in Yiwu city.



As December 31, 2010,
the restricted cash represented the bank deposits of $945,280 (equivalent to RMB6,250,000) held by an escrow agent on behalf
of the Company for registered capital and operating cash flow purposes of a new subsidiary company to be established in Anshun
city in Guizhou province.



Incorporation of Two
New Subsidiary Companies



The Company was committed
to establish two new subsidiary companies, which are located in Yiwu city, Zhejiang province and Anshun city, Guizhou province with
the investment of approximately $2.195 million (equivalent to RMB15 million) each, with total of $4.39 million as registered capital
and operating cash flow purposes. The registered capital of each subsidiary company will be $0.439 million (RMB3,000,000).  As
of September 30, 2010 and December 31, 2009, the Company paid approximately $1.6 million (RMB11.25 million) in total to two escrow
agents and the amounts were recorded under restricted cash.



Upon the establishment
of the two subsidiary companies, the two escrow agents will be appointed as the General Manager of the two subsidiary companies.
The Company is committed to pay a monthly salary of approximately $1,100 (RMB7,500) plus 3% of the net income of the respective
subsidiary companies as bonus.



The company decided to
close down the subsidiary company located in Yiwu city, Zhejiang province and withdraw the investment of approximately $737,594
(equivalent to RMB5,000,000) on 30th November, 2010 due to the change in the national expansion strategy.



F-15







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



6.  Loan
receivable



Loan receivable consists
of:



|                                                                          |  | December 31, |           |  | December 31, |  
|------------------------------------------------------------------------- |  | ------------ | --------- |  | ------------ | -
|                                                                          |  | 2010         |           |  | 2009         |  
|Name of Payee: Mr. Long Weijun                                            |  |              |           |  |              |  
|Terms: Interest free, unsecured and repayment date is  February 28, 2011. |  | $            | 2,419,916 |  |              | $



The Company entered into
a trust agreement with Mr. Long Weijun on 25th December 2010 and appointed Mr.Long Weijun as the General Manger of Yunnan subsidiary
company. The Company was committed to establish a new subsidiary company located in Kunming city, Yunnan province with the total
investment of approximately $3.02 million (equivalent to RMB 20 million) with 1.51 million (equivalent to RMB 10 million) as registered
capital and 1.51 million (equivalent to RMB 10 million) as capital proceeds. The initial proceed was released to Long Weijun on
31st December 2010 of total sum of $2.42 million (equivalent to RMB 16 million), the rest $0.6 million (equivalent to RMB 4 million)
was released on 7th January 2011.



The Company will regularly
review the loan receivable and if the Company does not receive the loan until 31st December 2011 and if the Yunnan subsidiary has
not been set up, the Company will write off it as bad debts.



However, the Company entered
into a termination agreement with Mr. Long Weijun on 13th February 2011 to terminate the trust agreement signed on 25th December
2010. The total proceed of $3.02 million (equivalent to RMB 20 million) is returned to the company on 28th February 2011.



7. Equipment Deposit



Equipment deposit consists
of:



|                                                                                                                                             |  | December 31, |           |  | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- |  | ------------ | -
|                                                                                                                                             |  | 2010         |           |  | 2009         |  
|                                                                                                                                             |  |              |           |  |              |  
|Equipment deposit for purchase computers for 4 new internet cafés and 3 of them was opened in March 2011 and 1 will be opened in April, 2011 |  | $            | 1,300,650 |  |              | $



8. Inventory



Inventory consists of:



|                   |  | December 31, |         |  | December 31, |  
|------------------ |  | ------------ | ------- |  | ------------ | -
|                   |  | 2010         |         |  | 2009         |  
|                   |  |              |         |  |              |  
|Purchased IC cards |  | $            | 180,582 |  |              | $



There was no allowance
made for obsolete or slow moving inventory as of December 31, 2010 and December 31, 2009.



F-16







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



9.  Property,
Plant and Equipment, net



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



|                                              |  | December 31, |            |   | December 31, |  
|--------------------------------------------- |  | ------------ | ---------- | - | ------------ | -
|                                              |  | 2010         |            |   | 2009         |  
|                                              |  |              |            |   |              |  
|Leasehold improvement                         |  | $            | 3,178,890  |   |              | $
|Café computers equipments and hardware        |  |              | 7,045,296  |   |              |  
|Café furniture and fixtures                   |  |              | 1,320,392  |   |              |  
|Office furniture, fixtures and equipments     |  |              | 52,293     |   |              |  
|Motor vehicles                                |  |              | 252,967    |   |              |  
|                                              |  | $            | 11,849,838 |   |              | $
|Less: Accumulated depreciation                |  |              | (5,001,496 | ) |              |  
|Property, plant and equipment in service, net |  |              | 6,848,342  |   |              |  
|Construction in progress                      |  |              | -          |   |              |  
|Property, plant and equipment, net            |  | $            | 6,848,342  |   |              | $



During the year ended December 31, 2010, depreciation expenses
amounted to $1,664,405, of which $1,615,096 and $49,309 were recorded as cost of sales and general and administrative expense,
respectively.

During the year ended December 31, 2009, depreciation expenses
amounted to $1,303,177, of which $1,276,415 and $26,762were recorded as cost of sales and general and administrative expense, respectively.



10.  Intangible
Assets



Intangible assets are
summarized as follows:

|                               |  | December 31, |         |  | December 31, |  
|------------------------------ |  | ------------ | ------- |  | ------------ | -
|                               |  | 2010         |         |  | 2009         |  
|                               |  |              |         |  |              |  
|Business License               |  | $            | 95,115  |  |              | $
|Customer Lists                 |  |              | 120,106 |  |              |  
|                               |  |              | 215,221 |  |              |  
|Less: Accumulated Amortization |  |              | 24,134  |  |              |  
|Total                          |  | $            | 191,087 |  |              | $



During the years ended
December 31, 2010 and 2009, amortization expenses amounted to $24,134 and $ 0 respectively which was recorded under cost of sales.



Estimated amortization
for the next five years and thereafter is as follows:



|Year ending December 31, |  |   |        
|------------------------ |  | - | -------
|                         |  |   |        
|2011                     |  | $ | 36,325 
|2012                     |  |   | 36,325 
|2013                     |  |   | 36,325 
|2014                     |  |   | 36,325 
|2015                     |  |   | 20,117 
|Thereafter               |  |   | 25,670 
|Total                    |  | $ | 191,087



F-17







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



11.  Short
Term Loan



The short term loan due
within one year as of December 31, 2010 and December 31, 2009 consist of the following:



|                        |  |                                        |  |                |       |   | December |   |         | December | 
|----------------------- |  | -------------------------------------- |  | -------------- | ----- | - | -------- | - | ------- | -------- | 
|Bank                    |  | Loan Period                            |  | Interest 
rate |       |   | 31,
2010 |   |         | 31,
2009 | 
|                        |  |                                        |  |                |       |   |          |   |         |          | 
|China Construction Bank |  | October 27, 2009 to October 25, 2010   |  |                | 6.372 | % |          | $ | -       |          | 
|                        |  |                                        |  |                |       |   |          |   |         |          | 
|China Construction Bank |  | November 15, 2010 to November 14, 2011 |  |                | 6.372 | % |          |   | 151,245 |          | 
|                        |  |                                        |  |                |       |   |          | $ | 151,245 |          | 



On October 27, 2009, the
Company entered into a loan agreement with China Construction Bank for $146,259 (RMB1,000,000) which was secured by director’s
guarantee. The annual interest rate is 6.372% and is due on October 25, 2010. On October 19, 2010, the Company settled the loan.



On November 15, 2010,
the Company entered into a loan agreement with China Construction Bank for $151,245 (RMB1,000,000) which was secured by director’s
guarantee. The annual interest rate is 6.372% and is due on November 14, 2011.



On July 1, 2010, the Company
entered into a loan agreement with Shenzhen Yuzhilu Aviation Service Co., Ltd.  for $300,000. The annual interest rate
is 8.000% and is due on October 1, 2010.  The Company settled such loan on October 8, 2010.



12.  Income
and Other Taxes Payable



Income and other tax payables
consist of the following:



|                                       |  | December 31, |         |  | December 31, |  
|-------------------------------------- |  | ------------ | ------- |  | ------------ | -
|                                       |  | 2010         |         |  | 2009         |  
|                                       |  |              |         |  |              |  
|Business tax payable                   |  | $            | 420,236 |  |              | $
|Income tax                             |  |              | 483,006 |  |              |  
|Withhold individual income tax payable |  |              | 4,022   |  |              |  
|Other tax payable                      |  |              | 79,930  |  |              |  
|Total                                  |  | $            | 987,194 |  |              | $



F-18







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



13.  Due
To A Shareholder



|                                              |  | December 31, |         |  | December 31, |  
|--------------------------------------------- |  | ------------ | ------- |  | ------------ | -
|                                              |  | 2010         |         |  | 2009         |  
|                                              |  |              |         |  |              |  
|Mr. Guo Di Shan, a shareholder of the Company |  | $            | 465,741 |  |              | $



The amount due to Mr.
Guo Di Shan is unsecured with no stated interest and payable on demand.



14.  Cost
of revenue



Cost of revenue consists
of the following:



|                              |  | For The Years ended |           
|----------------------------- |  | ------------------- | ----------
|                              |  | December 31         |           
|                              |  | 2010                |           
|Cost of revenue consists of   |  |                     |           
|Depreciation and amortization |  | $                   | 1,615,096 
|Salary                        |  |                     | 1,746,098 
|Rent                          |  |                     | 1,089,910 
|Utility                       |  |                     | 1,541,090 
|Business tax and surcharge    |  |                     | 4,839,276 
|Others                        |  |                     | 991,986   
|                              |  |                     |           
|                              |  | $                   | 11,823,456



15.  Income
Tax



The Company’s subsidiary
incorporated in PRC is subject to PRC enterprises income tax at the applicable tax rates on the taxable income as reported in their
Chinese statutory accounts in accordance with the relevant enterprises income tax laws.  Junlong was charged a tax rate
of 20% of its taxable income in 2009 and 22% in 2010. As approved by relevant tax authority in the PRC, Junlong's income tax rates will be 24% for. 2011 and 25% for 2012 and thereafter.



The Company uses
the liability method, where deferred tax assets and liabilities are determined  based on the expected future tax
consequences of temporary differences between the carrying amounts of assets and  liabilities for financial and
income tax reporting  purposes. Deferred taxes are comprised of the following:







|                                          |  | December 31, |          |   | December 31, | 
|----------------------------------------- |  | ------------ | -------- | - | ------------ | 
|                                          |  | 2010         |          |   | 2009         | 
|                                          |  | US$          |          |   | US$          | 
|DTA:                                      |  |              |          |   |              | 
|Deferred assets - NOL of US shell company |  |              | 137,918  |   |              | 
|Total Deferred assets                     |  |              | 137,918  |   |              | 
|DTL:                                      |  |              |          |   |              | 
|Deferred liabilities                      |  |              | -        |   |              | 
|Total Gross DTA (DTL)                     |  |              | 137,918  |   |              | 
|Valuation allowance                       |  |              | (137,918 | ) |              | 
|Net WW deferred assets(liabilities)       |  |              | -        |   |              | 



F-19







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



15.  Income
Tax - Continued



The Company applied the
provisions of ASC 740.10.50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related
to the process associated with accounting for uncertain tax positions recognized in our financial statements. The Company
classified all interest and penalties related to unrecognized tax benefits, if any, as a component of income tax provisions.
The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized
tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods
remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute
of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any
such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based,
in part, upon the results of operations for the given period. Until December 31, 2010, the management considered that
the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows,
and will continue to evaluate for the uncertain position in future. There are no estimated interest costs and penalties provided
in the Company’s consolidated financial statements for the year ended December 31, 2010 and 2009, respectively.



The Company’s uncertain
tax positions are related to tax years that remain subject to examination by the relevant tax authorities and the major one
is the China Tax Authority. The open tax year for examination in PRC is 10 years.



All of the Group’s
income before income taxes is from PRC sources. Actual income tax expense reported in the consolidated statements of operations
and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 22% and 20% for the
years ended December 31, 2010 and 2009 to income before income taxes for the years ended December 31, 2010 and 2009 for the followings
reasons:



|                                                                       |  | 2010 |           |  | 2009 |  
|---------------------------------------------------------------------- |  | ---- | --------- |  | ---- | -
|                                                                       |  |      |           |  |      |  
|Income before income taxes                                             |  | $    | 7,565,963 |  |      | $
|                                                                       |  |      |           |  |      |  
|Computed “expected” income tax expense at 22% and 20% in 2010 and 2009 |  | $    | 1,664,512 |  |      | $
|Tax effect of net taxable timing differences                           |  |      | 16,950    |  |      |  
|Effect of cumulative tax losses                                        |  |      | 137,918   |  |      |  
|                                                                       |  | $    | 1,819,380 |  |      | $



Our policy for recording
interest and penalties associated with audits is to record such items as a component of income tax expense. There were no interest
and penalties recorded for the years ended December 31, 2010 and 2009.



16.  Employee
Benefits



The Company contributes
to a state pension scheme organized by municipal and provincial governments in respect of its employees in PRC.  The
pension expense related to this plan, which is calculated at a range of 8% of the average monthly salary.  The pension
expense was $ 9,555 and $6,671 for the year ended December 31,2010 and 2009, respectively.



F-20







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



17. Stockholders’
Equity



(i) Common Stock



On July 2, 2010, the China
Internet Cafe Holdings Group, Inc. (“China Internet Cafe”), entered into a share exchange transaction with Classic
Bond Development Limited, a British Virgin Islands corporation (“Classic Bond”), and the shareholders of Classic Bond.
Pursuant to the Share Exchange Agreement, China Internet Cafe  acquired 100% of the issued and outstanding capital stock
of Classic Bond in exchange for 19,000,000 newly issued shares of the Company’s common stock, which represented approximately
94% of the 20,200,000 issued and outstanding shares of common stock after the transaction and after the coincident cancellation
of 4,973,600 shares of common stock held by the Company’s former majority stockholder which have a net effect of increase
of 1,200,000 shares. The business, assets and liabilities did not change as a result of the reverse acquisition.



As of December 31, 2010
and 2009, there are 20,200,000 and 19,000,000 shares issued and outstanding respectively.



(ii) Stock based compensation



On November 22, 2010,
the Company signed an agreement with an advisor, and advisor agrees to represent the Company, as a non-exclusive advisor to assist
the Company in its business and corporate development, in structuring its capital transactions.



The Company agreed to
pay advisor a flat fee of $10,000 per month as cash compensation.  Besides, the company agreed to grant 400,000 shares
of common stock as stock based compensation to the advisor base on the following vesting schedule:



| | 1) | 200,000 shares upon completion of a Transaction in February of 2011;
| | -- | --------------------------------------------------------------------

| | 2) | 100,000 shares six months after the completion of a Transaction in August of 2011; and
| | -- | --------------------------------------------------------------------------------------

| | 3) | 100,000 share twelve months after the completion of a Transaction in February of 2011.
| | -- | --------------------------------------------------------------------------------------



F-21







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



18.  Commitments
and Contingencies



Operating Leases

In the normal course of
business, the Company leases office space and internet cafes under operating leases agreements, which expire through 2014. The
Company rents internet cafes venues and office space, primarily for regional sales administration offices that are conducive to
administrative operations. The operating leases agreements generally contain renewal options that may be exercised in the Company's
discretion after the completion of the base rental terms. In addition, many of the leases provide for regular increases to the
base rental rate at specified intervals, which usually occur on an annual basis.



As of December 31, 2010,
the Company was obligated under operating leases requiring minimum rentals as follows:



|Fiscal year |  |   |           | 
|----------- |  | - | --------- | 
|2011        |  | $ | 1,476,433 | 
|2012        |  |   | 1,238,483 | 
|2013        |  |   | 950,672   | 
|2014        |  |   | 855,669   | 
|2015        |  |   | 449,488   | 
|            |  | $ | 4,970,745 | 



During the year ended
December 31, 2010, rent expenses amounted to $1,153,802, of which $1,089,910 and $63,892 was recorded as cost of sales and general
and administrative expense, respectively.



During the year ended
December 31, 2009, rent expenses amounted to $823,730, of which $814,954 and $8,776 was recorded as cost of sales and general and
administrative expense, respectively.



Purchase of Plant &
Equipment of a total consideration of $174 million



During the fiscal year
ended December 31, 2010, the Company signed two contracts for leasehold improvement and to purchase of plant and equipment for
the four internet cafes under construction, totaling $1,743,587 (representing RMB11,528,250). As of December 31, 2010, the Company
paid $1,300,650 (representing RMB8,599,635 ) was recorded in Equipments Deposits for those plant and equipments not delivered yet.



19. Concentrations



The Company did not have
any customer constituting greater than 10% of net sales for the years ended December 31, 2010 and 2009.



At December 31, 2010 and
2009, there was one supplier of consignment snacks and drinks with amount of $67,224 and $33,979 respectively which accounted for
97% and 100% of the Company’s account payable.



F-22







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



20.  Operating
Risk and Uncertainties



Interest rate risk



The interest rates and
terms of repayment of bank and other borrowings are disclosed in Note 11.  Other financial assets and liabilities do
not have material interest rate risk.



Foreign currency risk



Most of the transactions
of the Company were settled in Renminbi. In the opinion of the directors, the Company does not have significant foreign currency
risk exposure.



Company’s operations
are substantially in foreign countries



Substantially all of the
Company’s services are provided in China. The Company’s operations are subject to various political, economic, and
other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of
restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing
taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.



The Chinese government
began tightening its regulation of internet cafes since 2001. In particular, a large number of unlicensed internet cafes have been
closed. In addition, the Chinese government has imposed higher capital (RMB10,000,000 for regional internet café chain is
required and RMB50,000,000 for national internet café chain) and facility requirements for the establishment of internet
cafes. Furthermore, the Chinese government’s policy, which encourages the development of a limited number of national and
regional internet cafe chains and discourages the establishment of independent internet cafes, may slow down the growth
of internet cafes. Recently, the Ministry of Culture, together with other government authorities, issued a joint notice suspending
the issuance of new internet cafe chain licenses. Any intensified government regulation of internet cafes could restrict
our ability to maintain and expand our internet cafes.



Currently, the Company
uses only one internet service provider.  However, there are other internet service providers available to the Company.  The
management of the Company believes that the risk of loss of internet services is not that high because of other service providers
available to the Company.



21. Segment Information



The Company applies the
provisions of ASC 280, "Disclosures about Segments of an Enterprise and Related Information". The Company views
its operations and manages its business as one segment: the operation of internet café chain. Factors used to
identify the Company's single operating segment include the organizational structure of the Company and the financial information
available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance.  The
Company operates predominantly in one geographical area, the PRC.



F-23







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



22.  Subsequent
Event



Securities Purchase
Agreement



On February 18, 2011,
in connection with a security purchase agreement between China Internet Café Holdings Group, Inc. and the investors,
we closed a private placement of approximately $6.4 million from offering a total of 474,967 units at a purchase
price of $13.50 per Unit, each consisting of:(i) nine shares of the Company’s 5% Series A Convertible Preferred Stock,
par value $0.00001 per share, convertible on a one to one basis into nine shares of the Company’s common stock, par value
$0.00001 per share; (ii) one share of Common Stock; (iii) two three-year Series A Warrants, each exercisable for the
purchase of one share of Common Stock, at an exercise price of $2.00 per share; and (iv) two three-year Series B Warrants,
each exercisable for the purchase of one share of Common Stock, to purchase one share of Common Stock, at an exercise price of
$3.00 per share.



Registration Rights
Agreement



In connection with the
Offering, the company also entered into a registration rights agreement with the Investors, in which the company agreed to
file a registration statement with the Commission to register for resale the Common Stock and the Common Stock issuable upon conversion
of the Preferred Stock, the Series A Warrant Shares and the Series B Warrant Shares, within 45 calendar days of the Closing Date,
and to have the registration statement declared effective within 150 calendar days of the Closing Date or within 180 calendar days
of the Closing Date in the event of a full review of the registration statement by the U.S. Securities and Exchange Commission
(“SEC”). If the company does not comply with the foregoing obligations under the Registration Rights Agreement, the
company will be required to pay cash liquidated damages to each Investor, at the rate of 1% of the applicable subscription amount
for each 30 day period in which we are not in compliance; provided, that such liquidated damages will be capped at 10% of the subscription
amount of each investor and will not apply to any registrable securities that may be sold pursuant to Rule 144 under the Securities
Act, or are subject to an SEC comment with respect to Rule 415 promulgated under the Securities Act.



Securities Escrow Agreement



In connection with the
Offering, we also entered into a securities escrow agreement with the Investors and Mr. Dishan Guo (the “Stockholder”),
the Company’s chairman, pursuant to which, the Stockholder agrees to deliver into an escrow account one share of our Common
Stock for each $10 sold to the Purchasers in the Offering to be used as escrow shares, equal to 641,205 shares of common stock (the
“Escrow Shares”).  The distribution of the Escrow Shares shall be based on a performance threshold for the
Company.  With respect to the 2011fiscal year, if the company earn less than $9,500,000, then the Escrow Shares for such
year will be delivered to the Investors in the amount of 10% of the Escrow Shares for each full percentage point by which such
threshold was not achieved up to a maximum of the Escrow Shares.



Lock-up Agreement



On the Closing Date, the
company entered into a lock-up agreement (the “Lock-Up Agreement”) with Mr. Dishan Guo (the “Affiliate”),
whereby the Affiliate is prohibited from selling our securities that they directly or indirectly own (the “Lock-Up Shares”) until
9 months after the Registration Statement is declared effective by the Commission (the “Lock-Up Period”). In addition,
the Affiliate further agrees that during the 12 months immediately following the Lock-Up Period, the Affiliate shall not offer,
sell, contract to sell, assign, transfer (the “Transfer”) more than 0.83333% of the Lock-Up Shares during each
calendar month following the Lock-Up Period, other than engaging in a Transfer in a private sale of the Lock-Up Shares if the transferee
agrees in writing to be bound by and subject to the terms of the Lock-Up Agreement.



The Company engaged TriPoint
Global Equities, LLC (the "Agent") as placement agent in connection with the sale of securities in the Offering
and agreed to pay the Agent (i) cash commissions equal to 7% of the gross proceeds received by the Company; (ii) a cash management
finance fee equal to 1% of the gross proceeds raised by the Company in the Offering, payable at the time of each closing;  (iii)
a non-accountable expense fee equal to 0.5% of the gross proceeds; and (iv) warrants to purchase such number of securities equal
to 9% of the aggregate number of shares of common stock issuable in connection with the Offering (the “Agent Warrants”).
The Agent’s Warrants will all have three year terms and will be exercisable at the following prices: (i) $1.35 per share
(427,470 warrants), (ii) $2,00 per share (85,494 warrants and (iii) $3.00 per share (85,494 warrants).  The
Company also agreed to compensate the Placement Agent for all of its reasonable expenses in connection with the Offering.





F-24









CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



22.  Subsequent
Event - continued



Series A Preferred
Stock Certificate of Designation



On February 16, 2011,
the Company filed with the Secretary of State of Nevada a Certificate of Designation, Preferences and Rights for the 5% Series
A Convertible Preferred Stock (the “Certificate of Designation”) as an amendment to its Articles of Incorporation.  Capitalized
terms not defined herein shall have the meaning ascribed to them in the Certificate of Designation.



For each outstanding share
of Series A Preferred Stock, dividends shall be payable quarterly, at the rate of 5% per annum, on or before each date that is
thirty days following the last day of each June, September, December and March of each year.  Dividends on the Series
A Preferred Stock shall accrue and be cumulative from and after the date of the initial issuance of the Series A Preferred Stock.



Upon liquidation of the
Company, holders of Series A Preferred Stock are entitled to be paid, prior to any distribution to any holders of common stock,
or any other class or series of stock issued hereafter or junior to the Series A Preferred Stock, an amount equal to $1.35 per
share plus the amount of any accrued but unpaid dividends thereon, as of the date of liquidation (the “Series A Liquidation
Preference Amount”).



Each share of Series A
Preferred Stock at the option of the holder may be convertible into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Series A Liquidation Preference Amount divided by (ii) the Conversion Price in effect
as of the date of the Conversion Notice.



Until conversion, the
Preferred Stock shall have no voting rights other than with respect to matters that may adversely affect the rights of the holders
of the Series A Preferred Stock.



The description of the
Series A Preferred Stock above is qualified in its entirety by reference to a copy of the Certificate of Designation attached to
this Current Report on Form 8-K as Exhibit 3.2.



Name Change



On January 20, 2011, China
Internet Café Holdings Group, Inc. filed with the Nevada Secretary of State a Certificate of Amendment to Articles of Incorporation
to give effect to a name change from “China Unitech Group, Inc.” to “China Internet Café Holdings Group,
Inc.” The Certificate of Amendment was approved by our board of directors on July 30, 2010 and was approved by a stockholder
holding 59.45% of our outstanding common stock by written consent on July 30, 2010.



The Company filed a definitive
information statement on Schedule 14C with the Securities and Exchange Commission regarding the amended and restated articles of
incorporation on August 8, 2010, and mailed the information statement to our stockholders on August 13, 2010. In connection with
the name change, on January 25, 2011, the Company filed an Issuer Company-Related Action Notification Form with the Financial Industry
Regulatory Authority (“FINRA”) requesting a name change from “China Unitech Group, Inc.” to “China
Internet Café Holdings Group, Inc.” as well as an OTC voluntary symbol change from “CUIG” to “CICC.”
These changes became effective on February 1, 2011. Our common stock began trading under the Company’s new name on the Over-the
Counter Bulletin Boards on Tuesday, February 1, 2011 under our new trading symbol “CICC.”



F-25







CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009



22.  Subsequent
Event - continued



Yunnan Subsidiary Company



The company has entered
into a trust agreement with Mr. Long Weijun on 25th December 2010 and appoint Mr.Long Weijun as the General Manger of Yunnan subsidiary
company. The Company is committed to establish a new subsidiary company located in Kunming city, Yunnan province with the total
investment of approximately $3.02 million (equivalent to RMB 20 million) with 1.51 million (equivalent to RMB 10 million) as registered
capital and 1.48 million (equivalent to RMB 10 million) as capital proceeds. The initial proceed was released to Long Weijun on
31st December 2010 of total sum of  $2.42 million (equivalent to RMB 16 million), the rest $0.60 million (equivalent
to RMB 4 million) was released on 7th January 2011.



Upon the establishment
of the new subsidiary company, the company is committed to pay a monthly salary of approximately $1,100 (RMB7,500) plus 3% of the
net income of the respective subsidiary companies as bonus.



The Company has entered
into a termination agreement with Mr.Long Weijun on 13th February 2011 to terminate the trust agreement signed on 25th December
2010. The total proceed of $3.02 million (equivalent to RMB 20 million) is returned to the company on 28th February 2011.



New Opened Cafes



In March 2011, the Company
opened three Internet cafes in Shenzhen and as a result, the Company own 47 internet cafes within PRC, with 1 internet cafes
under construction and expected to open on April 2, 2011.



23.  Additional
Information - Condensed Financial Statements of the Company



The Company is
required to include the condensed financial statements of the Company in accordance with Regulation S-X promulgated by the
United States Securities and Exchange Commission. The separate condensed financial statements of the Company as presented
below have been prepared in accordance with Securities and Exchange Commission Regulation S-X Rule 5-04 and Rule 12-04 and
present the Company’s investments in its subsidiaries under the equity method of accounting.  Subsidiaries
income is included as the Company’s “Share of income from subsidiaries” on the condensed statement of
income and comprehensive income.



As of December 31, 2010
and 2009, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company,
except for those which have been separately disclosed in the Consolidated Financial Statements, if any.



FINANCIAL INFORMATION
OF CHINA INTERNET CAFE HOLDINGS GROUP, INC.



Condensed Balance Sheets



|                                                                                                                                                                  |  | December 31, |            |  | December 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- |  | ------------ | -
|                                                                                                                                                                  |  | 2010         |            |  | 2009         |  
|                                                                                                                                                                  |  |              |            |  |              |  
|ASSETS                                                                                                                                                            |  |              |            |  |              |  
|Current assets:                                                                                                                                                   |  |              |            |  |              |  
|Rental deposit                                                                                                                                                    |  | $            | 3,333      |  |              | $
|Investment in subsidiaries                                                                                                                                        |  |              | 44,100,984 |  |              |  
|Total assets                                                                                                                                                      |  | $            | 44,104,317 |  |              | $
|                                                                                                                                                                  |  |              |            |  |              |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                              |  |              |            |  |              |  
|Current liabilities:                                                                                                                                              |  |              |            |  |              |  
|Accrued expenses                                                                                                                                                  |  | $            | 54,401     |  |              | $
|Amount due to a shareholder                                                                                                                                       |  |              | 300,000    |  |              |  
|Total current liabilities                                                                                                                                         |  |              | 354,401    |  |              |  
|                                                                                                                                                                  |  |              |            |  |              |  
|Stockholders' Equity                                                                                                                                              |  |              |            |  |              |  
|Preferred stock ($0.00001 par value, 100,000,000 shares authorized, 0 share issued and outstanding)                                                               |  |              | -          |  |              |  
|CoCCommon stock ($0.00001 par value, 100,000,000 shares authorized, 20,200,000 and 0 share issued and outstanding as of December 31, 2010 and 2009, respectively) |  |              | 202        |  |              |  
|Additional paid in capital                                                                                                                                        |  |              | 38,003,131 |  |              |  
|Retained earnings                                                                                                                                                 |  |              | 5,746,583  |  |              |  
|Total stockholders’ equity                                                                                                                                        |  |              | 43,749,916 |  |              |  
|                                                                                                                                                                  |  |              |            |  |              |  
|Total liabilities and stockholders’ equity                                                                                                                        |  | $            | 44,104,317 |  |              | $







F-26









CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009





23. Additional
Information - Condensed Financial Statements of the Company - Continued



Condensed Statements of
Income and Comprehensive Income



|                                                  |  | For The Years ended |          
|------------------------------------------------- |  | ------------------- | ---------
|                                                  |  | December 31         |          
|                                                  |  | 2010                |          
|                                                  |  |                     |          
|Investment Income                                 |  | $                   | -        
|                                                  |  |                     |          
|Operating Expenses                                |  |                     |          
|General and administrative expenses               |  |                     | 54,401   
|Total operating expenses                          |  |                     | 54,401   
|                                                  |  |                     |          
|Loss from operations                              |  |                     | (54,401  
|                                                  |  |                     |          
|Non-operating income (expenses)                   |  |                     |          
|Equity in earnings in unconsolidated subsidiaries |  |                     | 6,100,984
|Interest income                                   |  |                     | 9,168    
|Other expenses                                    |  |                     | (3,114   
|Reorganizational expenses                         |  |                     | (306,054 
|Total non-operating expenses                      |  |                     | 5,800,984
|                                                  |  |                     |          
|Net income before income taxes                    |  |                     | 5,746,583
|Income taxes                                      |  |                     | -        
|Net income                                        |  |                     | 5,746,583
|                                                  |  |                     |          
|                                                  |  |                     |          
|                                                  |  |                     |          
|                                                  |  |                     |          
|Other comprehensive income                        |  |                     |          
|Foreign currency translation adjustment           |  | $                   | 400,949  
|Comprehensive income                              |  | $                   | 6,147,532





F-27









CHINA
INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED DECEMBER 31, 2010 AND 2009





23. Additional
Information - Condensed Financial Statements of the Company - Continued



Condensed Statements of
Cash Flows



|                                                                                 |  | For The Years Ended |           
|-------------------------------------------------------------------------------- |  | ------------------- | ----------
|                                                                                 |  | December 31         |           
|                                                                                 |  | 2010                |           
|Cash flows from operating activities                                             |  |                     |           
|Net income                                                                       |  | $                   | 5,746,583 
|                                                                                 |  |                     |           
|Adjustments to reconcile net income to net cash provided by operating activities |  |                     |           
|Changes in operating assets and liabilities:                                     |  |                     |           
|Investment (income)/loss from unconsolidated subsidiaries                        |  |                     | (6,100,984
|Rental deposit                                                                   |  |                     | 3,333     
|Accrued expenses                                                                 |  |                     | 54,401    
|Amount due to a shareholder                                                      |  |                     | 300,000   
|Net cash used in operating activities                                            |  |                     | 3,333     
|                                                                                 |  |                     |           
|Cash flows from financing activities                                             |  |                     |           
|Capital contribution by shareholder                                              |  |                     | (3,333    
|Net cash provided by financing activities                                        |  |                     | (3,333    
|                                                                                 |  |                     |           
|Effect of foreign currency translation on cash                                   |  |                     | -         
|                                                                                 |  |                     |           
|Net increase in cash                                                             |  |                     | -         
|                                                                                 |  |                     |           
|Cash - beginning of year                                                         |  |                     | -         
|Cash - end of year                                                               |  | $                   | -         



F-28







Item 9.         
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.



None.



Item 9A.       
Controls and Procedures.



Evaluation of Disclosure
Controls and Procedures



The
Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the
Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time
periods specified by the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that this
information is accumulated and communicated to the Company's management, including the Company's chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosure.



Pursuant
to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management,
including Dishan Guo, the Company’s chief executive officer, and chief financial officer, of the effectiveness of the Company’s
disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the fiscal year ended December
31, 2010. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the
Company’s disclosure controls and procedureswere not effective as of December 31, 2010 as a result of the material
weaknesses identified in our internal control over financial reporting.  These material weaknesses are discussed in “Management’s
Report on Internal Control over Financial Reporting” below.  Our management considers our internal control over
financial reporting to be an integral part of our disclosure controls and procedures.



Management’s
Report on Internal Control over Financial Reporting



The
Company’s management is responsible for establishing and maintaining adequate internal control over our financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The Company’s management is also required
to assess and report on the effectiveness of the Company’s internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).   Internal control over financial reporting is a process
to provide reasonable assurance regarding the reliability of the Company’s financial reporting for external purposes
in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures
that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions;
(ii) provide reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial
statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii)
provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect
on our financial statements would be prevented or detected on a timely basis.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies and procedures may deteriorate.



43







The
Company’s management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010.
In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control—Integrated Framework, including the following five framework components: i)
control environment, ii) risk assessment, iii) control activities, iv) information and communications, and v) monitoring.



Based
on management’s evaluation, our chief executive officer and chief financial officer concluded that, as a result of the
material weakness described below, as of December 31, 2010, our disclosure controls and procedures (“Disclosure Controls”)
and internal controls over financial reporting are not designed at a reasonable assurance level and are ineffective to provide
reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated
and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.



Specifically, our management identified certain
matters involving internal control and our operations that it considered to be material weaknesses.  As defined in the
Exchange Act, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements
will not be prevented or detected on a timely basis.  The material weakness identified by our management as of December
31, 2010, is described below:



|— | We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2011 Planned Remediation



We
are committed to improving our financial organization. As part of this commitment, we will look to increase our personnel resources and
technical accounting expertise within the accounting function by the end of fiscal 2011 to resolve non-routine or complex accounting
matters.  We have in the past, and will continue to engage outside consultants in the future as necessary in order to
ensure proper treatment of non-routine or complex accounting matters.



Management
believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the material weakness of
having insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application
of GAAP commensurate with our complexity and our financial accounting and reporting requirements.



We
will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over
financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.



Changes in Internal
Control over Financial Reporting



No
changes in the Company's internal control over financial reporting have come to management's attention during the Company's last
fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial
reporting.



44







Limitations on Controls



Management
does not expect that the Company's disclosure controls and procedures or the Company's internal control over financial reporting
will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and
instances of fraud, if any, within the Company have been detected.  The Company's disclosure controls and procedures are designed
to provide reasonable assurance of achieving their objectives and the Company's chief executive officer and chief financial officer
have concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.



Item 9B.        Other
Information.



None.

Part
III



|Item 10. | Directors, Executive Officers and Corporate Governance.
|-------- | -------------------------------------------------------



The
names of our current officers and directors, as well as certain information about them, are set forth below:



|NAME         |  | AGE |  | POSITION                                                     
|------------ |  | --- |  | -------------------------------------------------------------
|Dishan Guo   |  | 46  |  | Chairman, Chief Executive Officer and Chief Financial Officer
|Zhenquan Guo |  | 33  |  | Director                                                     
|Lei Li       |  | 46  |  | Director                                                     
|Wenbin An    |  | 71  |  | Director                                                     
|Lizong Wang  |  | 46  |  | Director                                                     



Dishan
Guo. Mr. Guo became our Chairman and CEO on July 2, 2010, the day that we consummated our reverse acquisition of Classic Bond.
As the founder of Junlong, Mr. Guo has served as the Managing Director and CEO of Junlong for over 7 years since 2003. He is responsible
for the strategic planning of the company’s business and growth and overseeing the operations of the company. He has extensive
experience and contacts in the industry. He is the executive president of Shenzhen Longgang District Internet Industry Association,
which is the associate department of the ministry of culture and sets the internet café industry standards, and a director
of Guangdong High-Tech Industry Association. Mr. Guo graduated from Administrative Management Institute in Guangdong Province in
1996, holding a college degree in business management. Mr. Guo’s foregoing experience, qualifications, attributes and skills
led us to the conclusion that he should serve as a director of our company, in light of our business and structure.  Mr. Guo
became our Chief Financial Officer on September 27, 2010.



Zhenquan
Guo.Mr. Zhenquan Guo joined our board on August 7, 2010. Mr. Guo joined Junlong in 2003, working in a variety of roles.
Since 2006, he has been the Operation Director. He is in charge of the daily operations of Junlong’s wholly owned internet
cafés. Over the past five years, he has taken part in the set up and license application tasks for each internet
cafe, and has gained extensive experience in the internet cafe industry. Mr. Guo graduated from Gannan Normal University in 2000,
majoring in Mathematics and Applied Mathematics. He obtained his master’s degree in marketing from Shenzhen University in
2008. Mr. Guo’s foregoing experience, qualifications, attributes and skills led us to the conclusion that, in light of our
business and structure, he should serve as a director of our company.



Lei
Li.Mr. Lei Li joined our board on August 7, 2010. Mr. Li is the founder and managing director of the Boardroom Advisors
Company Limited, a Beijing-based financial advisory firm. He is currently also a director of Universal Travel Group, a NYSE-listed
company. He served as chief financial officer of Synutra International, Inc., a NASDAQ-listed company, from October 2007 to November
2009. From August 2004 to September 2007, Mr. Li was vice president and chief financial officer of Kasen International Holdings
Limited, a public company listed on the Hong Kong Stock Exchange. Prior to that, Mr. Li served as chief financial officer at Eagle
Brand Holdings Limited, a company listed on the Singapore Stock Exchange. Mr. Li’s experience also includes serving as a
financial controller at the Korean division of Exel Plc, and serving as a senior auditor at Waste Management Inc.’s international
department in London. Mr. Li is a fellow member of the Association of Chartered Certified Accountants (ACCA) in the UK. He received
a bachelor’s degree in management and engineering from Beijing Institute of Technology, a master’s degree in economics
from Renmin University of China, and a master’s degree in accounting and finance from the London School of Economics. Mr.
Li’s foregoing experience, qualifications, attributes and skills led us to the conclusion that, in light of our business
and structure, he should serve as a director of our company.



45







Wenbin
An.Mr. Wenbin An joined our board on August 7, 2010. Mr. An was a diplomat before retiring in 2002. He was deputy consul
general in the PRC Consulate in Los Angeles from 1987 to 1994. In 1995, after returning to Beijing, he served as the Ministry of
Foreign Affairs’ Chief of Protocol for seven years, during which time he organized many high profile events, including the
Fourth World Conference on Women in Beijing in 2005 and the celebration of the handover of Hong Kong in 1997, and he accompanied
PRC leaders in visits to more than 30 foreign countries. Mr. An graduated from Zhongshan University in Guangzhou, where he majored
in English language. Since retirement, Mr. An has been serving as a business consultant to PRC companies. Mr. An’s foregoing
experience, qualifications, attributes and skills led us to the conclusion that, in light of our business and structure, he should
serve as a director of our company.



Lizong
Wang.Mr. Lizong Wang joined the board on August 7, 2010. Mr. Wang currently serves as deputy secretary of China Society
for Promotion of The Guangcai Program, a program initiated and implemented by PRC private enterprises to alleviate poverty. He
also serves as a strategic advisor and independent director of Universal Travel Group, Shenzhen 3nod Electronics Co., Ltd, and
Shenzhen Ruidefeng Pesticide. In addition, he acts as economic consultant to a number of municipalities in the PRC as well as Asan
in Korea. Mr. Wang is a frequent lecturer at higher education institutions in the Greater China Region. During the past five year,
Mr. Wang has served as the President of the Guangdong High-Tech Industry Association. In 2007, Mr. Wang was nominated Honorary
Citizen by the U.S. cities of Dallas and Los Angeles. He has also been elected the member of the Guangdong chapter of the Chinese
People's Political Consultative Conference (CPPCC).  In light of our business and structure, Mr. Wang’s foregoing experience,
qualifications, attributes and skills led us to the conclusion that, in light of our business and structure, he should serve as
a director of our company.



Except
as noted above, there are no agreements or understandings for any of our executive officers or directors to resign at the request
of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.



Directors
are elected until their successors are duly elected and qualified.



The
company is conducting a search for candidates to serve as chief financial officer but for the time being, Mr. Dishan Guo, our chief
executive officer will function as our principal accounting officer.



Family Relationships



Zhenquan
Guo, one of our directors, is the nephew of our Chairman and CEO, Dishan Guo. There are no other family relationships between any
of our directors or executive officers.



Involvement in Certain
Legal Proceedings



To
our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:



| | — | Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | — | Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



46







| | — | Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ·· | Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | — | Been the subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Meetings of Our Board
of Directors



During
fiscal year ended December 31, 2010, our Board of Directors did not meet. We did not hold an annual meeting in 2010.



Board Committees



We
presently have an audit committee lead by Lawrence Lee as the chairperson, a compensation committee lead by Wenbin An as the chairperson,
and a nominating committee lead by Lizong Wang as the chairperson The audit committee is primarily responsible for reviewing the
services performed by our independent auditors and evaluating our accounting policies and system of internal controls. The compensation
committee is primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other
compensation of our executive officers. The nominating committee is primarily responsible for nominating directors and setting
policies and procedures for the nomination of directors. The nominating committee is also responsible for overseeing the creation
and implementation of our corporate governance policies and procedures.



Code of Ethics



We
have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest
and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable
laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.



Indemnification of
Directors and Officers



Section
78.138 of the Nevada Revised Statutes (“NRS”) provides that a director or officer will not be individually liable unless
it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties,
and (ii) such breach involved intentional misconduct, fraud or a knowing violation of the law.



Section
78.7502 of NRS permits a company to indemnify its directors and officers against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with a threatened, pending or completed action, suit or proceeding if
the officer or director (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner the officer or director
reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had
no reasonable cause to believe the conduct of the officer or director was unlawful.



Section
78.751 of NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a
civil or criminal action, suit or proceeding as they are incurred and in advance of final disposition thereof, upon receipt of
an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be indemnified by the company. Section 78.751 of NRS further permits
the company to grant its directors and officers additional rights of indemnification under its articles of incorporation or bylaws
or otherwise.



47







Section
78.752 of NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company
as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability
asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising
out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.



Our
amended and restated articles of incorporation provide that no director or officer will be personally liable to us or any of our
stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or (ii) the payment of dividends in violation of Section 78.300 of NRS. In addition, our amended
and restated articles of incorporation and bylaws implement the indemnification and insurance provisions permitted by Chapter 78
of the NRS by providing that:



| | — | We shall indemnify its directors and officers, or any person serving at our request, to the fullest extent permitted by the NRS.                                                                                                                                                                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | — | We may at the discretion of the Board of Directors purchase and maintain insurance on behalf of any person who holds or who has held any position identified in the paragraph above against any and all liability incurred by such person in any such position or arising out of his status as such.



Insofar
as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers or persons
controlling the company pursuant to provisions of our articles of incorporation and bylaws, or otherwise, we have been advised
that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful
defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities
being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.



Director Independence



Except
for Dishan Guo and Zhenquan Guo, all our other directors are independent directors, as the term “independent” is defined
by the rules of the Nasdaq Stock Market.



Section 16(a) of the
Securities Exchange Act of 1934



As of the date of this
report, we are not subject to section 16(a) of the Securities Exchange Act of 1934.



Item 11.         Executive
Compensation.



The
following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for
services, including salary and bonus amounts, rendered in all capacities by our chief executive officer and all other executive
officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods.



Summary Compensation
Table— Fiscal Years Ended December 31, 2010 and December 31, 2009



The
following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named
persons for services rendered in all capacities during the noted periods. No executive officer received total annual salary and
bonus compensation in excess of $100,000.



48







|Name and Principal Position        |  | FiscalYear |  | Salary ($) |        |  | Total ($) | 
|---------------------------------- |  | ---------- |  | ---------- | ------ |  | --------- | 
|Dishan Guo,                        |  | 2010       |  |            | 44,118 |  |           | 
|Chief Executive Officer (1)        |  | 2009       |  |            | 5,856  |  |           | 
|Xuezheng Yuan,                     |  | 2010       |  |            | -      |  |           | 
|Former Chief Executive Officer (2) |  | 2009       |  |            | -      |  |           | 



|(1) | On July 2, 2010, we acquired Classic Bond in a reverse acquisition transaction that was structured as a share exchange and in connection with that transaction, Dishan Guo became our Chief Executive Officer and President. Prior to the effective date of the reverse acquisition, Mr. Guo served at Classic Bond’s VIE, Junlong, as its CEO. The annual, long term and other compensation shown in this table include the amount Mr. Guo received from Junlong prior to the consummation of the reverse acquisition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Xuezheng Yuan resigned as our sole officer upon the closing of the reverse acquisition of Classic Bond on July 2, 2010.
|--- | -----------------------------------------------------------------------------------------------------------------------



Employment Agreements



All
of our employees, including Dishan Guo, our Chief Executive Officer, have executed our standard employment agreement. Our employment
agreements with our executives provide the amount of each executive officer’s salary and establish their eligibility to receive
a bonus. Mr. Guo’s employment agreement provides for an annual salary of RMB 300,000 (approximately $44,118).



Other
than the salary and necessary social benefits required by the government, which are defined in the employment agreement, we currently
do not provide other benefits to our officers at this time. Our executive officers are not entitled to severance payments upon
the termination of their employment agreements or following a change in control.



Compensation Discussion
and Analysis



We
strive to provide our named executive officers (as defined in Item 402 of Regulation S-K) with a competitive base salary that is
in line with their roles and responsibilities when compared to peer companies of comparable size in similar locations.



It
is not uncommon for private companies in the PRC to have base salaries as the sole form of compensation. The base salary level
is established and reviewed based on the level of responsibilities, the experience and tenure of the individual and the current
and potential contributions of the individual. The base salary is compared to the list of similar positions within comparable peer
companies and consideration is given to the executive’s relative experience in his or her position.  Base salaries are
reviewed periodically and at the time of promotion or other changes in responsibilities.



We
plan to implement a more comprehensive compensation program, which takes into account other elements of compensation, including,
without limitation, short and long term compensation, cash and non-cash, and other equity-based compensation such as stock options.
We expect that this compensation program will be comparable to the programs of our peer companies and aimed to retain and attract
talented individuals.



Outstanding Equity
Awards at Fiscal Year End



None
of our executive officers received any equity awards, including, options, restricted stock or other equity incentives during the
fiscal year ended December 31, 2010.



Compensation of
Directors



During
the 2010 fiscal year, no member of our board of directors received any compensation for his services as a director.



49







Item 12.         Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



The
following table sets forth information regarding beneficial ownership of our common stock as of December 31, 2010 (i) by each person
who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii)
by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below
is in care of Junlong, 1-D-1010, Yuanjing Park, Long Xiang Road, Long Gang District, Shenzhen, Guangdong Province, People’s
Republic of China.



|Name and Address of Beneficial Owner                          |  | Position                             |  | Title of Class                 |  | Amount and Nature of Beneficial Ownership(1) |            |  | Percent of Class(2) | 
|------------------------------------------------------------- |  | ------------------------------------ |  | ------------------------------ |  | -------------------------------------------- | ---------- |  | ------------------- | 
|Officers and Directors                                        | 
|Dishan Guo                                                    |  | Chairman and Chief Executive Officer |  | Common stock, $0.001 par value |  |                                              | 12,008,750 |  |                     | 
|Zhenquan Guo(3)                                               |  | Director                             |  | Common stock, $0.001 par value |  |                                              | 600,020    |  |                     | 
|Lei Li(3)                                                     |  | Director                             |  | Common stock, $0.001 par value |  |                                              | —          |  |                     | 
|Wenbin An(3)                                                  |  | Director                             |  | Common stock, $0.001 par value |  |                                              | —          |  |                     | 
|Lizong Wang(3)                                                |  | Director                             |  | Common stock, $0.001 par value |  |                                              | 100,000    |  |                     | 
|All officers and directors as a group (5 persons named above) |  |                                      |  | Common stock, $0.001 par value |  |                                              | 12,729,280 |  |                     | 
|5% Security Holders                                           | 
|Dishan Guo                                                    |  |                                      |  | Common stock, $0.001 par value |  |                                              | 12,708,770 |  |                     | 





(1)  Beneficial
Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect
to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with
respect to the shares of our common stock.



(2) A total of 21,124,967
shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of March 30, 2011.



(3) Zhenquan Guo, Lei
Li, Wenbin An and Lizong Wang joined our board of directors on August 7, 2010.



Item 13.         Certain
Relationships and Related Transactions, and Director Independence.



The
following includes a summary of transactions since the beginning of our 2010 fiscal year, or any currently proposed transaction,
in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of
the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will
have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We
believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described
below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.



| | — | On June 11, 2010, Zhonghefangda entered into the Management and Consulting Services Agreement with Junlong, pursuant to which Zhonghefangda agreed to provide management and consulting services to the VIE in exchange for service fees up to 100% of the VIE’s aggregate net profits during the term of the agreement.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | — | On June 11, 2010, Zhonghefangda entered into the Option Agreement with Junlong and the VIE Shareholders, whereby the VIE and the VIE Shareholders granted Zhonghefangda an exclusive, irrevocable option to purchase all or part of their equity interests in Junlong.                                                  



50







| | — | On June 11, 2010, Zhonghefangda entered into the Equity Pledge Agreement with Junlong and the VIE Shareholders, whereby the VIE Shareholders have pledged their entire equity interest in the VIE to Zhonghefangda. The equity interests are pledged as collateral to secure the respective obligations of the VIE and the VIE Shareholders under the Management and Consulting Services Agreement, the Option Agreement and the Voting Rights Proxy Agreement.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | — | On June 11, 2010, Zhonghefangda entered into the Voting Rights Proxy Agreement with the VIE and the VIE Shareholders. The agreement requires the VIE Shareholders to grant and entrust Zhonghefangda with all of the voting rights as shareholders of the VIE for the maximum period of time permitted by law.                                                                                                                                                 



| | — | On July 2, 2010, we entered into a cancellation agreement with certain shareholders, namely, Xuezheng Yuan, First Prestige, Inc., Shuihua Cheng, Catalfa Holdings, Inc. and JD Infinity Holdings, Inc., whereby these shareholders agreed to the cancellation of 4,973,600 shares of our common stock owned by them. At the time he entered into the Cancellation Agreement, Mr. Yuan was our sole director and officer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



None
of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.



Promoters and Certain
Control Persons



We
did not have any promoters at any time during the past five fiscal years.



Director Independence



Except
for Dishan Guo and Zhenquan Guo, all our other directors are independent directors, as the term “independent” is defined
by the rules of the Nasdaq Stock Market.





|Item 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------



(1) Audit Fees



The
aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for
our audit of annual financial statements and review of financial statements included in our Form 10-K or services that are normally
provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:



|2010 |  | $ | 82,000 |  | EFP Rotenberg, LLP         
|---- |  | - | ------ |  | ---------------------------
|     |  |   |        |  |                            
|2010 |  | $ | 8,750  |  | Paula S. Morelli, CPA, P.C.
|     |  |   |        |  |                            
|2009 |  | $ | 0      |  | EFP Rotenberg, LLP         
|     |  |   |        |  |                            
|2009 |  | $ | 8,750  |  | Paula S. Morelli, CPA, P.C.

Audit Related Fees



The
aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported
under Item 9(e)(1) of Schedule 14A are:



|2009 Junlong’s Audit   |  | $ | 90,000 | 
|---------------------- |  | - | ------ | 
|                       |  |   |        | 
|2010 Q1 Junlong Review |  | $ | 10,000 | 
|                       |  |   |        | 
|2010 Q2 Junlong Review |  | $ | 10,000 | 
|                       |  |   |        | 
|2010 Q3 Junlong Review |  | $ | 10,000 | 
|                       |  |   |        | 
|2010 Q4 Junlong Review |  | $ | 52,000 | 



51







Tax Fees



For
the Company’s fiscal years ended December 31, 2010 and December 31, 2009, we were not billed by our principal accountants
for professional services rendered for tax compliance, tax advice, and tax planning.



PART
V



Item 15.         Exhibits,
Financial Statement Schedules.



|Exhibit No. |  | Description                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                   
|2.1*        |  | Form of Share Exchange Agreement, dated July 2, 2010, among the Company, Classic Bond Development Limited and its shareholders.                   
|            |  |                                                                                                                                                   
|3.1**       |  | Articles of Incorporation of the Company                                                                                                          
|            |  |                                                                                                                                                   
|3.2**       |  | Bylaws of the Company                                                                                                                             
|            |  |                                                                                                                                                   
|3.3***      |  | Amended and Restated Bylaws, adopted on July 30, 2010                                                                                             
|            |  |                                                                                                                                                   
|3.4******   |  | Certificate of Designations Preferences and Rights of the 5% Series A Convertible Preferred Stock of China Internet Café Holdings Group, Inc.     
|            |  |                                                                                                                                                   
|4.1*        |  | Form of Cancellation Agreement, dated July 2, 2010, among the Company and certain shareholders.                                                   
|            |  |                                                                                                                                                   
|4.2**       |  | Specimen Stock Certificate                                                                                                                        
|            |  |                                                                                                                                                   
|10.1*       |  | Management Consulting Service Agreement, dated June 11, 2010, among Zhonghefangda, Junlong and Junlong’s shareholders.                            
|            |  |                                                                                                                                                   
|10.2*       |  | Equity Pledge Agreement, dated June 11, 2010, among Zhonghefangda, Junlong and Junlong’s shareholders.                                            
|            |  |                                                                                                                                                   
|10.3*       |  | Option Agreement, dated June 11, 2010, among Zhonghefangda, Junlong and Junlong’s shareholders.                                                   
|            |  |                                                                                                                                                   
|10.4*       |  | Proxy Agreement, dated June 11, 2010, among Zhonghefangda, Junlong and Junlong’s shareholders.                                                    
|            |  |                                                                                                                                                   
|10.5*       |  | English Translation of Employment Agreement, dated April 1, 2009, between Junlong and Tu Fan.                                                     
|            |  |                                                                                                                                                   
|10.6*       |  | English Translation of Form of Non-disclosure and Non-competition Agreement, dated March 11, 2010, between Junlong and its employees.             
|            |  |                                                                                                                                                   
|10.7*       |  | English Summary of Loan Agreement, dated October 23, 2009, between Junlong and Shenzhen Branch of China Construction Bank.                        
|            |  |                                                                                                                                                   
|10.8*       |  | English Summary of Guaranty Contract of Maximum Amount, dated October 23, 2009, between Dishan Guo and Shenzhen Branch of China Construction Bank.



52







|10.9*      |  | English Summary of Purchase Agreement, dated June 7, 2010, between Junlong and Shenzhen SEG Industrial Investment Co., Ltd.                        
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|           |  |                                                                                                                                                    
|10.10*     |  | English Summary of Lease Contract, dated September 1, 2006, between Junlong and Zou Zhiwei.                                                        
|           |  |                                                                                                                                                    
|10.11*     |  | English Summary of Lease Contract, dated December 15, 2009, between Junlong and Hao Changsheng                                                     
|           |  |                                                                                                                                                    
|10.12***** |  | Lease contract re: No. 1 Xinxin Garden, Fangjicun, Xudong Road, Wuchang, Wuhan, Hubei Province, China 430062 between the Company and Xuezheng Yuan.



|10.13****** |  | Securities Purchase Agreement, dated February 22, 2011, by and among China Internet Café Holdings Group, Inc. and Investors identified therein
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                               
|10.14****** |  | Registration Rights Agreement, dated February 22, 2011                                                                                        
|            |  |                                                                                                                                               
|10.15****** |  | Securities Escrow Agreement, dated February 22, 2011                                                                                          
|            |  |                                                                                                                                               
|10.16****** |  | Lock-up Agreement, dated February 22, 2011                                                                                                    
|            |  |                                                                                                                                               
|10.17****** |  | Form of Series A Warrant                                                                                                                      
|            |  |                                                                                                                                               
|10.18****** |  | Form of Series B Warrant                                                                                                                      
|            |  |                                                                                                                                               
|14.1****    |  | Code of Ethics                                                                                                                                
|            |  |                                                                                                                                               
|21*         |  | Subsidiaries of the Company.                                                                                                                  
|            |  |                                                                                                                                               
|31.1        |  | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       
|            |  |                                                                                                                                               
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                       
|            |  |                                                                                                                                               
|91.1******  |  | Press Release                                                                                                                                 
|            |  |                                                                                                                                               
|99.2******  |  | Investor Presentation                                                                                                                         



|* Incorporated by reference to our Current Report on Form 8-K filed with the SEC on July 9, 2010.          
|-----------------------------------------------------------------------------------------------------------
|                                                                                                           
|** Incorporated by reference to our Registration Statement on Form SB-2 filed on August 30, 2006.          
|                                                                                                           
|* **Incorporated by reference to our Current Report on Form 8-K filed with the SEC on August 3, 2010.      
|                                                                                                           
|* ***Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on June 30, 2008.      
|                                                                                                           
|***** Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on September 28, 2010.
|                                                                                                           
|****** Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 23, 2011.



53







SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



Date:  June
11, 2012

| | CHINA INTERNET CAFÉ HOLDINGS GROUP, INC.
| | ----------------------------------------
| |                                         
| | By:                                     
| |                                         
| |                                         



In accordance with the
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



|Name             |  | Title                                              |  | Date         
|---------------- |  | -------------------------------------------------- |  | -------------
|                 |  | Chief Executive Officer, Chief Financial           |  |              
|                 |  | Officer, and Chairman of the Board (principal      |  |              
|/s/ Dishan Guo   |  | executive officer and principal financial officer) |  | June 11, 2012
|Dishan Guo       |  |                                                    |  |              
|                 |  |                                                    |  |              
|/s/ Zhenquan Guo |  | Director                                           |  | June 11, 2012
|Zhenquan Guo     |  |                                                    |  |              
|                 |  |                                                    |  |              
|/s/ Lei Li       |  | Director                                           |  | June 11, 2012
|Lei Li           |  |                                                    |  |              
|                 |  |                                                    |  |              
|/s/ Wenbin An    |  | Director                                           |  | June 11, 2012
|Wenbin An        |  |                                                    |  |              
|                 |  |                                                    |  |              
|/s/ Lizong Wang  |  | Director                                           |  | June 11, 2012
|Lizong Wang      |  |                                                    |  |              



54