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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended: December 31, 2010

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

For the transition period from __________ to ____________

Commission File Number: 000-30183

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS
LIMITED(Exact name of registrant as specified in
its charter)

|New York                        | 13-3874771                             
|------------------------------- | ---------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification Number)
|incorporation or organization)  |                                        

8/F East AreaCentury Golden Resources Business
Center 69 Banjing Road Haidian District Beijing, Peoples
Republic of China, 100089(Address of principal executive office and
zip code)

86-10-884-52568(Registrants telephone
number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No
[X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No
[X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K 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. [X]

---

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):

|Large accelerated filer [_] | Accelerated filer [_] | Non-accelerated filer [_] | Smaller reporting company
[X]
|--------------------------- | --------------------- | ------------------------- | -----------------------------

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yes [_] No [X]

As of June 30, 2010, there were 8,871,167 shares of the
Registrants common stock outstanding and the aggregate market value of such
shares held by non-affiliates of the Registrants common stock (based upon the
average bid and asked price of such shares as reported on the Over-the-Counter
Bulletin Board) was approximately $1.77 million. Shares of the Registrants common
stock held by each executive officer and director have been excluded in that
such persons may be deemed to be affiliates of the Registrant. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of April 14, 2011, there were 77,655,862 shares of the
Registrants common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED

FORM 10-KFor the Fiscal Year Ended December 31,
2010

|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 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                                         | 21
|------------------------------------------------------------------------------------------------------------- | --
|ITEM 11. EXECUTIVE COMPENSATION                                                                               | 22
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS | 23
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS, AND DIRECTOR INDEPENDENCE                      | 24
|ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES                                                         | 25
|PART IV                                                                                                      
|ITEM 15. EXHIBITS, FINANCIAL STATEMENTS
      SCHEDULES                                                       | 27

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SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K, including the following
Managements Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements relating to the business of
China Longyi Group International Holdings Limited and its subsidiary companies.
The forward-looking statements include, among others, statements concerning our
expected financial performance and strategic and operational plans, as well as
all assumptions, expectations, predictions, intentions or beliefs about future
events. These statements are based on assumptions and are subject to known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Risks and uncertainties include risks related to new
and existing products; any projections of sales, earnings, revenue, margins or
other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements regarding future economic
conditions or performance; uncertainties related to conducting business in
China; any statements of belief or intention; and any of the factors mentioned
in the Risk Factors section of this annual report on Form 10-K. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. Except as required by law, we assume no obligation to update any
forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the future.

USE OF CERTAIN DEFINED TERMS

Except as otherwise indicated by the context, references in
this report to:

- Beijing SOD are references to Beijing Longyi Biology Technology Co.
  Ltd., our indirect, 90% owned subsidiary, a PRC company;
- China and PRC are references to the Peoples Republic of China;
- China Longyi, we, us, our, or the Company are references to the
  combined business of China Longyi Group International Holdings Limited
  (formerly known as Minghua Group International Holdings Limited) and/or its
  consolidated subsidiaries, as the case may be;
- Chongqing SOD are references to Chongqing JiuZhou Dismutase Biology
  Technology Co., Ltd., our indirect, majority-owned subsidiary, a PRC company;
- Exchange Act mean the Securities Exchange Act of 1934, as amended;
- RMB refer to Renminbi, the legal currency of China;
- Securities Act mean the Securities Act of 1933, as amended;
- Top Time are references to Top Time International Limited, our indirect
  wholly-owned subsidiary, a Hong Kong company; and
- U.S. dollar, $ and US$ are to the legal currency of the United
  States.

1

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PART I

ITEM 1. BUSINESS

Overview of Our Business

We are a holding company that only operates through our
indirect Chinese subsidiaries Beijing SOD and Chongqing SOD. Through our Chinese
subsidiaries, we develop, manufacture and market our SOD products in China. SOD
is a naturally occurring enzyme which may act as a potent antioxidant defense in
cells that are exposed to oxygen. Certain research has shown that under certain
biological conditions, SOD revitalizes cells and reduces the rate of cell
destruction. It neutralizes the most common free radicalsuperoxide radicalby
converting it into hydrogen peroxide and water. Because superoxide is harmful to
human cells, and certain forms of SOD exist naturally in most humans, many
studies show that SOD is valuable in protecting human cells from the harmful
effects of superoxide. SOD is thought to be more powerful than antioxidant
vitamins as it activates the body's productions of its own antioxidants. As a
result, SOD is referred to as the enzyme of life. Commercially, SOD has a wide
range of applications and is widely applied in foods, drinks, skin care
productions, pharmaceuticals, to combat ailments ranging from sunburn to
rheumatoid arthritis.

History and Corporate Structure

We are a New York corporation that was incorporated on February
29, 1996, as United Network Technologies, Inc. and we changed our name to
Panagra International Corporation on October 2, 1998. From our inception until
2001, we were relatively inactive with limited operations. On August 2, 2001 we
changed our name to Minghua Group International Holdings Limited and at that
time we also increased the authorized common shares of our common stock from
40,000,000 shares to 200,000,000 shares. On October 16, 2007, we effectuated a
1-for-20 reverse stock split of all our issued and outstanding shares of common
stock, or the Reverse Split, and changed our name to China Longyi Group
International Holdings Limited.

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



Our Industry

The health supplements industry in China is currently made up
of many small- and medium-sized companies that manufacture and distribute
products generally intended to, or marketed for the purpose of maintaining, and
sometimes improving, the bodys health and general well being. China is
one of the fastest growing health supplements markets in the world. With rapid
economic growth and continued improvement of its peoples livelihoods, the
demand for health supplements from Chinas 1.3 billion people has expanded
tremendously over the last 20 years. Today the Chinese health supplements
industry is estimated to be worth approximately $6 billion in annual sales,
according to the China Health Care Association, which is an association attached
to China's Ministry of Health. Given Chinas current annual per capita
consumption of health supplements is approximately $10which is far below that
of many western countries.

2

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Ever since American scientists Joe McCord and Irwin Fridovich
discovered SOD in cattle erythrocytes in 1969 and hypothesized that it can
protect life molecules from oxygenation and retrogradation, experts in the
fields of biology and medicine and many entrepreneurs and industrialists have
been engaged in research, study, development, application and transformation of
SOD into products that we believe will provide human beings with certain health
and longevity benefits. Research into the functions and applications of SOD in
China began in the late 1970s. Since then, various centers of research in
China, including universities, the military and private companies, have
researched food, medicinal, and cosmetic applications for SOD. In the 1990s,
SOD foods began to be sold in China, including SOD soy milk, SOD dairy milk, and
SOD beer. Due to technical problems with these first-generation SOD food
products and limited public knowledge of the health benefits of SOD, many were
discontinued. Technical difficulties relating to the commercialization of SOD
products in China have included: (1) lack of methods for efficient harvesting of
SOD from animal and human blood and plants; (2) problems with the maintenance
and stabilization of harvested SOD, the longest shelf life so far being only two
years in China; and (3) technical problems in the effectiveness of SOD in
products, particularly food and other products to be consumed orally. More
recently, however, various SOD food products have reappeared in China, including
SOD milk, SOD wine, and SOD vegetables and fruits. We believe that these and
other types of SOD products will become extremely popular due in part to
innovations in the SOD industry; recognition of SOD technologies as proprietary
intellectual property; government policies encouraging healthier food; the
higher awareness of consumers in China of the health benefits of consuming
products containing SOD; and the growth of the spending power of Chinese
citizens.

In addition, the China Science and Technology Institute has
recognized that SOD product technologies are proprietary intellectual property.
SOD companies, including us, have instituted strict measures to protect their
SOD product technologies from being misappropriated. As such, the SOD product
technologies may be protected by Chinese intellectual property law even if they
are not patented. As a result, companies are encouraged to develop and
commercialize SOD technologies.

The growing wealth of the Chinese public and its related
greater interest in better health and nutrition are also trends in SOD
industrys favor. SOD production and distribution companies have been working
hard to develop innovations to best exploit the commercial potential of SOD,
including our subsidiary, Chongqing SOD. Since 1993, various types of SOD
products have been sold in China, such as Beijing Dabao SOD skin care series,
Wuhan Jiutouniao SOD liquid nutrition drink series, Guizhou Laoliafu SOD liquid
nutrition drink series, Zhejiang SOD beer, SOD toothpaste, SOD soy milk. We
believe that the SOD industry in China should expand as Chinese consumers grow
more able and willing to purchase SOD products.

Our Products

Currently we are manufacturing one product, which is Jiuzhou
SOD plant wine which we market under the name Jiuzhou Holy Wine. Our Jiuzhou
SOD plant wine is a product developed from the zymolysis of natural wide berries
with an alcohol level of 21%. We plan to produce SOD oral liquid and SOD
capsules within the next three years. We also plan to produce and sell SOD
medicines and skin care products after we receive manufacturing permits from the
State Food and Drug Administration, or SFDA.

Sales & Marketing Strategy

Our sales and marketing department currently consists of 16
employees. We are developing a diversified sales network which allows us to
effectively market products and services to our customers. In addition to sales
efforts conducted directly by our internal sales team and other employees, we
also use sales agents. Currently we have 15 sales agents selling our
products.

In terms of geographic area, our sales network covers 21 cities
in China. Our Jiuzhou SOD wine has been listed on the governmental procurement
list of Chongqing City, which will grant us a priority to sell our SOD products
to various governmental agencies in Chongqing City. We also expect that our SOD
products will be listed on the governmental procurement list of Beijing City. We
plan to expand our sales network to cover more Chinese cities, including
Shenzhen, Guangzhou, Nanjing, Shanghai, Shijiazhuang, Lhasa and Nanchang.

We also plan to employ an online order system, which will cover
four major metropolitan areas, such as Beijing, Chengdu, Kunming and Chongqing,
within the next 12 months. Through our website
http://www.jiuzhoushengjiu.com/index.asp, we will be able to offer a complete line of our products to our
customers 24 hours a day, seven days a week. This additional sales channel will
enable us to market and sell our products in regions where we do not have retail
operations or have limited operations.

3

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Competition

The health supplementary business both within China and
globally is highly fragmented and intensely competitive. Many of our
competitors, both domestic and international, have significant research and
development capabilities and financial, scientific, manufacturing, marketing and
sales resources. Although our marketing and sales efforts of SOD products are
very limited, we believe that we will compete with our competitors based upon
the price and quality of our products, ability to produce a diverse range of
products and customer services.

In China, we compete principally with Chengdu New Asia
Bioengineering Co., Ltd., Zhuhai Zixing Biological Engineering Co., Ltd. and
Liaoyuan Jinchang Bioengineering Co., Ltd.

We believe that our Jiuzhou SOD wine, made from more than 10
kinds of wild plants, is more efficient to remove superoxide free radicals than
SOD liquid products made by our competitors. In addition, we believe that our
SOD plant compound enzyme can be stored under the normal atmospheric temperature
for more than 10 years, much longer than the life span of many other SOD
products made from animal blood or a single plant.

Intellectual Property

Although none of our products are currently covered by patents,
we already prepared all necessary documents and related materials and will
register patent for SOD mother solution application skill. Furthermore, we have
registered a trademark for our SOD product which we will sell under the name
Jiuzhou Holy Wine.

In addition, we protect our know how technologies through
confidentiality agreements we entered into with our employees in our production
department.

Research and Development

We currently operate our research and development department
through Beijing SOD. As of December 31, 2010, we have 12 research and
development staff (five of them hold Master/PhD degrees). Our research and
development department is responsible for developing advanced technologies,
developing new SOD products and training. We also plan to establish a life
technology research academy for where our staff may research and develop SODs
application as an antioxidant and energy booster.

Expenditures for research and development for the years ended
December 31, 2010 and 2009 were $0 and $29,278, respectively.

Regulation

Based on different potential uses, SOD products in China are
classified into three types under the Chinese law and accordingly are subject to
different Chinese laws and regulations.

If the SOD products are sold for manufacturing food, they are
considered as food additives. Under current Chinese law, a company may not
produce SOD products for food additives use without two licenses, the Food
Hygiene License issued by the provincial Administration of Health, or AOH, and
the Food Production License issued by the provincial Administration of Quality
Supervision, Inspection and Quarantine, or AQSIQ. If the SOD products are sold
as raw materials for drugs, the Company should first obtain the Pharmaceutical
Producer License from the provincial AOH and the approval from the provincial
Food and Drug Administration, or FDA.

We have already obtained both the Food Hygiene License issued
by the Chongqing AOH and the Food Production License issued by the local AQSIQ.
Since we also plan to produce and sell SOD medicines and skin care products, we
plan to apply for the Pharmaceutical Producer License from the provincial AOH
and the approval from the provincial FDA.

In addition, we are also subject to PRCs foreign currency
regulations. The PRC government has control over RMB reserves through, among
other things, direct regulation of the conversion or RMB into other foreign
currencies. Although foreign currencies which are required for current account
transactions can be bought freely at authorized Chinese banks, the proper procedural requirements prescribed by Chinese law must be met.
At the same time, Chinese companies are also required to sell their foreign
exchange earnings to authorized Chinese banks and the purchase of foreign
currencies for capital account transactions still requires prior approval of the
Chinese government.

4

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Employees

As of December 31, 2010, we had a total of 69 full-time
employees. The following table illustrates the allocation of these employees
among the various job functions conducted at our Company.

|Department               | Number of Employees
|------------------------ | -------------------
|Sales                    | 16                 
|Administration           | 6                  
|Finance                  | 5                  
|SOD Production Center    | 30                 
|Research and Development | 12                 
|Total                    | 69                 

We believe that our relationship with our employees is good.
The remuneration payable to employees includes basic salaries and allowances. We
have not experienced any significant problems or disruption to our operations
due to labor disputes, nor have we experienced any difficulties in recruitment
and retention of experienced staff.

As required by applicable Chinese laws, we have entered into
employment contracts with all of our officers, managers and employees.

Our employees in China participate in a state pension scheme
organized by Chinese municipal and provincial governments. We are required to
contribute to the scheme at a rate of 28% of the average monthly salary. In
addition, we are required by Chinese laws to cover employees in China with
various types of social insurance. We have purchased social insurances for all
of our employees.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below,
which constitute all of the material risks facing us. If any of the following
risks actually occur, our business could be harmed. You should also refer to the
other information about us contained in this report, including our financial
statements and related notes.

RISKS RELATED TO OUR BUSINESS

The recent financial crisis could negatively affect our
business, results of operations, and financial condition.

The recent credit crisis and turmoil in the global financial
system may have an impact on our business and our financial condition, and we
may face challenges if conditions in the financial markets do not improve. Our
ability to access the capital markets may be restricted at a time when we would
like, or need, to raise capital, which could have an impact on our flexibility
to react to changing economic and business conditions. In addition, these
economic conditions also impact levels of consumer spending, which have recently
deteriorated significantly and may remain depressed for the foreseeable future.
Consumer purchases of discretionary items, including our Jiuzhou SOD plant wine,
generally decline during recessionary periods and other periods where disposable
income is adversely affected. If demand for our products fluctuates as a result
of economic conditions or otherwise, our revenue and gross margin could be
harmed.

We are an early stage development company and we have a
limited operating history of our current business. We have losses that we expect
to continue into the future and it is uncertain whether we will earn any
revenues in the future or whether we will ultimately be profitable.

5

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We are in the development stage and our future operations are
subject to all of the risks inherent in the establishment of a new business
enterprise. The likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the development of SOD products, the utilization
of unproven technology and the competitive environment in which we operate.
There can be no assurance that we will be able to develop, manufacture or market
any products in the future, that future revenues will be significant, that any
sales will be profitable or that we will have sufficient funds available to
complete our marketing and development programs or to market any products which
we may develop. In addition, as a result of our limited operating history even
though we do currently have a marketable product, we expect to continue to incur
substantial operating losses until we can generate sufficient revenues from the
sales of our SOD products to cover our operating costs. For the fiscal year
ended December 31, 2010, we incurred a net loss of $373,053. We currently have
limited sources of potential operating revenue and there can be no assurance
that we will be able to develop revenue sources or that our operations will ever
become profitable.

If we become directly subject to the recent scrutiny,
criticism and negative publicity involving U.S.-listed Chinese companies, we may
have to expend significant resources to investigate and resolve the matter which
could harm our business operations, stock price and reputation and could result
in a loss of your investment in our stock, especially if such matter cannot be
addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of
their operations in China, particularly companies like us which have completed
so-called reverse merger transactions, have been the subject of intense
scrutiny, criticism and negative publicity by investors, financial commentators
and regulatory agencies, such as the United States Securities and Exchange
Commission, or the SEC. Much of the scrutiny, criticism and negative publicity
has centered around financial and accounting irregularities and mistakes, a lack
of effective internal controls over financial accounting, inadequate corporate
governance policies or a lack of adherence thereto and, in many cases,
allegations of fraud. As a result of the scrutiny, criticism and negative
publicity, the publicly traded stock of many U.S. listed Chinese companies has
sharply decreased in value and, in some cases, has become virtually worthless.
Many of these companies are now subject to shareholder lawsuits, SEC enforcement
actions and are conducting internal and external investigations into the
allegations. It is not clear what effect this sector-wide scrutiny, criticism
and negative publicity will have on our company, our business and our stock
price. If we become the subject of any unfavorable allegations, whether such
allegations are proven to be true or untrue, we will have to expend significant
resources to investigate such allegations and/or defend our company. This
situation will be costly and time consuming and distract our management from
growing our company. If such allegations are not proven to be groundless, our
company and business operations will be severely and your investment in our
stock could be rendered worthless.

Our industry is highly fragmented and competitive, and
increased competition could reduce our operating income.

The health supplement business both within China and globally
is highly fragmented and intensely competitive. We compete with a number of
domestic and international manufacturers and distributors that are producing and
marketing products in China that are similar to our products. We may not be able
to effectively compete against them because our existing or potential
competitors may have superior financial, technical, distribution, marketing,
sales and other resources, as well as more significant name recognition and
established positions in the market we serve. Increased competition could force
us to lower our prices or offer services at a higher cost to us, which could
reduce our operating income.

Our products could be subject to product liability claims
by consumers, which would adversely affect our profit margins, results from
operations and stockholder value.

We are exposed to risks inherent in the packaging and
distribution of health supplement products, such as with respect to adequacy of
warnings, mislabeling and contamination. As a result, there is a risk that
someone using our products may experience significant negative side effects
which may permanently harm them and we could be subject to claims for damages
based on theories of product liability and other legal theories. The costs and
resources to defend such claims could be substantial and, if such claims are
successful, we could be responsible for paying some or all of the damages. Also,
our reputation could be adversely affected, regardless of whether such claims
are successful. We currently intend to obtain product liability insurance at the
appropriate time; however, there can be no assurance that we will be able to
obtain or maintain insurance on acceptable terms for our products or that such
insurance would be sufficient to cover any potential product liability claim or
recall. Any of these results would adversely affect our profit margins, results
from operations and stockholder value.

We may not be able to adequately protect our proprietary
intellectual property and technology, which may harm our competitive position
and result in increased expenses incurred to enforce our rights.

6

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We rely on a combination of copyright, trademark and trade
secret laws, non-disclosure agreements and other confidentiality procedures and
contractual provisions to establish, protect and maintain our proprietary
intellectual property and technology and other confidential information. Some of
these technologies, especially the technology to extract SOD and SOD related
enzyme from wild plants, are important to our business and are not protected by
patents. Despite our efforts, the steps we have taken to protect our proprietary
intellectual property and technology and other confidential information may not
be adequate to preclude misappropriation of our proprietary information or
infringement of our intellectual property rights. Protecting against the
unauthorized use of our products, trademarks and other proprietary rights is
also expensive, difficult and, in some cases, impossible. Litigation may be
necessary in the future to enforce or defend our intellectual property rights,
to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of management resources, either of which could harm our business,
operating results and financial condition.

Compliance with environmental regulations can be
expensive, and our failure to comply with these regulations may result in
adverse publicity and may have a material adverse effect on our business.

As a manufacturer, we are subject to various Chinese
environmental laws and regulations on air emission, waste water discharge, solid
wastes and noise. Although we believe that our operations are in substantial
compliance with current environmental laws and regulations, we may not be able
to comply with these regulations at all times as the Chinese environmental legal
regime is evolving and becoming more stringent. Therefore, if the Chinese
government imposes more stringent regulations in the future, we will have to
incur additional and potentially substantial costs and expenses in order to
comply with new regulations, which may negatively affect our results of
operations. If we fail to comply with any of the present or future environmental
regulations in any material aspects, we may suffer from negative publicity and
may be required to pay substantial fines, suspend or even cease operations.
Failure to comply with Chinese environmental laws and regulations may materially
and adversely affect our business, financial condition and results of
operations.

We depend heavily on key personnel, and turnover of key
employees and senior management could harm our business.

Our future business and results of operations depend in
significant part upon the continued contributions of our key technical and
senior management personnel, including Jie Chen, our Chief Executive Officer and
Xinmin Pan, our Chief Financial Officer. They also depend in significant part
upon our ability to attract and retain additional qualified management,
technical, marketing and sales and support personnel for our operations. If we
lose a key employee or if a key employee fails to perform in his or her current
position, or if we are not able to attract and retain skilled employees as
needed, our business could suffer. Significant turnover in our senior management
could significantly deplete our institutional knowledge held by our existing
senior management team. We depend on the skills and abilities of these key
employees in managing the manufacturing, technical, marketing and sales aspects
of our business, any part of which could be harmed by further turnover.

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

As directed by Section 404 of the Sarbanes-Oxley Act of 2002,
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. A report of our management is included
under Item 9A of this report, in which our management concluded that our
internal controls over our financial reporting were effective for the year ended
December 31, 2010. However, in the future, our management may conclude that our
internal controls over our financial reporting are not effective due to the
identification of one or more material weaknesses. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner, investors and others may lose confidence in
the reliability of our financial statements.

Our holding company structure may limit the payment of
dividends to our stockholders.

We have no direct business operations, other than our ownership
of our subsidiaries. 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.

7

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Chinese regulations currently permit the payment of dividends
only out of accumulated profits as determined in accordance with Chinese
accounting standards and regulations. Our subsidiaries in China are also
required to set aside a portion of their after tax profits according to Chinese
accounting standards and regulations to fund certain reserve funds. Currently,
our subsidiaries in China are the only sources of revenues or investment
holdings for the payment of dividends. If they do not accumulate sufficient
profits under Chinese accounting standards and regulations to first fund certain
reserve funds as required by Chinese accounting standards, we will be unable to
pay any dividends.

We do not carry any business interruption insurance,
third-party liability insurance for our production facilities or insurance that
covers the risk of loss of our products in shipment.

Operation of our facilities involves many risks, including
equipment failures, natural disasters, industrial accidents, power outages,
labor disturbances and other business interruptions. Furthermore, if any of our
products are faulty, then we may become subject to product liability claims or
we may have to engage in a product recall. We do not carry any business
interruption insurance, product recall or third-party liability insurance for
our production facilities or with respect to our products to cover claims
pertaining to personal injury or property or environmental damage arising from
defects in our products, product recalls, accidents on our property or damage
relating to our operations. As a result, we may be required to pay for financial
and other losses, damages and liabilities, including those caused by natural
disasters and other events beyond our control, out of our own funds, which could
have a material adverse effect on our business, financial condition and results
of operations.

We may be exposed to liabilities under the Foreign
Corrupt Practices Act, and any determination that we violated the Foreign
Corrupt Practices Act could have a material adverse effect on our
business.

We are subject to the Foreign Corrupt Practice Act, or the
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 have operations, agreements with third parties and make sales in
China, which may experience corruption. Our activities in China create the risk
of unauthorized payments or offers of payments by one of the employees,
consultants, sales agents or distributors of our company, because 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 the
employees, consultants, sales agents or distributors of our Company may engage
in conduct for which we might be held responsible. Violations of the FCPA 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 government may seek to hold our Company
liable for successor liability FCPA violations committed by companies in which
we invest or that we acquire.

RISKS RELATED TO DOING BUSINESS IN CHINA

Changes in Chinas political or economic situation could
harm us and our operational results.

Economic reforms adopted by the Chinese 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;
- Balance of payments position;
- International trade restrictions; and
- International conflict.

The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. 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 Chinese
economy were 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 Chinese 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 protections afforded to
foreign invested enterprises in China. 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
are residents of China 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 us or any of these persons.

8

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

China only recently has permitted provincial and local economic
autonomy and private economic activities. The Chinese government has exercised
and continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Our ability to operate
in China 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 China
are in material compliance with all applicable legal and regulatory
requirements. However, the central or local governments of these jurisdictions
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 China or particular regions thereof, and could require us to
divest ourselves of any interest we then hold in Chinese properties or joint
ventures.

Future inflation in China may inhibit our ability to
conduct business profitably in China.

In recent years, the Chinese economy has experienced periods of
rapid expansion and high rates of inflation. During the past ten years, the rate
of inflation in China has been as high as 20.7% and as low as -2.2% . These
factors have led to the adoption by the Chinese 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 Chinese government to impose controls on credit and/or prices, or to take
other action, which could inhibit economic activity in China, and thereby harm
the market for our products.

Any recurrence of severe acute respiratory syndrome, or
SARS, or another widespread public health problem, could harm our
operations.

A renewed outbreak of SARS or another widespread public health
problem in China, where our operations are conducted, could have a negative
effect on our operations.

Our operations may be impacted by a number of health-related
factors, including the following:

- quarantines or closures of some of our offices which would severely
  disrupt our operations,
- the sickness or death of our key officers and employees, and
- a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of
public health problems could damage our operations.

If consumer spending power in China declines, our ability
to market SOD products may weaken.

The success of our SOD products relies in part on the
perception of consumers of the relative necessity of SOD, which is largely
dependent on Chinese consumers financial ability to afford SOD-enriched
products. If Chinese consumers spending power declines, whether because of the
reversal of Chinas economic growth or other causes, then our SOD products may
become less profitable if companies that use its product to enrich their
products stop ordering it.

If health problems relating to SOD products made in China
emerge, then SOD sales may fall or be banned entirely.

In light of recent news pieces about the health problems and
risks of products made in China, the global market and foreign and Chinese
health authorities may be especially sensitive about health problems caused by
or relating to SOD products made in China. If health problems relating to SOD products made in
China become evident, then the market demand for Chinese SOD producers may be
particularly susceptible to a fall. Likewise, such problems become evident,
foreign or Chinese health authorities may ban or impose other controls or
regulations on such SOD products that could harm or eliminate SOD product sales.
As a producer of a SOD product in China, we would be subject to these risks.

9

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

The majority of our revenue will be settled in RMB and U.S.
Dollars, and any future restrictions on currency exchanges may limit our ability
to use revenue generated in RMB to fund any future business activities outside
China or to make dividend or other payments in U.S. dollars. Although the
Chinese government introduced regulations in 1996 to allow greater
convertibility of the RMB 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 China authorized to
conduct foreign exchange business. In addition, conversion of RMB for capital
account items, including direct investment and loans, is subject to governmental
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that
the Chinese regulatory authorities will not impose more stringent restrictions
on the convertibility of the RMB.

We may be unable to complete a business combination
transaction efficiently or on favorable terms due to complicated merger and
acquisition regulations which became effective on September 8, 2006.

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.
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.
Depending on the structure of the transaction, the new regulation will require
the PRC parties to make a series of applications and supplemental applications
to the government agencies. In some instances, the application process may
require the presentation of economic data concerning a transaction, including
appraisals of the target business and evaluations of the acquirer, which are
designed to allow the government to assess the transaction. Government approvals
will have expiration dates by which a transaction must be completed and reported
to the government agencies. Compliance with the new regulations is likely to be
more time consuming and expensive than in the past and the government can now
exert more control over the combination of two businesses. Accordingly, due to
the new regulation, our ability to engage in business combination transactions
has become significantly more complicated, time consuming and expensive, and we
may not be able to negotiate a transaction that is acceptable to our
stockholders or sufficiently protect their interests in a transaction.

The new regulation allows PRC government agencies to assess the
economic terms of a business combination transaction. Parties to a business
combination transaction may have to submit to the Ministry of Commerce and other
relevant government agencies an appraisal report, an evaluation report and the
acquisition agreement, all of which form part of the application for approval,
depending on the structure of the transaction. The regulations also prohibit a
transaction at an acquisition price obviously lower than the appraised value of
the PRC business or assets and in certain transaction structures, require that
consideration must be paid within defined periods, generally not in excess of a
year. The regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulation may impede our ability to negotiate and complete a
business combination transaction on financial terms that satisfy our investors
and protect our stockholders economic interests.

The value of our securities will be affected by the
foreign 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. Currently, RMB is
stronger than U.S. Dollars. For example, to the extent that we need to convert
U.S. dollars into RMB for our operational needs and should RMB appreciate
against the U.S. dollar at that time, our financial position, the business of
the Company, 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 RMB, the U.S. dollar equivalent of our earnings from our
subsidiaries in China would be reduced.

You may have difficulty enforcing judgments against us.

10

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We are a New York holding company and most of our assets are
located outside of the United States. Most of our current operations are
conducted in the PRC. In addition, most of our directors and officers are
nationals and residents of countries other than the United States. A substantial
portion of the assets of these persons is located outside the United States. As
a result, it may be difficult for you to effect service of process within the
United States upon these persons. It may also be difficult for you to enforce in
U.S. courts judgments on the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, all of whom are not
residents in the United States and the substantial majority of whose assets are
located outside of the United States. In addition, there is uncertainty as to
whether the courts of the PRC would recognize or enforce judgments of U.S.
courts. Courts in China may recognize and enforce foreign judgments in
accordance with the requirements of the PRC Civil Procedures Law based on
treaties between China and the country where the judgment is made or on
reciprocity between jurisdictions. China does not have any treaties or other
arrangements that provide for the reciprocal recognition and enforcement of
foreign judgments within the United States. In addition, according to the PRC
Civil Procedures Law, courts in the PRC will not enforce a foreign judgment
against us or our directors and officers if they decide that the judgment
violates basic principles of PRC law or national sovereignty, security or the
public interest. So it is uncertain whether a PRC court would enforce a judgment
rendered by a court in the United States.

RISKS RELATED TO THE MARKET FOR OUR STOCK

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

Our common stock is quoted on the OTCBB. The OTCBB is a
significantly more limited market than the New York Stock Exchange or Nasdaq
system. The quotation of our shares on the OTCBB may result in a less liquid
market available for existing and potential stockholders to trade shares of our
common stock, 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.

We are subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common
stock.

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. Our common stock is considered as a penny stock and we
are 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.

For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in 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.

Our controlling stockholder, Wei Wang, holds a
significant percentage of our outstanding voting securities and accordingly may
make decisions regarding our daily operations, significant corporate
transactions and other matters that other stockholders may believe are not in
their best interests.

Ms. Wei Wang, our Director, is the beneficial owner of
approximately 80.81% of our outstanding voting securities. As a result, she
possesses significant influence over the election of our Board of Directors and
significant corporate transactions. Her ownership may also have the effect of
delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer. Other stockholders may believe that these
future decisions made by Ms. Wang are not in their best interests.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2. PROPERTIES

All land in China is owned by the State or collectives.
Individuals and companies are permitted to acquire rights to use land or land
use rights for specific purposes. In the case of land used for industrial
purposes, the land use rights are granted for a period of 50 years. This period
may be renewed at the expiration of the initial and any subsequent terms
according to the relevant Chinese laws. Granted land use rights are transferable
and may be used as security for borrowings and other obligations.

Our executive offices are located at 8/F East Area, Century
Golden Resources Business Center, 69 Bangjing Road, Haidian District, Beijing,
Peoples Republic of China 100089. Our executive offices consist of
approximately 130 square meters consisting entirely of administrative office
space. This lease expired on December 31, 2005 and we continue to rent this
property on a month-to-month basis.

We believe that all our properties have been adequately
maintained, are generally in good condition, and are suitable and adequate for
our business.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. (REMOVED AND RESERVED)

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted and traded from time to time on the
OTCBB under the symbol CGYG. The CUSIP number is 16942Q109. The transfer agent
of our common stock is Securities Transfer Corporation whose address is at 2591
Dallas Parkway, Suite 102 Frisco, TX 75034, (469) 633-0101.

The following table sets forth, for the periods indicated, the
high and low bid prices for the common stock. The
prices reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.

|                             |   | Closing Prices (1) | 
|---------------------------- | - | ------------------ | 
|                             |   | High               | 
|                             |   |                    | 
|Year Ended December 31, 2010 |   |                    | 
|                             |   |                    | 
|1stQuarter                   | $ | 0.25               | 
|2ndQuarter                   | $ | 0.25               | 
|3rdQuarter                   | $ | 0.20               | 
|4thQuarter                   | $ | 0.20               | 
|                             |   |                    | 
|Year Ended December 31, 2009 |   |                    | 
|                             |   |                    | 
|1stQuarter                   | $ | 0.25               | 
|2ndQuarter                   | $ | 0.25               | 
|3rdQuarter                   | $ | 0.25               | 
|4thQuarter                   | $ | 0.25               | 

___________________(1)The above tables set forth the range
of high and low closing bid prices per share of our common stock as reported by
www.quotemedia.com for the periods indicated.

Holders

On April 14, 2011, there were approximately 306 stockholders of
record of our common stock. This number excludes the shares of our common stock
owned by stockholders holding stock under nominee security position holdings.

Dividends

We have not paid any cash dividends with respect to our common
stock in the last two fiscal years. We presently intend to retain future
earnings to finance our development and expansion and therefore do not
anticipate the payment of any cash dividends in the foreseeable future. Payment
of future dividends, if any, will depend upon our future earnings and capital
requirements and other factors that our board of directors considers
appropriate.

Securities Authorized for Issuance under Equity
Compensation Plans

|Plan category                                                | Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights | Weighted-average exercise price of outstanding options,
      warrants and rights | Number
      of securities remaining available for future issuance
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------
|Equity compensation plans approved by
      security holders | -                                                                                                       | -                                                                                 | 0                                                                 
|Equity compensation plans not approved by security holders   | 2,000,000                                                                                               | $1.75                                                                             | 20,000,000                                                        
|Total                                                        | 2,000,000                                                                                               | -                                                                                 | 20,000,000                                                        

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ITEM 6. SELECTED FINANCIAL DATA

Not Applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

This subsection of MD&A is an overview of the important
factors that management focuses on in evaluating our businesses, financial
condition and operating performance, our overall business strategy and our
earnings for the periods covered.

General

We are a holding company that only operates through our
indirect Chinese subsidiaries. Through our Chinese subsidiaries, we develop and
manufacture SOD in China, with a wide range of applications, especially in
foods, medicines and cosmetic products. We plan to market, sell and service our
products nationally through a combination of company-owned offices and
independent sales agents. Currently we have two sales offices, one located in
Chengdu, and the other located in Chongqing, and we plan to establish agents in
additional offices across China. We have targeted our approach to meet local
market conditions which we believe provides the best possible products for our
customers throughout China. In recent years, more and more people are choosing
to eat or drink healthier foods and beverages.

Industry Wide Factors that are Relevant to Our
Business

We expect several key demographic, healthcare, and lifestyle
trends to drive the growth of our business in the coming future:

- Increased Focus on Healthy Living: Our management believes that as
  China becomes more affluent, its citizens are becoming more health conscious.
  They are leading more active lifestyles and becoming increasingly focused on
  healthy living, nutrition, and supplementation. According to the Nutrition
  Business Journal, a higher percentage of todays global population is
  involved to some degree in health and wellness than a few years ago. We
  believe that growth in the health supplements industry will continue to be
  driven by consumers who increasingly embrace health and wellness as a critical
  part of their lifestyles.
- Aging Population: According to the U.S. Census Bureau, by 2025
  Chinas population age 60 and above is expected to reach 290 million. We
  believe that these consumers are significantly more likely to use health
  supplements than younger persons and have higher levels of disposable income
  to pursue healthy lifestyles.
- Rising Healthcare Costs and Use of Preventive Measures: Healthcare
  related costs have increased substantially in China. To reduce medical costs
  and avoid the complexities of dealing with the healthcare system, and given
  increasing incidence of medical problems and concern over the use and effects
  of prescription drugs, many consumers take preventive measures, including
  alternative medicines and nutritional supplements.
- Food and Beverage Security:Since 2007, food and beverage security
  has become more important to PRC regulators. The PRC government regulates and
  enforces strict food and beverage testing procedures and we are required to
  obtain licenses for the sale of any new food and beverage products from the
  relevant authorities.We currently sell SOD products (SOD WINE) for
  manufacturing food, and we have already obtained both the Food Hygiene License
  issued by the Chongqing AOH and the Food Production License issued by the
  local AQSIQ. We also plan to produce and sell SOD medicines and skin care
  products, and we have applied for the Pharmaceutical Producer License from the
  provincial AOH and the approval from the provincial State Food and Drug
  Administration, or SFDA. It will take more than half year to get the license
  from AOH and the approval from SFDA for us to sell SOD medicines and skin care
  products.

Weaknesses and Uncertainties that Affect our Financial
Condition

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We face certain challenges and risks that may affect our
financial condition. In recent years, low quality products and false
advertisements have given the Chinese cosmetic and health products market a bad
reputation. Consumers are often suspicious of the effects of cosmetics and
health products. Some consumers think that these products cannot induce
substantial beautification or health improvements, while others think these
products may actually be harmful. In a market where efficient and inefficient
markets are mixed up, and consumers have a distrust of the market, we will keep
up our research and development of products, while strengthening our quality
control at the same time. Based on our past high quality control, we believe
that the reputation of our products will be strong.

Results of Operations

We are a development stage company. We have only generated
limited revenues from our operations since our inception. Before November 12,
2007, we had limited operations and our purpose was to acquire an operating
business or the valuable assets of an unidentified company. As a result of the
acquisition of Top Time, we changed our business to the development, manufacture
and sale of SOD products.

Fiscal Year Ended December 31, 2010 Compared to December 31,
2009

The following table summarizes the results of our operations
during the fiscal years ended December 31, 2010 and 2009 and provides
information regarding the dollar and percentage increase or (decrease) from the
2009 fiscal year to the 2010 fiscal year.

|Line Item          |   | December 31, 2010 |   |   | December 31, 2009 |   |   | Increase (Decrease) |   |  | Percentage Increase (Decrease) |   
|------------------ | - | ----------------- | - | - | ----------------- | - | - | ------------------- | - |  | ------------------------------ | --
|Revenues           | $ | 8,582             |   | $ | 57,878            |   | $ | (49,296             | ) |  | (85.17                         | )%
|Cost of Sales      | $ | 5,474             |   | $ | 52,465            |   | $ | (46,991             | ) |  | (89.57                         | )%
|Operating Expenses | $ | 440,582           |   | $ | 649,201           |   | $ | (208,619            | ) |  | (32.13                         | )%
|Income Taxes       | $ | -                 |   | $ | -                 |   | $ | -                   |   |  | -                              |   
|Net (Loss)         | $ | (373,053          | ) | $ | (493,512          | ) | $ | (120,459            | ) |  | (24.41                         | )%

Revenue

Our revenues are derived primarily from sales of our SOD
products. Our revenues in fiscal year 2010 amounted to $8,582, which is $49,296
or approximately 85.17% less than that of fiscal year 2009, when we had revenues
of $57,878. The decrease in revenues was attributable to the sales of SOD
products decreased during the fiscal years ended December 31, 2010 due to the
relocation of our Chongqing SOD facilities. During the first quarter 2010, our
main SOD manufacturing facilities located in Chongqing SOD were required to
locate to another location due to the newly adopted city planning of Chongqing
government. As a result, Chongqing SODs daily operations were suspended until
the new manufacturing facilities become available and our revenues, cost of
revenues and operating expenses decreased compared with 2009. We expect that our
SOD production will resume by the end of 2011.

Cost of Sales

Our cost of revenues is primarily comprised of the costs of our
raw materials, labor and overhead. Our cost of sales in fiscal years 2010 and
2009 was $5,474 and $52,465, respectively, which accounts for approximately
63.78% and 91%, respectively, as a percentage of total revenues. The dollar
amount of the cost of sales decreased was a result of suspension of the
operations of Chongqing SOD.

Gross Profit

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Our gross profit decreased by $2,305, or 42.58%, to $3,108 in
fiscal year 2010 from $5,413 in 2009. Gross profit as a percentage of revenues
was 36.22% in fiscal year 2010, an increase of 26.86% from 9.35% in 2009.

Operating Expenses

Our operating expenses for the fiscal year ended December 31,
2010 were $440,582, as compared to $649,201 for 2009. This decrease of $208,619
or 32.13% is primarily the result of many necessary operating expenses saved due
to the suspension of the operations Chongqing SOD  during the fiscal year 2010.

Income taxes

We are currently subject to income taxes according to
applicable tax laws in the PRC. The tax rates are 25% for both Beijing SOD and
Chongqing SOD.

On March 16, 2007, the National Peoples Congress of China
passed the new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007,
the State Council of China passed the Implementing Rules for the EIT Law, or
Implementing Rules, which took effect on January 1, 2008. The EIT Law and
Implementing Rules impose a unified EIT of 25.0% on all domestic-invested
enterprises and foreign invested entities, or FIEs, unless they qualify under
certain limited exceptions. Therefore, nearly all FIEs are subject to the new
tax rate alongside other domestic businesses rather than benefiting from the
FEIT, and its associated preferential tax treatments, beginning January 1, 2008.

Despite these changes, the EIT Law gives the FIEs established
before March 16, 2007, or Old FIEs, a five-year grandfather period during which
they can continue to enjoy their existing preferential tax treatments. During
this five-year grandfather period, the Old FIEs which enjoyed tax rates lower
than 25% under the original EIT Law shall gradually increase their EIT rate
within 5 years until the tax rate reaches 25%. In addition, the Old FIEs that
are eligible for the two-year exemption and three-year half reduction or
five-year exemption and five-year half-reduction under the original EIT Law,
are allowed to remain to enjoy their preference until these holidays expire. The
discontinuation of any such special or preferential tax treatment or other
incentives would have an adverse effect on the Companys business, fiscal
condition and current operations in China.

In addition to the changes to the current tax structure, under
the EIT Law, an enterprise established outside of China with de facto
management bodies within China is considered a resident enterprise and will
normally be subject to an EIT of 25.0% on its global income. The Implementing
Rules define the term de facto management bodies as an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise. If the PRC tax
authorities subsequently determine that we should be classified as a resident
enterprise, then the organizations global income will be subject to PRC income
tax of 25.0% .

We incurred no income taxes in either 2010 or 2009.

Net Income.

As a result of the factors described above, our net loss
decreased $120,459, or 24.41%, to $(373,053) for the year ended December 31,
2010, from $(493,512) for 2009.

Liquidity and Capital Resources

General

As of December 31, 2010, we had cash and cash equivalents of
approximately $19,554. The following table provides detailed information about
our net cash flow for all financial statement periods presented in this report.

16

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Cash Flow

|                                                          |   | For the Fiscal Year Ended
      December 31, |  
|--------------------------------------------------------- | - | -------------------------------------------- | -
|                                                          |   | 2010                                         |  
|Net cash provided by (used in) operating
      activities | $ | (332,878                                     | )
|Net cash provided by investing activities                 |   | 318,400                                      |  
|Net cash provided by (used in) financing
      activities |   | -                                            |  
|Net cash flow                                             |   | (6,578                                       | )

Operating Activities

Net cash used in operating activities was $332,878 for the
fiscal year ended December 31, 2010, which is a decrease of $136,350 from
$469,228 net cash used in operating activities for 2009. The decrease of the
cash used in operating activities was mainly attributed to the fact that daily
operations of Chongqing SOD were suspended and the related cash used in
operations was reduced accordingly.

Investing Activities

Our primary uses of cash for investing activities are payments
for the acquisition of property, plant and equipment.

Net cash provided by investing activities for the fiscal year
ended December 31, 2010 was $318,440, which is a decrease of $39,524 from net
cash provided by investing activities of $357,924 for 2009. The decrease in the
net cash provided by investing activities was mainly due to the fact that the
redemption from the short term investment for the fiscal years ended December
31, 2010 was less than 2009.

Financing Activities

Net cash provided by financing activities for the fiscal year
ended December 31, 2010 was $0, while in 2009 we had $75,480 net cash provided
by financing activities.

On January 29, 2004, we entered into a subscription agreement
with Qiang Long Real Estate Development Co., Ltd., or Qiang Long, a PRC company,
pursuant to which, as amended and supplemented from time to time, Qiang Long was
obligated to purchase 140,000,000 shares of our common stock, par value $0.01 at
an aggregate purchase price of US$29,400,000, or $0.21 per share. An amount
equaling US$653,795 was paid to us as a performance bond and an additional
US$632,911 was paid to us in 2006 in exchange for 3,013,862 shares. The balance
of US$28,113,294 was to be paid in full by June 30, 2007, for the remaining
136,986,138 shares. On June 29, 2007, we consummated our obligations under the
contract, pursuant to a letter agreement between the Company and Qiang Long.
Pursuant to the letter agreement, we acknowledged our receipt of the final
payment in cash from Qiang Long as fulfillment of Qiang Longs investment
obligation, and agreed to issue 50,000,000 shares to Qiang Long on or before
July 23, 2007, and the remaining 86,986,138 shares within fifteen (15) business
days following the effective date of an amendment to our Certificate of
Incorporation to effect a one-for-twenty reverse split of our outstanding common
stock, which will be equal to 4,349,307 shares post-reverse split.

The consummation of the Qiang Long investment obligation
resulted in net cash inflows of approximately $28.1 million. As a result of the
Qiang Long funding, we believe that we have enough capital to sustain our
operations at our current levels through at least the next twelve months.
However, depending on our future needs and changes and trends in the capital
markets affecting our shares and the Company, we may determine to seek
additional equity or debt financing in the private or public markets.

The Company did not have any bank loans as of December 31,
2010.

17

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Critical Accounting Policies

Economic and Political Risks

The Company faces a number of risks and challenges as a result
of having primary operations and marketing in the PRC. Changing political
climates in the PRC could have a significant effect on the Companys business.

Foreign Currencies

The company has determined that RMB to be its functional
currency. The accompanying consolidated financial statements are presented in
U.S. dollars. The consolidation financial statements are translated into US
dollars from RMB at year-end exchange rates for assets and liabilities, and
weighted average exchange rates for revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.

|                                                                                                   |  | December 31, | 
|-------------------------------------------------------------------------------------------------- |  | ------------ | 
|                                                                                                   |  | 2010         | 
|                                                                                                   |  | RMB          | 
|Balance sheet items, except for equity
      accounts                                              |  | 6.6227       | 
|                                                                                                   |  |              | 
|Items in the statements of income and
      comprehensive income, and the statements of cash flows |  | 6.7704       | 

Use of Estimates

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

Significant Estimates

Several areas require significant management estimates relating
to uncertainties for which it is reasonably possible that there will be a
material change in the near term. The more significant areas requiring the use
of management estimates related to property and equipment, accrued liabilities
and, the useful lives for depreciation.

Restrictions on Transfer of Assets Out of the PRC

Dividend payments by Beijing SOD are limited by certain
statutory regulations in the PRC. No dividends may be paid by Beijing SOD
without first receiving prior approval from the Foreign Currency Exchange
Management Bureau. Dividend payments are restricted to 85% of profits, after
tax.

Revenue Recognition

The Company recognizes revenue in accordance with Staff
Accounting Bulletin No.104 Revenue recognition (ASC Topic 605). Revenues are
recognized as earned when the following four criteria are met: (1) a customer
issues purchase orders or otherwise agrees to purchase products; (2) products
are delivered to the customer; (3) pricing is fixed or determined in accordance
with the purchase order or agreement; and (4) collectability is reasonably
assured.

New Accounting Pronouncements

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No.
162), which will become the source of authoritative accounting principles
generally accepted in the United States recognized by the FASB to be applied to
nongovernmental entities. The Codification is effective in the third quarter of
2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending
September 30, 2009 and all subsequent public filings will reference the
Codification as the sole source of authoritative literature. The Company does
not believe that this will have a material effect on its consolidated financial
statements.

In June 2009, the FASB issued ASC 855 (previously SFAS No. 165,
Subsequent Events), which establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before the
financial statements are issued or available to be issued. It is effective for
interim and annual periods ending after June 15, 2009. There was no material
impact upon the adoption of this standard on the Companys consolidated
financial statements.

18

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SFAS No. 141 (Revised) (ASC Topic 805), Business Combinations.
SFAS No. 141R broadens the guidance of SFAS No. 141, extending its applicability
to all transactions and other events in which one entity obtains control over
one or more other businesses. It broadens the fair value measurement and
recognition of assets acquired, liabilities assumed, and interests transferred
as a result of business combinations. SFAS No. 141R expands on required
disclosures to improve the statement users abilities to evaluate the nature and
financial effects of business combinations.

SFAS No. 160 (ASC Topic 810), Non-controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51. SFAS No. 160
requires that ownership interests in subsidiaries held by parties other than the
parent are to be included in the equity section of the balance sheet, but apart
from the parent's equity. All changes in the parent's ownership interest in a
subsidiary are to be accounted for as equity transactions. Any retained
non-controlling equity interest in a deconsolidated subsidiary is to be
initially measured at fair value, with any gain or loss on consolidation
measured using this fair value.

In October 2009, the FASB concurrently issued the following ASC
Updates (ASU), ASU No. 2009-13Revenue Recognition (ASC Topic 605):
Multiple-Deliverable Revenue Arrangements (formerly EITF Issue No. 08-1). ASU
No. 2009-13 modifies the revenue recognition guidance for arrangements that
involve the delivery of multiple elements, such as product, software, services
or support, to a customer at different times as part of a single revenue
generating transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the individual
deliverables should be separated and how to allocate the revenue in the
arrangement among those separate deliverables. The standard also expands the
disclosure requirements for multiple deliverable revenue arrangements.

In January 2010, the FASB issued Accounting Standards Update
No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends
ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2,
separate disclosures of purchases, sales, issuances, and settlements relating to
Level 3 measurements and clarification of existing fair value disclosures. ASU
2010-06 is effective for interim and annual periods beginning after December 15,
2009, except for the requirement to provide Level 3 activity of purchases,
sales, issuances, and settlements on a gross basis, which will be effective for
fiscal years beginning after December 15, 2010; early adoption is permitted. The
Company is currently evaluating the impact of adopting ASU 2009-14 on its
financial statements.

In January 2010, the FASB issued the following ASC Updates, ASU
No. 2010-02Consolidation (Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary. This Update amends ASC 810 subtopic 10 and related
guidance to clarify that the scope of the decrease in ownership provisions of
the Subtopic and related guidance applies to (i) a subsidiary or group of assets
that is a business or nonprofit activity; (ii) a subsidiary that is a business
or nonprofit activity that is transferred to an equity method investee or joint
venture; and (iii) an exchange of a group of assets that constitutes a business
or nonprofit activity for a non-controlling interest in an entity, but does not
apply to: (i) sales of in substance real estate; and (ii) conveyances of
petroleum and gas mineral rights. The amendments in this Update are effective
beginning in the period that an entity adopts FAS 160 (now included in ASC 810
subtopic 10).

Inflation

Inflation does not materially affect our business or the
results of our operations.

Seasonality

We may experience seasonal variations in our future revenues
and our operating costs, however, we do not believe that these variations will
be material.

Off-Balance Sheet Arrangements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The full text of our audited consolidated financial statements
as of December 31, 2010 and 2009 begins on page F-1 of this Report.

19

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and
Procedures

Our management, with the participation of our chief executive
officer and chief financial officer, Ms. Jie Chen and Mr. Xinmin Pan,
respectively, evaluated the effectiveness of our disclosure controls and
procedures. The term disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports, such as this report, that it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, Ms. Chen and Mr. Pan concluded that as of December 31,
2010, our disclosure controls and procedures were effective at the reasonable
assurance level.

(b) Managements annual report on internal control over
financial reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal
control over financial reporting refers to the process designed by, or under the
supervision of, our chief executive officer and chief financial officer, and
effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with
U.S. GAAP, and includes those policies and procedures that:

|(1) | pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      our assets;                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                  
|(2) | provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with U.S. GAAP, and that our receipts and expenditures are
      being made only in accordance with the authorization of our management and
      directors; and
|    |                                                                                                                                                                                                                                                                                                                  
|(3) | provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of our
      assets that could have a material effect on the financial
    statements.                                                                                               

Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010. In making this assessment,
management used the framework set forth in the report entitled Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on that evaluation, our management concluded that
our internal control over financial reporting is effective, as of December 31,
2010.

(c) Changes in internal control over financial
reporting

There were no changes in our internal controls over financial
reporting during the fourth quarter of our fiscal year ended December 31, 2010,
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

20

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers

The following sets forth the name and position of each of our
current executive officers and directors:

|Name         | Age | Position                            
|------------ | --- | ------------------------------------
|Changde Li   | 55  | Chairman of the Board               
|Jie Chen     | 56  | Chief Executive Officer and Director
|Xinmin Pan   | 66  | Chief Financial Officer             
|Hui Chen     | 42  | Director                            
|Hongliang Li | 50  | Director                            
|Wei Wang     | 41  | Director                            

Changde Liwas appointed Chairman of the Board of
Directors on May 10, 2004. Mr. Li has also served as the President of our
subsidiary, Beijing SOD, since November 8, 2007 and the chairman of the Board of
Directors of our stockholder, Qiang Long, since 1993. During his tenure as
chairman, he has led the Company to develop many holiday villages, hotels and
business centers throughout China.

Jie Chen was appointed Chief Executive Officer of
the Company on September 22, 2006. Prior to her appointment, Ms. Chen served as
Vice President of Public Relations and has been a member of the Board of
Directors of the Company since February 2004. Upon being appointed as Chief
Executive Officer of the Company, Ms. Chen resigned from the office of Vice
President of Public Relations. Ms. Chen is the Vice Secretary of the Zhang
Xue-Liang Fund Association and has held such position and other positions with
such Association over the past five years. The Zhang Xue-Liang Fund Association
is in the business of arranging meetings, conferences and exhibitions. It also
provides public relations and investor relations support to its clients. Prior
to joining the Zhang Xue-Liang Fund Association, Ms. Chen held various key
positions with television stations and public relations companies in China. Ms.
Chen holds a Masters degree in International Finance from Beijing
University.

Xinmin Pan became the Companys Chief Financial
Officer on December 4, 2006. Prior to his appointment, Mr. Pan has worked as an
accountant with the Company since October 2006. Before joining the Company Mr.
Pan served as the General Accountant for ZhongFang Investment Holding Ltd. from
March 2006 to October 2006, as the Chief Financial Officer of the Beijing
JinLang Hotel from January 2002 to March 2006, as the Chief Financial Officer of
the Beijing Happy Holiday Hotel from January 2001 to January 2002, and as Chief
Accountant and Chair of the Financing Department of North China Jinghai Industry
Corporation, from November 1990 to January 2001.

Hui Chen was appointed to the Board of Directors
on and effective December 2, 2005. Since 1999, Mr. Chen has also served as the
Assistant General Manager of our stockholder, Qiang Long, a real estate
development and investment company. Mr. Chen graduated from Xian University of
Architecture and Technology in 1991.

Honliang Li became our director on May 10, 2004.
Prior to joining us, Mr. Li acted as vice general manager of Beijing JiuFa
Industry Ltd., a company engaged in commerce and trade, from 1994 to 2003 and
served as Assistant General Manager of one of our stockholders, China Cardinal
Limited, from 2003 to 2004. China Cardinal Limited is engaged in the business of
acting as an investment company.

Wei Wang became a director on November 12, 2007.
Ms. Wang has also served since 2005, as the Chairperson of China Cardinal
Limited, since January 2007. In addition, Ms. Wang has served as the Chairperson
of Daykeen and Top Time since 2006 and as the President and Chairperson of
Beijing SOD from January 2007 until November 8, 2007. Prior to joining our
Company, Ms. Wang served as a director of Manchuria Tianrui Investment Co., Ltd
from 1999 to 2005. Ms. Wang graduated from Saint Petersburg National Technology
University of Russia in 1998.

21

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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. Our current director holds no directorships in
any other reporting companies.

Board Composition and Committees

The board of directors is currently composed of five members,
Mr. Changde Li, Ms. Jie Chen, Mr. Hui Chen, Mr. Hongliang Li and Ms. Wei Wang.
All board action requires the approval of a majority of the directors in
attendance at a meeting at which a quorum is present.

We currently do not have standing audit, nominating or
compensation committees. Our entire board of directors handles the functions
that would otherwise be handled by each of the committees. We intend, however,
to establish an audit committee, a nominating committee and a compensation
committee of the board of directors as soon as practicable. We envision that the
audit committee will be primarily responsible for reviewing the services
performed by our independent auditors, evaluating our accounting policies and
our system of internal controls. The nominating committee would be primarily
responsible for nominating directors and setting policies and procedures for the
nomination of directors. The nominating committee would also be responsible for
overseeing the creation and implementation of our corporate governance policies
and procedures. The compensation committee will be primarily responsible for
reviewing and approving our salary and benefit policies (including stock
options), including compensation of executive officers.

None of our directors is an audit committee financial expert.
Upon the establishment of an audit committee, the board will determine whether
any of the directors qualify as an audit committee financial expert.

Family Relationships

There are no family relationships among our directors or
officers.

Section 16(A) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive
officers and persons holding more than 10% of our common stock must report their
initial ownership of the common stock, and any changes in that ownership, to the
SEC. The SEC has designated specific due dates for these reports. Based solely
on our review of copies of such reports filed with the SEC by and written
representations of our directors and executive offers, we believe that our
directors and executive offers filed the required reports on time in 2010 fiscal
year.

Involvement in Certain Legal Proceedings

To the best of our knowledge, 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. None
of the directors, director designees or executive officers to our knowledge has
been convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement.

Code of Ethics

On March 8, 2004, our board of directors adopted a code of
ethics that our principal financial officer, principal accounting officer or
controller and any person who may perform similar functions are subject to. A
copy of the code of ethics has been filed as Exhibit 14 to our Annual Report on
Form 10-KSB for the fiscal year ending December 31, 2003 filed on April 15,
2004.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table  2010 and 2009

The following table sets forth information concerning all
compensation awarded to, earned by or paid to Our Chief Executive Officer for
services rendered in all capacities during 2010 and 2009. No other executive
officers received total annual salary and bonus compensation in excess of
$100,000 in either fiscal year.

22

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Name and Principal Position
    Year
    Salary ($)
    Bonus ($)
    Total ($)Jie Chen, CEO and Director
    2010
    5,432
    N/A
    5,4322009
    5,270
    N/A
    5,270


Outstanding Equity Awards at Fiscal Year End

There was no unexercised option, stock that has not vested or
equity incentive plan award for any named executive officer as of December 31,
2010.

Additional Narrative Disclosure

We have an employment agreement with Mr. Xinmin Pan who became
our Chief Financial Officer in December 2006 after serving as our accountant
from October 2006 to December 2006. We are obligated to pay him an annual salary
of RMB 72,000, or $13,500. However, in 2007, we changed the employment agreement
with Mr. Pan to pay him an annual salary of RMB 36,000 or $4,732 due to our
limited revenue in the fiscal year 2007. We paid to Mr. Pan RMB 36,000 or $5,270
as his annual salary of the fiscal year 2009 and RMB 36,000 or $5,432 as his
annual salary of the fiscal year 2010.

We have a verbal understanding with our Chief Executive Officer
and Director, Jie Chen, regarding her annual salary of $5,270 and $5,432 for the
fiscal years 2009 and 2010, respectively.

Although we have a verbal understanding with our Chairman,
Chang-de Li regarding the payment to him of an annual salary in amount of
$107,692, Mr. Li did not receive any compensation in 2009 and 2010.

Compensation of Directors

There have been no fees earned or paid in cash for services to
our directors. No stock or stock options or other equity incentives were awarded
to our directors for their services as directors during the fiscal year ended
December 31, 2010. In the future, we may adopt a policy of paying independent
directors a fee for their attendance at board and committee meetings. However,
we do reimburse each director for reasonable travel expenses related to such
director's attendance at board of directors and committee meetings.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Security Ownership of Certain Beneficial
Owners

The following table sets forth information regarding beneficial
ownership of our common stock as of April 14, 2011 (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 China Longyi Group International Holdings Limited,
8B 8/F East Area, Century Golden Resources Business Center, 69 Banjing Road,
Haidian District, Beijing, and Peoples Republic of China 100097.



23

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|Title of Class               | Name & Address of
      Beneficial Owner                                   | Office, If Any | Amount &Nature of
      Beneficial Ownership(1) | Percent of
      Class(2)
|---------------------------- | -------------------------------------------------------------------------- | -------------- | ----------------------------------------------- | -------------------------
|Directors and
      Officers
|Common Stock                 | Chang-de Li No. 95 Kangxi Road Ba Da
      Xia Industrial Development Zone | Chairman       | 6,034,695 (3)                                   | 7.77%                    

Yanqing County, Beijing Peoples
      Republic of ChinaCommon Stock
    Jie Chen
    CEO and Director
    0
    *Common Stock
    Xinmin Pan
    CFO
    0
    *Common Stock
    Hui Chen
    Director
    0
    *Common Stock
    Hongling Li
    Director
    0
    *Common Stock
    Wei Wang
    Director
    62,750,000(4)
    80.81%Common Stock
    All officers and directors as a group (6
      persons named above)
    
    68,784,695
    88.58%5% Security
      holdersCommon Stock
    Daykeen Investment Limited 19th Floor,
      Beverly House, Nos. 93- 107 Lockhart Road, Wanchai, Hong Kong
    
    62,250,000(4)
    80.16%Common Stock
    Jolly Concept Management Limited 19th
      Floor, Beverly House, Nos. 93- 107 Lockhart Road, Wanchai, Hong
      Kong
    
    5,134,000(3)
    6.61%


* Less than 1%

|(1) | Beneficial ownership is determined in accordance with the
      rules of the SEC and generally includes voting or investment power with
      respect to securities.                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | A total of 77,655,862 shares of our common stock are
      considered to be issued and outstanding pursuant to SEC Rule 13d-3(d) (1)
      as of April 14, 2011. For each beneficial owner above, any options
      exercisable within 60 days have been included in the
denominator.                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) | Includes 750,001 shares owned by Beijing Qiang Long Real
      Estate Development Co. Ltd., or Qiang Long, 150,694 shares owned by
      Chinese Dragon Heritage Investment Management Limited, 5,134,000 shares
      owned by Jolly Concept Management Limited. Chang-de Li owns 100% of the
      equity interests of each of Beijing Qiang Long Real Estate Development
      Co., Ltd., Chinese Dragon Heritage Investment Management Limited and Jolly
      Concept Management Limited and exercises voting and investment power over
      the shares owned by each such entity.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | Includes 500,000 shares owned by China Cardinal Limited,
      or China Cardinal and 62, 250,000 shares owned by Daykeen Investment
      Limited. Wei Wang has controlling interests and exercises voting and
      investment power over the shares owned by China Cardinal and Daykeen
      Investment Limited.                                                                                                                                                                                                                                                                     

Changes in Control

There are no arrangements known to us, including any pledge by
any person of our securities, the operation of which may at a subsequent date
result in a change in control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

The following includes a summary of transactions since the
beginning of the 2009 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 three 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).

24

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During the six months ended June 30, 2007, Top Time loaned
money to its shareholder, Guo Qing Tan. The loan bears no interest and does not
have fixed repayment terms. Mr. Tan paid off the loan entirely during the year
of 2009 and the balance of the loan was $0 as of December 31, 2009.

Promoters and Certain Persons

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

Director Independence

Our Board is currently composed of five members, none of whom
are independent directors, as that term is defined under the NASDAQ listing
standards. All actions of the board of directors require the approval of a
majority of the directors in attendance at a meeting at which a quorum is
present. Our directors have a duty of to act in good faith with a view to our
interests. In fulfilling their duty of care to us, our directors must ensure
compliance with our Certificate of Incorporation, as amended and our Bylaws.
Board action requires the approval of a majority of the directors in attendance
at a meeting at which a quorum is present.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Auditors Fees

The following table represents fees billed for 2010 and 2009
for professional audit services rendered by Bernstein & Pinchuk LLP:

|                      |   | 2010  |  |   | 2009   | 
|--------------------- | - | ----- |  | - | ------ | 
|                      |   |       |  |   |        | 
|Audit fees(1)         | $ | 0     |  | $ | 60,000 | 
|Audit-related fees(2) |   | 7,500 |  |   | 38,585 | 
|Tax fees              |   | 0     |  |   | 0      | 
|All other fees        |   | 0     |  |   | 0      | 
|Total                 |   | 7,500 |  |   | 98,585 | 

The following table represents fees billed for 2010 and 2009
for professional audit services rendered by Stan J.H. Lee, CPA:

|                      |   | 2010   |  |   | 2009 | 
|--------------------- | - | ------ |  | - | ---- | 
|                      |   |        |  |   |      | 
|Audit fees(1)         | $ | 50,000 |  | $ | 0    | 
|Audit-related fees(2) |   | 10,000 |  |   | 0    | 
|Tax fees              |   | 0      |  |   | 0    | 
|All other fees        |   | 0      |  |   | 0    | 
|Total                 |   | 60,000 |  |   | 0    | 

|(1) | Audit Fees consisted of the aggregate fees billed for
      professional services rendered for the audit of our annual financial
      statements and the reviews of the financial statements included in our
      Forms 10-Q and for any other services that were normally provided in
      connection with our statutory and regulatory filings or
  engagements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                        
|(2) | Audit Related Fees consisted of the aggregate fees
      billed for professional services rendered for assurance and related
      services that were reasonably related to the performance of the audit or
      review of our financial statements and were not otherwise included in
      Audit Fees.                                                            

25

---

On July 1, 2010 we dismissed Bernstein & Pinchuk LLP as its
independent registered public accounting firm. The decision to change our
principal accountants was made by the Board of Directors. On July 1, 2010, the
Board of Directors engaged Stan J.H. Lee, CPA as our new independent registered
public accounting firm.

Bernstein & Pinchuk LLPs reports on the Companys
financial statements as of and for the fiscal years ended December 31, 2009 and
2008 did not contain an adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting
principles.

During the Companys two fiscal years ended December 31, 2009
and 2008 and during the subsequent interim period through July 1, 2010, there
were (1) no disagreements with Bernstein & Pinchuk LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Bernstein & Pinchuk LLP, would have caused Bernstein & Pinchuk LLP to
make reference to the subject matter of the disagreements in connection with its
reports, and (2) no events of the type listed in paragraphs (A) through (D) of
Item 304(a)(1)(v) of Regulation S-K.

We have requested and received from Bernstein & Pinchuk LLP
a letter, dated November 3, 2010, addressed to the Securities and Exchange
Commission stating whether or not Bernstein & Pinchuk LLP agrees with the
above statements. A copy of this letter was attached as Exhibit 16.1 to the
Companys Form 8-K filed on November 3, 2010.

During the Companys two fiscal years ended December 31, 2009
and 2008 and through the subsequent interim period to July 1, 2010, the Company
did not consult Stan J.H. Lee, CPA with respect to (a) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Companys
consolidated financial statements, and neither a written report was provided to
the Company or oral advice was provided that Stan J.H. Lee, CPA concluded was an
important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue; or (b) any matter that was
the subject of either a disagreement as defined in Item 304(a)(1)(iv) of
Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of
Regulation S-K.

Pre-Approval Policies and Procedures

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit
services performed by our auditors must be approved in advance by our Board to
assure that such services do not impair the auditors independence from us. In
accordance with its policies and procedures, our Board pre-approved the audit
and non-audit service performed by Stan J.H. Lee, CPA for our consolidated
financial statements as of and for the year ended December 31, 2010.

26

---

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES

(a) The following documents are filed as part of this
report:

(1) Financial Statements are set forth
beginning on page F-1 of the Report

| |  | Report of Independent
      Registered Public Accounting Firm               | F-2
| | - | --------------------------------------------------------------------------- | ---
| |  | Consolidated Balance Sheets                                                 | F-4
| |  | Consolidated Statements of
      Operations and Comprehensive Income (Loss) | F-5
| |  | Consolidated Statements of Cash Flows                                       | F-6
| |  | Consolidated Statements of
      Changes in Stockholders Equity (Deficit)  | F-7
| |  | Notes to Consolidated Financial Statements                                  | F-8

(2) Financial Statement Schedules: All
Schedules are omitted because the information called for is not applicable, is
not required, or because the financial information is set forth in the financial
statements or notes thereto.

(3) Exhibits

Exhibits (including those incorporated by reference).

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

|Exhibit Number | Description                                                                                                                                                                                                                                                                                    
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                
|*3.1           | Certificate of Incorporation of the Company [Incorporated
      by reference to Exhibit 3.1 of the Form 10-KSB filed on April 15, 2002 in
      Commission file number 0-30183]                                                                                                                
|               |                                                                                                                                                                                                                                                                                                
|*3.2           | Certificate of Amendment of Certificate of Incorporation
      of the Company [Incorporated by reference to Appendix A of the Definitive
      Proxy Statement of the Company filed on July 3, 2001 in Commission file
      number 0-30183]                                                   
|               |                                                                                                                                                                                                                                                                                                
|*3.3           | Amended and Restated Bylaws of the Company [Incorporated
      by reference to Exhibit 3.3 of the Form 10-KSB filed on April 15, 2002 in
      Commission file number 0-30183 in Commission file number 0-30183]                                                                               
|               |                                                                                                                                                                                                                                                                                                
|*3.4           | Certificate of Amendment of Certificate of Incorporation
      of the Company filed with the Secretary of State of the State of New York
      on October 16, 2007 [Incorporated by reference to Exhibit 3.4 of the Form
      8-K filed on December 5, 2007 in Commission file number 0-30183]
|               |                                                                                                                                                                                                                                                                                                
|*10.1          | Employment Agreement, dated June 1, 2007, by and between
      Beijing SOD and Wei Wang. [Incorporated by reference to Exhibit 10.5of the
      Form 8-K/A filed on December 5, 2007 in Commission file number 0-30183]                                                                        
|               |                                                                                                                                                                                                                                                                                                
|*10.2          | Equity Transfer Agreement, dated December 22, 2006, by
      and between Beijing Qiang Long and Top Time. [Incorporated by reference to
      Exhibit 10.6 of the Form 8-K/A filed on December 5, 2007 in Commission
      file number 0-30183]                                                
|               |                                                                                                                                                                                                                                                                                                
|*10.3          | Loan Agreement, dated December 22, 2006, by and between
      Top Time and Daykeen. [Incorporated by reference to Exhibit 10.7of the
      Form 8-K/A filed on December 5, 2007 in Commission file number 0-30183]                                                                             

27

---

|Exhibit Number | Description                                                                                                                                                                                                   
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                               
|*10.4          | Agreement, dated December 27, 2006, by and between Top
      Time and Daykeen. [Incorporated by reference to Exhibit 10.8 of the Form
      8-K/A filed on December 5, 2007 in Commission file number 0-30183]
|               |                                                                                                                                                                                                               
|*14            | Code of Ethics [incorporated by reference to Exhibit 14
      of the Annual Report on Form 10- KSB of the Company for the fiscal year
      ended December 31, 2003]                                          
|               |                                                                                                                                                                                                               
|21             | A description of the subsidiaries of the registrant.                                                                                                                                                          
|               |                                                                                                                                                                                                               
|31.1           | Certification of Principal Executive Officer filed
      pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.                                                                                          
|               |                                                                                                                                                                                                               
|31.2           | Certification of Principal Financial Officer filed
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                           
|               |                                                                                                                                                                                                               
|32.1           | Certifications of Principal Executive Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.                                 
|               |                                                                                                                                                                                                               
|32.2           | Certifications of Principal Financial Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.                                 

* Incorporated by reference as indicated.

28

---

SIGNATURES

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

CHINA LONGYI GROUP INTERNATIONAL
HOLDINGS LIMITED

By: /s/ Jie
ChenJie Chen Chief Executive Officer

Date: April 15, 2011

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company in the capacities and on the dates indicated.

Each person whose signature appears below hereby authorizes Jie
Chen and Xinmin Pan, or any of them, as attorneys-in-fact to sign on his behalf,
individually, and in each capacity stated below, and to file all amendments
and/or supplements to this annual report on Form 10-K.

|SIGNATURE       |  | CAPACITY                             |  | DATE          
|--------------- |  | ------------------------------------ |  | --------------
|                |  |                                      |  |               
|/s/Chang-de Li  |  | Chairman                             |  |               
|Chang-de Li     |  |                                      |  | April 15, 2011
|                |  |                                      |  |               
|/s/Jie Chen     |  | Chief Executive Officer and Director |  |               
|Jie Chen        |  |                                      |  | April 15, 2011
|                |  |                                      |  |               
|/s/Xinmin Pan   |  | Chief Financial Officer              |  |               
|Xinmin Pan      |  |                                      |  | April 15, 2011
|                |  |                                      |  |               
|/s/Hui Chen     |  | Director                             |  |               
|Hui Chen        |  |                                      |  | April 15, 2011
|                |  |                                      |  |               
|/s/Hongliang Li |  | Director                             |  |               
|Hongliang Li    |  |                                      |  | April 15, 2011
|                |  |                                      |  |               
|/s/Wei Wang     |  | Director                             |  |               
|Wei Wang        |  |                                      |  | April 15, 2011

---

EXHIBITS

|Exhibit Number | Description                                                                                                                                                                                                                                                                                          
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                      
|*3.1           | Certificate of Incorporation of
      the Company [Incorporated by reference to Exhibit 3.1 of the Form 10-KSB
      filed on April 15, 2002 in Commission file number 0-30183]                                                                                                                      
|               |                                                                                                                                                                                                                                                                                                      
|*3.2           | Certificate of Amendment of
      Certificate of Incorporation of the Company [Incorporated by reference to
      Appendix A of the Definitive Proxy Statement of the Company filed on July
      3, 2001 in Commission file number 0-30183]                                                         
|               |                                                                                                                                                                                                                                                                                                      
|*3.3           | Amended and Restated Bylaws of
      the Company [Incorporated by reference to Exhibit 3.3 of the Form 10-KSB
      filed on April 15, 2002 in Commission file number 0-30183 in Commission
      file number 0-30183]                                                                               
|               |                                                                                                                                                                                                                                                                                                      
|*3.4           | Certificate of Amendment of
      Certificate of Incorporation of the Company filed with the Secretary of
      State of the State of New York on October 16, 2007 [Incorporated by
      reference to Exhibit 3.4 of the Form 8-K filed on December 5, 2007 in
      Commission file number 0-30183]
|               |                                                                                                                                                                                                                                                                                                      
|*10.1          | Employment Agreement, dated
      June 1, 2007, by and between Beijing SOD and Wei Wang. [Incorporated by
      reference to Exhibit 10.5of the Form 8-K/A filed on December 5, 2007 in
      Commission file number 0-30183]                                                                        
|               |                                                                                                                                                                                                                                                                                                      
|*10.2          | Equity Transfer Agreement,
      dated December 22, 2006, by and between Beijing Qiang Long and Top Time.
      [Incorporated by reference to Exhibit 10.6 of the Form 8-K/A filed on
      December 5, 2007 in Commission file number 0-30183]                                                      
|               |                                                                                                                                                                                                                                                                                                      
|*10.3          | Loan Agreement, dated December
      22, 2006, by and between Top Time and Daykeen. [Incorporated by reference
      to Exhibit 10.7of the Form 8-K/A filed on December 5, 2007 in Commission
      file number 0-30183]                                                                             
|               |                                                                                                                                                                                                                                                                                                      
|*10.4          | Agreement, dated December 27,
      2006, by and between Top Time and Daykeen. [Incorporated by reference to
      Exhibit 10.8 of the Form 8-K/A filed on December 5, 2007 in Commission
      file number 0-30183]                                                                                 
|               |                                                                                                                                                                                                                                                                                                      
|*14            | Code of Ethics [incorporated by
      reference to Exhibit 14 of the Annual Report on Form 10- KSB of the
      Company for the fiscal year ended December 31, 2003]                                                                                                                                 
|               |                                                                                                                                                                                                                                                                                                      
|21             | A description of the
      subsidiaries of the registrant.                                                                                                                                                                                                                                           
|               |                                                                                                                                                                                                                                                                                                      
|31.1           | Certification of Principal
      Executive Officer filed pursuant to Section 302 of the Sarbanes- Oxley Act
      of 2002.                                                                                                                                                                           
|               |                                                                                                                                                                                                                                                                                                      
|31.2           | Certification of Principal
      Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.                                                                                                                                                                            
|               |                                                                                                                                                                                                                                                                                                      
|32.1           | Certifications of Principal
      Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        
|               |                                                                                                                                                                                                                                                                                                      
|32.2           | Certifications of Principal
      Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        

* Incorporated by reference as indicated.

---

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED (A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 and 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                            | PAGE
|--------------------------------------------------------------------------- | ----
|REPORT OF INDEPENDENT REGISTERED PUBLIC
      ACCOUNTING FIRM               | F-2 
|CONSOLIDATED BALANCE SHEETS                                                 | F-4 
|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS) | F-5 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                       | F-6 
|CONSOLIDATED STATEMENTS OF CHANGES IN
      STOCKHOLDERS EQUITY (DEFICIT)  | F-7 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  | F-8 

---

Stan J.H. Lee, CPA 2160 North Central Rd. Suite 203
*Fort Lee *NJ 07024 P.O. Box 436402 *San Diego *CA 92143-6402 619-623-7799 *Fax 619-564-3408 *E-mail)
stan2u@gmail.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Management and Members ofChina Longyi Group
International Holdings Limited

We have audited the accompanying consolidated balance sheet of
China Longyi Group International Holdings Limited (the Company) as of December
31, 2010 and the related consolidated statements of operations, stockholders
deficit and cash flows for the year then ended . These financial statements are
the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of China Longyi Group International Holdings Limited as of December
31, 2009, were audited by other auditors whose report dated April 15, 2010,
expressed an unqualified opinion on those statements.

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 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 audits 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 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 financial statements referred to above
present fairly, in all material respects, the financial position of China Longyi
Group International Holdings Limited as of December 31, 2010, and the results of
its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Stan J.H. Lee,
CPAStan
J.H. Lee, CPA April 12, 2011

F-2

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of 
China Longyi Group International Holdings Ltd

We have audited the accompanying consolidated balance sheets of
China Longyi Group International Holdings Ltd ("the Company") as of December 31,
2009 and 2008 and the related statements of operations and comprehensive loss,
changes in equity, and cash flows for each of the years in the two-year period
ended December 31, 2009. The Company's management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit 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 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 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 audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the two years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Bernstein & Pinchuk LLP

April 15, 2010 
New York, New York

F-3

---

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED (A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

|                                                           |   | December 31, |   |   | December 31, |  
|---------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|ASSETS                                                     |   | 2010         |   |   | 2009         |  
|Current assets                                             |   |              |   |   |              |  
|Cash and cash equivalents                                  | $ | 19,554       |   | $ | 26,132       |  
|Inventories                                                |   | 418,485      |   |   | 402,231      |  
|Other receivables                                          |   | 126,401      |   |   | 145,214      |  
|Interest
      receivable                                  |   | 168,323      |   |   | 137,429      |  
|Short term investment                                      |   | 377,263      |   |   | 692,699      |  
|Deposits and
      prepayments                             |   | 10,127       |   |   | 34,161       |  
|Total current assets                                       |   | 1,120,153    |   |   | 1,437,866    |  
|                                                           |   |              |   |   |              |  
|Investment                                                 |   | 10,309       |   |   | -            |  
|Property, plant and equipment (net)                        |   | 501,353      |   |   | 525,785      |  
|                                                           | $ | 1,631,815    |   | $ | 1,963,651    |  
|                                                           |   |              |   |   |              |  
|LIABILITIES AND EQUITY                                     |   |              |   |   |              |  
|Current liabilities                                        |   |              |   |   |              |  
|Accounts payable                                           | $ | 165,909      |   | $ | 166,226      |  
|Accrued
      liabilities                                  |   | 216,062      |   |   | 198,361      |  
|Due to directors                                           |   | 120,076      |   |   | 120,440      |  
|Due to related
      company                               |   | 20,505       |   |   | 19,894       |  
|Other payables                                             |   | 182,179      |   |   | 165,739      |  
|Total current liabilities                                  |   | 704,731      |   |   | 670,660      |  
|                                                           |   |              |   |   |              |  
|Equity                                                     |   |              |   |   |              |  
|authorized;
      77,655,862 shares issued and outstanding |   | 776,558      |   |   | 776,558      |  
|Additional
      paid-in capital                           |   | 28,877,540   |   |   | 28,877,540   |  
|Deficit accumulated during the
      development stage     |   | (29,125,339  | ) |   | (28,752,286  | )
|Accumulated
      other comprehensive income               |   | 195,461      |   |   | 153,144      |  
|Total China Longyi stockholders' equity                    |   | 724,220      |   |   | 1,054,956    |  
|Nontrolling interest                                       |   | 202,864      |   |   | 238,035      |  
|Total Equity                                               |   | 927,084      |   |   | 1,292,991    |  
|                                                           | $ | 1,631,815    |   | $ | 1,963,651    |  

See notes to consolidated financial statements

F-4

---

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

|                                                                      |   | Year ended   |   |   | Period from June 4,1997 |  
|--------------------------------------------------------------------- | - | ------------ | - | - | ----------------------- | -
|                                                                      |   | December 31, |   |   | (inception) to          |  
|                                                                      |   | 2010         |   |   | 2009                    |  
|Revenues                                                              |   |              |   |   |                         |  
|Sales                                                                 | $ | 8,582        |   | $ | 57,878                  |  
|Cost of sales                                                         |   | 5,474        |   |   | 52,465                  |  
|Gross margin                                                          |   | 3,108        |   |   | 5,413                   |  
|Operating expenses                                                    |   |              |   |   |                         |  
|General and administrative expenses                                   |   | 440,582      |   |   | 619,923                 |  
|Goodwill impairment loss                                              |   | -            |   |   | -                       |  
|Write-off inventory and bus licenses                                  |   | -            |   |   | -                       |  
|Research and development costs                                        |   | -            |   |   | 29,278                  |  
|                                                                      |   | 440,582      |   |   | 649,201                 |  
|Loss from operations                                                  |   | (437,474     | ) |   | (643,788                | )
|Other income (expense)                                                |   |              |   |   |                         |  
|Interest income                                                       |   | 26,113       |   |   | 42,567                  |  
|Other income (expense)                                                |   | 8,314        |   |   | 76,687                  |  
|Transaction exchange gain                                             |   | (7,094       | ) |   | (11,687                 | )
|Gain on asset disposal                                                |   | -            |   |   | -                       |  
|Gain on debt settlement                                               |   |              |   |   |                         |  
|Gain on disposal subsidiary                                           |   | -            |   |   | -                       |  
|Interest expense                                                      |   | -            |   |   | -                       |  
|                                                                      |   | 27,333       |   |   | 107,567                 |  
|Loss
      before income tax expense and noncontrolling interest      |   | (410,141     | ) |   | (536,221                | )
|                                                                      |   |              |   |   |                         |  
|Income tax expense                                                    |   | -            |   |   | -                       |  
|Net loss                                                              |   | (410,141     | ) |   | (536,221                | )
|Less:
      Net loss attributable to noncontrolling interest          |   | 37,088       |   |   | 42,709                  |  
|Net loss attributable to China Longyi                                 | $ | (373,053     | ) | $ | (493,512                | )
|                                                                      |   |              |   |   |                         |  
|Basic and diluted loss per share                                      | $ | (0.00        | ) | $ | (0.01                   | )
|Weighted average number of shares
      outstanding-basic and diluted |   | 77,655,862   |   |   | 77,655,862              |  
|Comprehensive loss                                                    |   |              |   |   |                         |  
|Net loss                                                              | $ | (410,141     | ) | $ | (536,221                | )
|Foreign currency translation adjustment                               |   | 44,234       |   |   | 13,179                  |  
|                                                                      |   |              |   |   |                         |  
|Comprehensive loss                                                    |   | (365,907     | ) |   | (523,042                | )
|Comprehensive loss attributable to
      noncontrolling interest      |   | (28,684      | ) |   | (40,205                 | )
|Comprehensive loss attributable to China Longyi                       | $ | (337,223     | ) | $ | (482,837                | )

See notes to consolidated financial statements

F-5

---

CHINALONGYI GROUP INTERNATIONAL HOLDINGS LIMITED (A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                        |   |                         |   |   | Period from Jun 4, 1997 |  
|----------------------------------------------------------------------- | - | ----------------------- | - | - | ----------------------- | -
|                                                                        |   | Year ended December 31, |   |   | (inception) to          |  
|                                                                        |   | 2010                    |   |   | 2009                    |  
|Cash flows from operating activities:                                   |   |                         |   |   |                         |  
|Net loss                                                                | $ | (410,141                | ) | $ | (536,221                | )
|Adjustments to reconcile net loss to
      net cash used in operations: |   |                         |   |   |                         |  
|Depreciation and amortization                                           |   | 40,367                  |   |   | 42,922                  |  
|Loss on sales of
      property and equipment                           |   |                         |   |   | 9,873                   |  
|Impairment loss for fixed assets                                        |   | -                       |   |   | 26,497                  |  
|Write-off goodwill and
      inventory                                  |   | -                       |   |   | -                       |  
|Stock issued for services and debt                                      |   | -                       |   |   | -                       |  
|(Gain) loss on
      disposition in subsidiary                          |   | -                       |   |   |                         |  
|Research and development expenses
      recorded in organization        |   | -                       |   |   | -                       |  
|Reorganization expenses
      recorded in organization                  |   | -                       |   |   | -                       |  
|Changes in operating assets and
      liabilities:                      |   |                         |   |   |                         |  
|Other
      receivables                                                 |   | 20,961                  |   |   | (87,798                 | )
|Interest receivable                                                     |   | (26,089                 | ) |   | (1,492                  | )
|Deposits
      and prepayment                                           |   | 24,537                  |   |   | (1,988                  | )
|Inventory                                                               |   | (3,809                  | ) |   | 55,058                  |  
|Other
      payables                                                    |   | 12,101                  |   |   | 6,570                   |  
|Accounts payable and
      accrued liabilities                          |   | 9,205                   |   |   | 17,351                  |  
|Net cash
      used in operations                                       |   | (332,868                | ) |   | (469,228                | )
|                                                                        |   |                         |   |   |                         |  
|Cash flows from investing activities:                                   |   |                         |   |   |                         |  
|Reorganization - net of cash acquired                                   |   | -                       |   |   | -                       |  
|Purchase of subsidiaries                                                |   | -                       |   |   | -                       |  
|Redemption of short term investment                                     |   | 329,374                 |   |   | 344,017                 |  
|Purchase of investment                                                  |   | -                       |   |   | -                       |  
|Purchases of intangible assets                                          |   | -                       |   |   | -                       |  
|Purchases of property and equipment                                     |   | (665                    | ) |   | -                       |  
|Purchases of construction in progress                                   |   | -                       |   |   | -                       |  
|Sales of property and equipment                                         |   | (10,309                 | ) |   | 13,907                  |  
|Deposit on subsidiary                                                   |   | -                       |   |   | -                       |  
|Net cash
      provided by (used in) investing activities               |   | 318,400                 |   |   | 357,924                 |  
|                                                                        |   |                         |   |   |                         |  
|Cash flows from financing activities:                                   |   |                         |   |   |                         |  
|Addition of short term loans                                            |   | -                       |   |   | -                       |  
|Collecttion from shareholders                                           |   | -                       |   |   | 75,480                  |  
|Payments to stockholders                                                |   | -                       |   |   | -                       |  
|Proceeds from issuance of stock                                         |   | -                       |   |   | -                       |  
|Proceeds from convertible promissory note                               |   | -                       |   |   | -                       |  
|Dividends paid                                                          |   | -                       |   |   | -                       |  
|Proceeds to notes payable                                               |   | -                       |   |   | -                       |  
|Payments on notes payable                                               |   | -                       |   |   | -                       |  
|Net cash provided by
      financing activities                         |   |                         |   |   | 75,480                  |  
|Effect of foreign exchange rate
      fluctuation                       |   | 7,900                   |   |   | 10,649                  |  
|Increase(decrease) in cash and cash equivalents                         |   | (6,568                  | ) |   | (25,175                 | )
|Cash and cash equivalents, beginning
      of period                    |   | 26,132                  |   |   | 51,307                  |  
|Cash and cash equivalents, end of period                                | $ | 19,554                  |   | $ | 26,132                  |  
|                                                                        |   |                         |   |   |                         |  
|Supplemental disclosures of cash flow information:                      |   |                         |   |   |                         |  
|Cash paid for interest                                                  | $ | -                       |   | $ | -                       |  
|Cash paid for income taxes                                              | $ | -                       |   | $ | -                       |  
|Cash paid for interest                                                  |   | -                       |   |   | -                       |  
|Cash paid for income taxes                                              |   | -                       |   |   | -                       |  

See notes to consolidated financial statements

F-6

---

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED(A
DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(DEFICIT)

Development
    
    
    AccumulatedCommon Stock
    
    
    Additional
    
    
    Stage
    
    
    OtherCommon Stock
    
    
    Common Stock
    
    
    Subscribed
    
    
    Paid In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Subscription
    
    
    Due from
    
    
    Noncontrolling$.12834 Par Value
    
    
    $.01 Par Value
    
    
    $.01 Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Receivable
    
    
    stockholder
    
    
    Interest
    
    
    TotalCommon stock issued - June 4, 1997
    
    10,000
    
    $
    1,283
    
    
    
    
    $
    -
    
    
    
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    
    
    
    $
    -
    
    $
    1,283Net loss for the period
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (289
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (289
    )Balance December 31, 1997
    
    10,000
    
    
    1,283
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (289
    )
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    994-Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,209
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,209
    )Balance December 31, 1998
    
    10,000
    
    
    1,283
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,498
    )
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    (2,215
    )Shares issued at par value Mar 30
    
    990,000
    
    
    127,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,057Net loss for the period
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (302
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (302
    )Balance December 31, 1999
    
    1,000,000
    
    
    128,340
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,800
    )
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    124,540Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (9,876,193
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (9,876,193
    )Balance December 31, 2000
    
    1,000,000
    
    
    128,340
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (9,879,993
    )
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    (9,751,653
    )Shares issued at $.20 Apr 5
    
    
    
    
    
    
    
    385,685
    
    
    3,857
    
    
    
    
    
    
    
    
    73,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,137Shares issued at $.20 Apr 17
    
    
    
    
    
    
    
    7,500,000
    
    
    75,000
    
    
    
    
    
    
    
    
    1,425,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Shares at par value Jun 22
    
    
    
    
    
    
    
    28,000,000
    
    
    280,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    280,000Recapitalization Jun 22
    
    (1,000,000
    )
    
    (128,340
    )
    
    3,600,000
    
    
    36,000
    
    
    
    
    
    
    
    
    (498,280
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (590,620
    )Dividend paid Jun 22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )Shares issued at $2.00 Jul 23
    
    
    
    
    
    
    
    473,500
    
    
    4,735
    
    
    
    
    
    
    
    
    942,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    947,000Shares issued at $2.00 Oct 1
    
    
    
    
    
    
    
    10,000
    
    
    100
    
    
    
    
    
    
    
    
    19,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Shares issued for debt conversion
    
    
    
    
    
    
    
    8,500,000
    
    
    85,000
    
    
    
    
    
    
    
    
    8,415,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,500,000Capital contributed debt to equity
      conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,492,318
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,492,318
    )Balance December 31, 2001
    
    -
    
    
    -
    
    
    48,469,185
    
    
    484,692
    
    
    -
    
    
    -
    
    
    10,877,165
    
    
    (12,372,311
    )
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    (1,010,454
    )Shares issued at $.20 Feb 20
    
    
    
    
    
    
    
    372,807
    
    
    3,728
    
    
    
    
    
    
    
    
    70,833
    
    
    
    
    
    
    
    
    (74,561
    )
    
    
    
    
    
    
    
    -Shares issued at par option exercise Apr 24 for svcs
    
    
    
    
    
    
    
    540,260
    
    
    5,403
    
    
    
    
    
    
    
    
    410,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    416,000Shares issued at $.13 Nov 27 for services
    
    
    
    
    
    
    
    1,100,000
    
    
    11,000
    
    
    
    
    
    
    
    
    132,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143,000Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,490,990
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,490,990
    )Balance December 31, 2002
    
    -
    
    
    -
    
    
    50,482,252
    
    
    504,823
    
    
    -
    
    
    -
    
    
    11,490,595
    
    
    (14,863,301
    )
    
    -
    
    
    (74,561
    )
    
    
    
    
    
    
    
    (2,942,444
    )Shares issued at $.12 Mar 31
    
    
    
    
    
    
    
    1,513,969
    
    
    15,139
    
    
    
    
    
    
    
    
    166,537
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,676Shares subscribed at $.40 Sep 29
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000,000
    
    
    6,000,000
    
    
    
    
    
    
    
    
    
    
    
    (6,000,000
    )
    
    
    
    
    
    
    
    -Shares issued at $.40 Oct 3
    
    
    
    
    
    
    
    1,511,488
    
    
    15,115
    
    
    (1,511,488
    )
    
    (604,595
    )
    
    589,480
    
    
    
    
    
    
    
    
    1,209,482
    
    
    
    
    
    
    
    
    1,209,482Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,761,393
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,761,393
    )Balance December 31, 2003
    
    -
    
    
    -
    
    
    53,507,709
    
    
    535,077
    
    
    13,488,512
    
    
    5,395,405
    
    
    12,246,612
    
    
    (16,624,694
    )
    
    -
    
    
    (4,865,079
    )
    
    
    
    
    
    
    
    (3,312,679
    )Shares issued at $.40 Jan 9 Qian Long
    
    
    
    
    
    
    
    3,023,998
    
    
    30,240
    
    
    (3,023,998
    )
    
    (1,209,599
    )
    
    1,179,359
    
    
    
    
    
    
    
    
    604,712
    
    
    
    
    
    
    
    
    604,712Shares issued at $.13 for debt conversion
    
    
    
    
    
    
    
    24,036,269
    
    
    240,363
    
    
    
    
    
    
    
    
    2,887,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,128,225Shares subscribed at $.21 Jan 29 Qian Long
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,000,000
    
    
    29,400,000
    
    
    
    
    
    
    
    
    
    
    
    (29,400,000
    )
    
    
    
    
    
    
    
    -Shares subscribed at $.14 Jan 13 China Cardinal
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,483,514
    
    
    2,307,692
    
    
    
    
    
    
    
    
    
    
    
    (2,307,692
    )
    
    
    
    
    
    
    
    -Shares issued at $.14 May 28 China Cardinal
    
    
    
    
    
    
    
    4,733,229
    
    
    47,332
    
    
    (4,733,229
    )
    
    (662,652
    )
    
    615,320
    
    
    
    
    
    
    
    
    662,652
    
    
    
    
    
    
    
    
    662,652Shares issued at $.14 May 28 China Cardinal
    
    
    
    
    
    
    
    11,750,285
    
    
    117,503
    
    
    (11,750,285
    )
    
    (1,645,040
    )
    
    1,527,537
    
    
    
    
    
    
    
    
    1,645,040
    
    
    
    
    
    
    
    
    1,645,040Shares issued at $.14 Mar 31 purch of Asia
      Key
    
    
    
    
    
    
    
    28,210,000
    
    
    282,100
    
    
    
    
    
    
    
    
    3,667,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,949,400Options exercised at $.12 in lieu of salary
    
    
    
    
    
    
    
    2,500,000
    
    
    25,000
    
    
    
    
    
    
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000Options exercised at $.12 in lieu of salary
    
    
    
    
    
    
    
    500,000
    
    
    5,000
    
    
    
    
    
    
    
    
    55,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Options exercised at $.12 in lieu of salary
    
    
    
    
    
    
    
    1,000,000
    
    
    10,000
    
    
    
    
    
    
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Qian Long subscription at $.40 Dec 12
    
    
    
    
    
    
    
    10,464,514
    
    
    104,645
    
    
    (10,464,514
    )
    
    (4,185,806
    )
    
    4,081,161
    
    
    
    
    
    
    
    
    4,839,601
    
    
    
    
    
    
    
    
    4,839,6012002 stock subscription deemed to be uncollectible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,561
    )
    
    
    
    
    
    
    
    74,561
    
    
    
    
    
    
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (11,024,215
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (11,024,215
    )Balance December 31, 2004
    
    -
    
    
    -
    
    
    139,726,004
    
    
    1,397,260
    
    
    140,000,000
    
    
    29,400,000
    
    
    26,570,590
    
    
    (27,648,909
    )
    
    -
    
    
    (28,746,205
    )
    
    
    
    
    
    
    
    972,736Shares issued at $.14 for debt
    
    
    
    
    
    
    
    5,770,000
    
    
    57,700
    
    
    
    
    
    
    
    
    772,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830,100Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,170,770
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,170,770
    )Foreign currency translation adjustm
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (230,745
    )
    
    -
    
    
    -
    
    
    -
    
    
    (230,745
    )Balance December 31, 2005
    
    -
    
    
    -
    
    
    145,496,004
    
    
    1,454,960
    
    
    140,000,000
    
    
    29,400,000
    
    
    27,342,990
    
    
    (28,819,679
    )
    
    (230,745
    )
    
    (28,746,205
    )
    
    
    
    
    
    
    
    401,321Shares issued at $.21 December 18 Qiang
      Long
    
    
    
    
    
    
    
    3,013,862
    
    
    30,139
    
    
    (3,013,863
    )
    
    (632,911
    )
    
    602,772
    
    
    
    
    
    
    
    
    632,911
    
    
    
    
    
    
    
    
    632,911Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345,621
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345,621
    )Foreign currency translation adjustm
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (25,461
    )
    
    -
    
    
    -
    
    
    -
    
    
    (25,461
    )Balance December 31, 2006
    
    -
    
    
    -
    
    
    148,509,866
    
    
    1,485,099
    
    
    136,986,137
    
    
    28,767,089
    
    
    27,945,762
    
    
    (29,165,300
    )
    
    (256,206
    )
    
    (28,113,294
    )
    
    
    
    
    
    
    
    663,150Items applied retroactively:Acquisition of noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310,485
    
    
    310,485Reverse stock split - October 16, 20
    
    -
    
    
    -
    
    
    (141,084,373
    )
    
    (1,410,844
    )
    
    (130,136,830
    )
    
    (27,328,734
    )
    
    28,739,578
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    -Shares issued at $.21 June 29,2007, 50mil
      shares
    
    
    
    
    
    
    
    6,849,307
    
    
    68,493
    
    
    (6,849,307
    )
    
    (1,438,355
    )
    
    1,369,862
    
    
    
    
    
    
    
    
    28,113,294
    
    
    
    
    
    
    
    
    28,113,294Shares subscribed for exchange
    
    
    
    
    
    
    
    62,250,000
    
    
    622,500
    
    
    
    
    
    
    
    
    24,277,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,900,000Shares issued at December 19,2007
    
    
    
    
    
    
    
    1,131,054
    
    
    11,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,310Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,094,885
    
    
    
    
    
    
    
    
    
    
    
    (68,376
    )
    
    3,026,509Foreign currency translation adjustment
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    272,359
    
    
    -
    
    
    
    
    
    63,887
    
    
    336,246Related party Acquisition Premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,455,161.77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,455,162
    )Balance December 31, 2007
    
    -
    
    
    -
    
    
    77,655,854
    
    
    776,558
    
    
    -
    
    
    -
    
    
    28,877,540
    
    
    (26,070,415
    )
    
    16,153
    
    
    -
    
    
    -
    
    
    305,996
    
    
    3,905,832Shares issued at January,2008
    
    
    
    
    
    
    
    8
    
    
    -
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,188,359
    )
    
    -
    
    
    -
    
    
    -
    
    
    (57,385
    )
    
    (2,245,744
    )Foreign currency translation adjustment
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    126,315
    
    
    -
    
    
    -
    
    
    29,630
    
    
    155,945Balance December 31, 2008
    
    -
    
    
    -
    
    
    77,655,862
    
    
    776,558
    
    
    -
    
    
    -
    
    
    28,877,540
    
    
    (28,258,774
    )
    
    142,469
    
    
    -
    
    
    -
    
    
    278,240
    
    
    1,816,033Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (493,512
    )
    
    -
    
    
    -
    
    
    -
    
    
    (42,709
    )
    
    (536,221
    )Foreign currency translation adjustment
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    10,675
    
    
    -
    
    
    -
    
    
    2,504
    
    
    13,179Balance December 31, 2009
    $
    -
    
    $
    -
    
    $
    77,655,862
    
    $
    776,558
    
    $
    -
    
    $
    -
    
    $
    28,877,540
    
    $
    (28,752,286
    )
    $
    153,144
    
    $
    -
    
    $
    -
    
    $
    238,035
    
    $
    1,292,991Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (373,053
    )
    
    -
    
    
    -
    
    
    -
    
    
    (37,088
    )
    
    (410,141
    )Foreign currency translation adjustment
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    42,317
    
    
    -
    
    
    -
    
    
    1,917
    
    
    44,234Balance December 31, 2010
    $
    -
    
    $
    -
    
    $
    77,655,862
    
    $
    776,558
    
    $
    -
    
    $
    -
    
    $
    28,877,540
    
    $
    (29,125,339
    )
    $
    195,461
    
    $
    -
    
    $
    -
    
    $
    202,864
    
    $
    927,084


See notes to consolidated financial statements

F-7

---

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED (A
DEVELOPMENT STAGE COMPANY) Notes to consolidated financial statements
(Audited)

The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of American (US GAAP) for financial information and with the
instructions to Form 10 and Item 310 of Regulation S. The accounts of China
LongYi Group International Holdings Limited and all of its subsidiaries are
included in the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated operating results for the twelve months ended December 31,
2010.

|1. | BUSINESS DESCRIPTION AND ORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | NAME CHANGE AND REORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The consolidated financial statement of China LongYi
      Group International Holdings Limited (the Company), include the accounts
      of the parent company and its wholly-owned and majority-owned
      subsidiaries. All material intercompany accounts and transactions have
      been eliminated in consolidation. We amended our certificate of
      incorporation on October 16, 2007 and changed our name from Minghua Group
      International Holdings Limited (Minghua USA) to China LongYi Group
      International Holdings Limited. At the same time, we implemented a 1 for
      20 reverse stock split of issued and outstanding shares of our common
      stock which reduced the number of our issued and our outstanding shares
      from 198,509,866 to 9,925,493.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Minghua USA, formerly Panagra International Corporation
      (Panagra), was incorporated under the laws of the State of New York on
      February 29, 1996 under the name, United Network Technologies, Inc. On
      August 2, 2001, an amendment to the certificate of incorporation was made
      changing the name from Panagra to Minghua USA. This amendment also
      increased the authorized common shares of Minghua USA from 40,000,000
      shares to 200,000,000 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In June 2001, Panagra and its subsidiary, Minghua
      Acquisition Corp. acquired all the outstanding shares of Minghua Group
      International Holding (Hong Kong) Limited (Minghua Hong Kong). The
      acquisition was effected by paying to the shareholders of Minghua Hong
      Kong $1,000,000 and issuing 28,000,000 additional Minghua USA common
      shares that resulted in the Minghua Hong Kong shareholders owning
      approximately 70% of the outstanding shares of Minghua USA and having
      control of Minghua USA after this transaction. For financial reporting
      purposes, this transaction was recorded as a recapitalization of Minghua
      Hong Kong. Minghua Hong Kong was deemed to be the continuing, surviving
      entity for accounting purposes, but through reorganizations, was deemed to
      have adopted the capital structure of Minghua USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | At that time, the sole asset of Minghua Hong Kong was an
      85% equity interest in the Shenzhen Minghua Environmental Protection
      Vehicle Co., Ltd. (Minghua China), a Peoples Republic of China (PRC)
      corporation. The remaining 15% equity minority interest in Minghua China
      was owned by a related party, Asia Key Group Limited, through its wholly-
      owned subsidiary Minghua Real Estate (Shenzhen) Ltd, formerly known as
      Minghua Investment Co., Ltd. (Minghua Real Estate). On January 29, 2004,
      Minghua USA acquired this 15% minority interest held by Minghua Real
      Estate, in a related party transaction by paying $990,638 in cash and
      issuing 28,210,000 common shares of Minghua USA. In September 2006,
      Minghua USA disposed of its entire interests in Minghua Hong Kong and
      Minghua China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On November 12, 2007, we entered into a share purchase
      agreement, or the Share Purchase Agreement, with Daykeen Group Limited
      (Daykeen), a BVI company, or Daykeen, pursuant to which we acquired 100%
      ownership of Top Time International Limited (Top Time), a Hong Kong
      company. Daykeen is the sole shareholder of Top Time. Top Time owns 90%
      equity interest of Beijing Longyi Biology Technology Co. Ltd (Beijing
      SOD), which is a holding company that owns 90.05% equity interest of
      Chongqing JiuZhou Dismutase Biology Technology Co. Ltd (Chongqing SOD),
      a corporation incorporated in China. Chongqing SOD is a manufacturer of
      superoxide dismutase, or SOD products. As a result of this acquisition
      transaction, Top Time became our wholly owned subsidiary and Daykeen
      became our controlling stockholder upon our issuance to Daykeen of the
      equity portion of the purchase price in accordance with the Share Purchase
      Agreement. Top Time was incorporated in Hong Kong in December 2006 and
      currently has two subsidiaries: Beijing SOD and Chongqing SOD. Beijing SOD
      is 90% owned by Top Time and was incorporated in China in March 2005.
      Chongqing SOD was incorporated in China in March 2007 and is 90.05% owned
      by Beijing SOD.

F-8

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|1. | BUSINESS DESCRIPTION AND ORGANIZATION
  (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Through acquisition of Top Time, we changed our business
      to develop, manufacture and sell SOD products. As a result, on November
      28, 2007, one of our subsidiaries, Top Team Holdings Limited (BVI),
      disposed of five subsidiaries including Euromax International Investments
      Limited, Beijing China Cardinal Real Estate Consulting Co., Ltd, Eagle Bus
      Development Limited (HK), Good View Bus Manufacturing Company Limited
      (HK), and Guangzhou City View Bus Installation Company Limited (PRC) to
      Mr. Chen, Zhiping for RMB5, 000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In aggregate, the company recognized gain of $3,385,630
      on the sale of the subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | CAPITAL RESOURCES AND BUSINESS RISKS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company remains in the development stage and all
      future business operations are subject to all of the risks inherent in the
      establishment of a new business enterprise. The Company has no proven
      revenue stream from the sales of its products. Additional capital
      resources through current and future offerings of securities will be
      needed in order to accomplish the Company's present marketing, development
      and manufacturing plans. The manufacturing facility and other operations
      in China, as well as the business financial conditions and results of
      operations are, to a significant degree, subject to economic, political
      and social events in China.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company had incurred losses since inception and had
      little working capital until June 29, 2007. However, the substantial doubt
      about its ability to continue as a going concern, which contemplated the
      realization of assets and the payment of liabilities in the ordinary
      course of business, was alleviated on June 29, 2007, when management
      obtained $28,113,294 in funding through the issuance of additional stock
      to one of the Companys shareholders. On November 12, 2007, we c ompleted
      an acquisition transaction with Top Time whereby we paid Daykeen, Top
      Times sole shareholder, a total consideration of $54.9 million, in
      exchange for 100% ownership of Top Time, consisting of $30 million in cash
      and $24.9 million in shares of our common stock issuable within 90 days of
      the closing. The equity portion of the purchase price amounts to a total
      of 62,250,000 shares of our common stock.                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On July 27, 2007, the Company instructed the prior
      Transfer Agent to issue 50,000,000 shares of common stock issuable to
      Qiang Long to Jolly Concept Management Limited, in accordance with Qiang
      Longs instructions. On December 14, 2007, the Company instructed the
      present Transfer Agent to issue the replacement certificate showing the
      new name of the company and the correct number of shares, post
      reverse-split, and the remaining 4,349,307 shares of common stock issuable
      to Qiang Long, to Jolly Concept Management Limited and to Zhang, Lifang.
      The Company also agreed to issue 1,131,026 shares of common stock
      post-reverse-split to Luck Pond Enterprises Limited or its designee, for
      its services as finder in connection with the Qiang Long investment. On
      December 14, 2007, the Company instructed the present Transfer Agent to
      issue a total amount of 62,250,000 shares of the Companys common stock,
      post-reverse-split, issuable to Daykeen, to Daykeen Investment
    Limited.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | RESTRICTIONS ON TRANSFER OF ASSET OUT OF CHINA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Dividend payments by the Companys operating subsidiaries
      are limited by certain statutory regulations in China. No dividends may be
      paid by these subsidiaries without first receiving prior approval from the
      State Administration of Foreign Exchange. Dividend payments are restricted
      to 85% of profits, after tax. Repayments of loans or advances from
      subsidiaries to China Longyi, unless certain conditions are met, will be
      restricted by the Chinese government.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | CONTROL BY PRINCIPAL STOCKHOLDERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The directors, executive officers, affiliates and related
      parties own, beneficially and in the aggregate, the majority of the voting
      power of the outstanding shares of the common stock of the Company.
      Accordingly, if they voted their shares uniformly, directors, executive
      officers and affiliates would have the ability to control the approval of
      most corporate actions, including increasing the authorized capital stock
      of China Longyi and the dissolution, merger or sale of the Company's
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-9

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | PRINCIPLES OF CONSOLIDATION AND BASIS OF
    PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The consolidated financial statements for all periods
      from date of acquistion include the financial statements of China Longyi
      Group International Holding Limited, Top Team Holdings Limited, Full Ample
      Group Limited (Daykeen Group, BVI), Top Time International Limited (HK),
      Beijing Longyi Biology Technology Co. Ltd, and Chongqing JiuZhou Dismutase
      Biology Technology Co. Ltd. The consolidated statements have been prepared
      in accordance with US GAAP. All significant intercompany transactions have
      been eliminated. 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company has determined the Peoples Republic of China
      Chinese Yuan Renminbi (RMB) to be its functional currency. The
      accompanying consolidated financial statements are presented in United
      States (US) dollars. The consolidated financial statements are translated
      into US dollars from RMB at year-end exchange rates for assets and
      liabilities, and weighted average exchange rates for revenues and
      expenses. Capital accounts are translated at their historical exchange
      rates when the capital transactions occurred.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | RMB is not freely convertible into the currency of other
      nations. All such exchange transactions must take place through authorized
      institutions. There is no guarantee the RMB amounts could have been, or
      could be, converted into US dollars at rates used in
translation.                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | NONCONTROLLING INTEREST IN SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company owns 90% of the equity interest in the
      Beijing LongYi Biology Technology Co. Ltd, and the remaining 10% is owned
      by Miss Ran Wang. Therefore, the Company records noncontrolling interest
      (expense) income to allocate 10% of the results of the Beijing Longyi
      Biology Technology limited to Miss Ran Wang, its noncontrolling
      shareholder.                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company owns 81% of the equity interest in the
      Chongqing JiuZhou Dismutase Biology Technology Co. Ltd, and remaining 9%
      is owned by Miss Ran Wang, and another 10% is owned by Mr. Guoqing Tan.
      Therefore, the Company records noncontrolling interest (expense) income to
      allocate 19% of the results of the Chongqing JiuZhou Dismutase Biology
      Technology Co. Ltd to Miss Ran Wang and Mr. Guoqing Tan, its
      noncontrolling shareholder.                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | USE OF ESTIMATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The preparation of financial statements in conformity
      with US GAAP requires management to make estimates and assumptions that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements
      and reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | SIGNIFICANT ESTIMATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Several areas require significant management estimates
      relating to uncertainties for which it is reasonably possible that there
      will be a material change in the near term. The more significant areas
      requiring the use of management estimates related to the valuation of
      acquired companies, equipment, patent rights, accrued liabilities and
      stock options, and the useful lives for amortization and
    depreciation.                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | REVENUE RECOGNITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company recognizes revenue in accordance with Staff
      Accounting Bulletin No. 104 Revenue recognition (ASC
      Topic 605). Revenues are recognized as earned when the following four
      criteria are met: (1) a customer issues a purchase order or otherwise
      agrees to purchase products; (2) products are delivered to the customer;
      (3) pricing is fixed or determined in accordance with the purchase order
      or agreement; and (4) collectability is reasonably assured.                                                                 

F-10

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company invests idle cash primarily in money market
      accounts, certificates of deposits and short-term commercial paper. Money
      market funds and all highly liquid debt instruments with an original
      maturity of three months or less are considered cash
equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Impairment of long-lived assets is recognized when events
      or changes in circumstances indicate that the carrying amount of the
      asset, or related groups of assets, may not be recoverable. Under the
      provisions of SFAS No. 144, Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to Be Disposed Of, the Company
      recognizes an impairment charge when the expected net undiscounted
      future cash flows from an asset's use and eventual disposition are less
      than the asset's carrying value and the asset's carrying value exceeds its
      fair value. Measurement of fair value for an asset or group of assets may
      be based on appraisal, market values of similar assets or estimated
      discounted future cash flows resulting from the use and ultimate
      disposition of the asset or assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Expenditures for maintenance, repairs and betterments,
      which do not materially extend the normal useful life of an asset, are
      charged to operations as incurred. Upon sale or other disposition of
      assets, the cost and related accumulated depreciation are removed from the
      accounts and any resulting gain or income (loss) is reflected in
      income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Depreciation and amortization are provided for financial
      reporting purposes primarily on the straight-line method over the
      estimated useful lives of the respective assets as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                         | Estimated  
| | --------------------------------------- | -----------
| |                                         | Useful Life
| | Transportation equipment                | 5 years    
| | Office, computer software and equipment | 5 years    
| | Furniture and fixtures                  | 5 years    
| | Production equipment                    | 10 years   
| | Building and improvements               | 20 years   
| | Construction in progress                | 20 years   

INTANGIBLE ASSETS

The Company adopted the provisions of
SFAS No. 142 (ASC Topic 350), Goodwill and Other Intangible Assets, effective
January 1, 2002. Under ASC Topic 350, goodwill and indefinite lived intangible
assets are not amortized, but are reviewed annually for impairment, or more
frequently, if indications of possible impairment exist. The Company has
performed the requisite annual transitional impairment tests on intangible
assets and made the impairment adjustments as necessary.

INCOME TAXES

Income tax expense is based on reported
income before income taxes. Deferred income taxes reflect the effect of
temporary differences between assets and liabilities that are recognized for
financial reporting purposes and the amounts

F-11

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | that are recognized for income tax purposes. In
      accordance with Statement of Financial Accounting Standard (SFAS) No.
      109 (ASC Topic 740), Accounting for Income Taxes, these deferred taxes
      are measured by applying currently enacted tax laws.                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company did not provide any current or deferred
      income tax provision or benefit for any period presented to date because
      it has experienced operating losses since inception.                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | There are net operating income (loss) carry forwards
      allowed under the Hong Kong and China Governments tax system.                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | RESEARCH AND DEVELOPMENT COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Company sponsored research and development costs, related
      to both present and future products, are charged to operations when
      incurred and are included in operating expenses. Expenditures for research
      and development for the years ended December 31, 2010 and 2009 were $0 and
      $29,278 respectively and a cumulative amount of $8,880,206 for the period
      from June 4, 1997 (inception) to December 31, 2010.                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | RELATED PARTY TRANSACTIONS AND STOCKHOLDERS
  LOAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The caption Due to Related Company are loans that are
      unsecured, non-interest bearing and have no fixed terms of repayment,
      therefore, deemed payable on demand. The Company rents office space from
      the related company.                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | EARNINGS (LOSS) PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Earnings per share are calculated in accordance with SFAS
      No. 128 (ASC Topic 260), Earnings Per Share. Basic earnings per share
      is computed by dividing income attributable to holders of common shares by
      the weighted average number of common shares outstanding during the
      period. Diluted earnings per common share reflects the potential dilution
      that could occur if securities or other contracts to issue common shares
      were exercised or converted into common shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The numerator and denominator used in the basic and
      diluted LPS of common stock computations are presented in the following
      table:                                                                                                                                                                                                                                                                                                                                                                           

| |                                                           |   | Year ended December
      31, |  
| | --------------------------------------------------------- | - | ----------------------------- | -
| |                                                           |   | 2010                          |  
| | NUMERATOR FOR BASIC AND DILUTED LPS                       |   |                               |  
| | Net loss attributable to common
      stockholders        | $ | (373,053                      | )
| |                                                           |   |                               |  
| | DENOMINATOR FOR BASIC AND DILUTED LPS                     |   |                               |  
| | Weighted average
      shares of common stock outstanding |   | 77,655,862                    |  
| |                                                           |   |                               |  
| | LPS - Basic and diluted                                   | $ | (0.00                         | )

There were no potentially dilutive
securities outstanding at December 31, 2010 as the result would be
anti-dilutive.

EQUITY BASED COMPENSATION

The Company accounts for employee stock
options in accordance with SFAS 123(R) (ASC Topic 718), Share-Based Payment.
Under ASC Topic 718 the Company is required to recognize share-based
compensation expense at fair valued. The Company had no such compensation
expense for the years ended December 31, 2010 and 2009.

F-12

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | COMPREHENSIVE INCOME (LOSS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The accompanying financial statements are presented in
      United States (US) dollars. The functional currency is the Renminbi (RMB).
      The financial statements are translated into US dollars from RMB at
      year-end exchange rates for assets and liabilities, and weighted average
      exchange rates for revenues and expenses. Capital accounts are translated
      at their historical exchange rates when the capital transactions occurred.
      Currency translation adjustments are presented as other comprehensive
      income.                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | RMB is not freely convertible into the currency of other
      nations. All such exchange transactions must take place through authorized
      institutions. There is no guarantee the RMB amounts could have been, or
      could be, converted into US dollars at rates used in
translation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | NEW ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In June 2009, the FASB issued ASC 105 (previously SFAS
      No. 168, The FASB Accounting Standards Codification and the Hierarchy of
      Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB
      Statement No. 162), which will become the source of authoritative
      accounting principles generally accepted in the United States recognized
      by the FASB to be applied to nongovernmental entities. The Codification is
      effective in the third quarter of 2009, and accordingly, the Quarterly
      Report on Form 10-Q for the quarter ending September 30, 2009 and all
      subsequent public filings will reference the Codification as the sole
      source of authoritative literature. The Company does not believe that this
      will have a material effect on its consolidated financial
    statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In June 2009, the FASB issued ASC 855 (previously SFAS
      No. 165, Subsequent Events), which establishes general standards of
      accounting for and disclosures of events that occur after the balance
      sheet date but before the financial statements are issued or available to
      be issued. It is effective for interim and annual periods ending after
      June 15, 2009. There was no material impact upon the adoption of this
      standard on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | SFAS No. 159 (ASC Topic 825), The Fair Value Option for
      Financial Assets and Financial Liabilities  Including an amendment of
      FASB Statement No. 115. This Statement provides all entities with an
      option to report selected financial assets and liabilities at fair value.
      The Statement is effective as of the beginning of an entitys first fiscal
      year beginning after November 15, 2007, with early adoption available in
      certain circumstances.                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | SFAS No. 141 (Revised) (ASC Topic 805), Business
      Combinations. SFAS No. 141R broadens the guidance of SFAS No. 141,
      extending its applicability to all transactions and other events in which
      one entity obtains control over one or more other businesses. It broadens
      the fair value measurement and recognition of assets acquired, liabilities
      assumed, and interests transferred as a result of business combinations.
      SFAS No. 141R expands on required disclosures to improve the statement
      users abilities to evaluate the nature and financial effects of business
      combinations.                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | SFAS No. 160 (ASC Topic 810), Non-controlling Interests
      in Consolidated Financial Statements - an amendment of ARB No. 51. SFAS
      No. 160 requires that ownership interests in subsidiaries held by parties
      other than the parent are to be included in the equity section of the
      balance sheet, but apart from the parent's equity. All changes in the
      parent's ownership interest in a subsidiary are to be accounted for as
      equity transactions. Any retained non-controlling equity interest in a
      deconsolidated subsidiary is to be initially measured at fair value, with
      any gain or loss on consolidation measured using this fair
value.                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | SFAS NoSOP No. 07-01, Clarification of the Scope of the
      Audit and Accounting Guide Investment Companies and Accounting by Parent
      Companies and Equity Method Investors for Investments in Investment
      Companies. SOP 07-01 provides guidance for determining whether an entity
      is within the scope of the AICPA Audit and Accounting Guide Investment
      Companies. The provisions of the SOP are effective for fiscal years
      beginning on or after December 15, 2007, with earlier application
      encouraged. As of December 1, 2007 the FASB has proposed an indefinite
      deferral of this SOP.                                                                                                                                                                                                                          

F-13

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | EITF Issue No. 06-11, Accounting for Income Tax Benefits
      of Dividends on Share-Based Payment Awards. In this Issue, a consensus was
      reached that a realized income tax benefit from dividends or dividend
      equivalents that are charged to retained earnings and are paid to
      employees for equity-classified nonvested equity shares, nonvested equity
      share units, and outstanding equity share options should be recognized as
      an increase in additional paid-in capital. This Issue should be applied
      prospectively to the income tax benefits that result from dividends on
      equity-classified employee share-based payment awards that are declared in
      fiscal years beginning after December 15, 2007, and interim periods within
      those fiscal years. Early application is permitted.                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In January 2010, the FASB issued Accounting Standards
      Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures
      which amends ASC Topic 820, adding new requirements for disclosures for
      Levels 1 and 2, separate disclosures of purchases, sales, issuances, and
      settlements relating to Level 3 measurements and clarification of existing
      fair value disclosures. ASU 2010-06 is effective for interim and annual
      periods beginning after December 15, 2009, except for the requirement to
      provide Level 3 activity of purchases, sales, issuances, and settlements
      on a gross basis, which will be effective for fiscal years beginning after
      December 15, 2010; early adoption is permitted. The Company is currently
      evaluating the impact of adopting ASU 2009-14 on its financial
      statements.                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Recent accounting pronouncements issued by the FASB
      (including its EITF) and the AICPA are not believed by management to have
      a material impact on the Company's present or future financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3. | BUSINESS ACQUISITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On March 13, 2003, Minghua USAs indirect subsidiary,
      Minghua Environmental Protection Science and Technology Limited, a Hong
      Kong limited company (Minghua Science), entered into the Acquisition
      Agreement with Good View                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Bus Manufacturing (Holdings) Company Limited, a Hong Kong
      limited company (Good View), Eagle Bus Development Limited, a Hong Kong
      limited company (Eagle), and Mr. Sin Keung Kok (Mr. Kok), relating to the
      acquisition of an 89.8% equity interest in the Guangzhou City View Bus
      Installation Company, a Peoples Republic of China limited company (the
      Guangzhou Bus Installation Company).The Guangzhou Bus Installation Company
      manufactured motor coaches for domestic sale in China and for export under
      the Eagle brand name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The acquisition of the equity interest was effective on
      January 2004 after obtaining certain governmental approvals. The parties
      to the Acquisition Agreement entered into, and simultaneously consummated
      the transactions contemplated by, a supplemental agreement (the
      Supplemental Agreement), which replaced the original Acquisition
      Agreement. Pursuant to the Supplemental Agreement, instead of acquiring
      the Guangzhou Bus Installation Company directly, Minghua Science acquired
      a controlling interest in the entities that control the Guangzhou Bus
      Installation Company. More specifically, Minghua Science acquired Good
      View (which owned 23.8% of the Guangzhou Bus Installation Company) and
      Eagle (which owned 66% of the Guangzhou Bus Installation Company),
      respectively. Therefore, Minghua USA became the indirect owner of an 89.8%
      equity interest in the Guangzhou Bus Installation Company. The remaining
      10.2% was held by Guangzhou Public Automobile No. 2 Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The purchase price of RMB14, 000,000 (US$1,690,474) was
      determined by the parties based upon the fair market value of the assets
      and business potential of Guangzhou Bus Installation Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The purchase price was allocated to assets and
      liabilities as follows on the designated effective date on January 1,
      2004:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-14

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|3. | BUSINESS ACQUISITIONS
(Continued)
|-- | ---------------------------------

| | Accounts receivable              | $ | 4,227      |  
| | -------------------------------- | - | ---------- | -
| | Inventories                      |   | 1,714,957  |  
| | Others receivable                |   | 523,857    |  
| | Property, plant and equipment    |   | 1,295,170  |  
| | Intangible  28 bus licenses     |   | 1,018,125  |  
| | Bank note payable                |   | (66,425    | )
| | Accounts payable                 |   | (2,055,941 | )
| | Accrued liabilities              |   | (816,482   | )
| | Due to related parties           |   | (281,131   | )
| | Due to director                  |   | (84,519    | )
| | Others payable                   |   | (29,910    | )
| | Subtotal                         | $ | 1,221,928  |  
| | Goodwill (cost in excess of FMV) |   | 468,546    |  
| | Total purchase price paid        | $ | 1,690,474  |  

Goodwill in the amount of $468,546 was
written to zero at 2004 and was reported as goodwill impairment loss.

In January 2004, Minghua Hong Kong
entered into a stock purchase agreement with Jinmou Li, the son of Minghua USAs
former Chairman, to acquire 100% of the equity in Asia Key Group Limited (Asia
Key) a Hong Kong corporation, in which Jinmou Li was the sole shareholder. Asia
Keys only asset at the time was a 15% equity interest in Shenzhen Minghua
Environmental Protection Vehicle Co., Ltd. (Minghua China). Upon the
consummation of this acquisition, Minghua China become a 100% wholly-owned
subsidiary of Minghua USA. The acquisition required $990,638 in cash and
issuance of 28,210,000 shares of common stock at US$0.14 per share of Minghua
USA for an aggregate price of $3,949,400. The book value of the net assets
transferred at the time of acquisition had a negative balance. In this regard,
the purchase of the 15% minority interest was recorded to goodwill. Minghua USA
subsequently recorded the entire amount as impairment loss. In September 2006,
Minghua USA disposed of its entire interests in Minghua Hong Kong and Minghua
China.

On June 16, 2004, Minghua Hong Kong
formed a wholly-owned subsidiary in the PRC, name Beijing China Cardinal Real
Estate Consulting Co., Ltd. (Beijing Cardinal Real Estate). Minghua USA
intends to use Beijing Cardinal Real Estate as a vehicle to make future real
estate investments in the PRC. At December 31, 2006, Beijing Cardinal Real
Estate had not begun significant operations.

During August 2006, Minghua USA
restructured ownership of certain assets between its indirectly owned
subsidiaries in preparation for the disposition of Minghua Science along with
its wholly-owned subsidiary, Minghua China and Minghua Hong Kong. The transfers
of ownership within Minghua USAs subsidiaries are listed as follows:

(a) Minghua USA transferred Beijing
Cardinal Real Estate from Minghua Hong Kong to Euromax International Investments
Limited; and

(b) Minghua USA transferred Good View
and Eagle from Minghua Science to Top Team Holdings Limited (BVI).

During September 2006, Minghua disposed
of its entire interests in Minghua Hong Kong, Minghua Science to Messrs. Han
Lian Zhong and Niu Rui Cheng in exchange for their assumption of Minghua Hong
Kong and Minghua Sciences debt.

F-15

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|3. | BUSINESS ACQUISITIONS (Continued)                                                            
|-- | ---------------------------------------------------------------------------------------------
|   |                                                                                              
|   | In aggregate, Minghua USA recognized gains of $707,825 on
      the sale of the subsidiaries.

| |                          |   | Minghua Hong |   |   | Minghua |   |   | Minghua  |   |   |          |  
| | ------------------------ | - | ------------ | - | - | ------- | - | - | -------- | - | - | -------- | -
| |                          |   | Kong         |   |   | Seience |   |   | China    |   |   |          |  
| |                          |   | US$          |   |   | US$     |   |   | US$      |   |   | Total    |  
| | Inventories              | $ | -            |   | $ | -       |   | $ | 304      |   | $ | 304      |  
| | Prepaid expenses         |   | -            |   |   | -       |   |   | 66,412   |   |   | 66,412   |  
| | Other fixed assets       |   | -            |   |   | -       |   |   | 450,424  |   |   | 450,424  |  
| | Accumulated depreciation |   | -            |   |   | -       |   |   | (401,208 | ) |   | (401,208 | )
| | Accounts payable         |   | -            |   |   | -       |   |   | (3,274   | ) |   | (3,274   | )
| | Accrued expenses         |   | (70,902      | ) |   | (4,486  | ) |   | (429,353 | ) |   | (504,741 | )
| | Due to directors         |   | -            |   |   | -       |   |   | (92,779  | ) |   | (92,779  | )
| | Others payable           |   | -            |   |   | -       |   |   | (51,591  | ) |   | (51,591  | )
| | Short-term loan          |   | -            |   |   | -       |   |   | (171,372 | ) |   | (171,372 | )
| |                          |   | (70,902      | ) |   | (4,486  | ) |   | (632,437 | ) |   | (707,825 | )

|   | On October 16, 2007, Minghua USA changed its name to
      China LognYi Group International Holdings Limited. At the same time, the
      Company implemented a 1 for 20 reverse stock split of issued and
      outstanding shares of our common stock which reduced the number of our
      issued and our outstanding shares form 198,509,866 to 9,925,493.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On November 12, 2007, the Company entered into a share
      purchase agreement, with Daykeen Group Limited, a BVI company, pursuant to
      which company acquired 100% ownership of Top Time International Limited, a
      Hong Kong company. Daykeen is the sole shareholder of Top Time. Top Time
      owns 90% equity interest of Beijing SOD, which is a holding company that
      owns 90% equity of Chongqing SOD, a corporation incorporated in China.
      Chongqing SOD is a manufacturer of superoxide dismutase, or SOD
      products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company completed an acquisition transaction with Top
      Time whereby we paid Daykeen, Top Times sole shareholder, a total
      consideration of $54.9 million (RMB 407 million, based on an exchange
      ratio of $1=RMB 7.414) in exchange for 100% ownership of Top Time,
      consisting of $30 million in cash and $24.9 million in shares of our
      common stock issuable within 90 days of the closing. The equity portion of
      the purchase price amounts to a total of 62,250,000 shares of our common
      stock (based upon $0.02/share, the average of the closing price of the
      Companys common stock on the OTCBB for the 365 calendar days prior to May
      31, 2007, which was adjusted for our stock split which occurred on October
      16, 2007 and resulted an effective purchase price of $0.40 per share). Top
      Time thereby became our wholly owned subsidiary and Daykeen became our
      controlling stockholder upon our issuance to Daykeen of the equity portion
      of the purchase price in accordance with the Share Purchase
    Agreement.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Top Time was incorporated in Hong Kong in December 2006
      and currently has two subsidiaries: Beijing SOD and Chongqing SOD. Beijing
      SOD is 90% owned by Top Time and was incorporated in China in March 2005.
      Chongqing SOD was incorporated in China in March 2007. Chongqing SOD is
      90% owned by Beijing SOD. For accounting purposes, the acquisition of Top
      Time was treated as a reorganization of entities under common
    control.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4. | STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | ISSUANCE OF COMMON STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In February 2002, the Company issued 372,807 shares of
      the Company's common stock at $.20 per share in a private placement. The
      total amount due of $74,561 was determined to be uncollectible during 2004
      and was charged to additional paid in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-16

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|4. | STOCKHOLDERS' EQUITY (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In April 2002, 540,260 options were exercised by a former
      director at a cashless exercise amount of $416,000. The balance of the
      2,000,000 options granted to this former director was forfeited in
      2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In November 2002, 1,100,000 shares were issued to the
      Board of Directors at $.13 per share, for a total consideration of
      $143,000, for services provided to the Company in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In March 2003, the Company issued 1,513,969 shares of
      common stock for $.12 per share, for a total consideration of $181,676 to
      settle various debts with third party vendors and a loan payable to a
      former Director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On September 29, 2003, the Company entered into its first
      stock subscription agreement with the Beijing Qiang Long Real Estate
      Development Co., Ltd. (Qiang Long), relating to the purchase of
      15,000,000 shares of the Company's common stock at a purchase price of
      $.40 per share, for an aggregate consideration amount of $6,000,000. In
      October 2003, 1,511,488 shares of stock were purchased according to the
      subscription agreement for $604,595. In addition to $604,595, $604,887 was
      received in advance for the stocks issued in January 2004. Total amount
      received was $1,209,482 during October 2003. In January 2004, 3,023,998
      shares of stock were purchased under the same agreement for a price of
      $1,209,599. Amount received was $604,712 which was $1,209,482 less
      $604,887. In 2004, 10,464,514 shares of stock were purchased under the
      subscription agreement for an aggregate consideration of $ 4,185,806.
      Accordingly, the Company has received all the payments from the first
      stock subscription receivable.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On January 29, 2004 a second stock subscription agreement
      was entered into with Qiang Long. The second agreement calls for the
      purchase of 140,000,000 shares of the Company's common stock at a purchase
      price of $.21 per share, for an aggregate consideration of $29,400,000.
      Qiang Long will become the controlling stockholder of the Company as a
      result of this second agreement. During 2004 the Company collected
      $653,795 as a partial payment toward the stock subscription receivable,
      however, no stocks were issued. In December 2006, pursuant to this
      agreement, Qiang Long Real Estate Development Co. Ltd., paid $632,911 in
      partial fulfillment of the agreement. Company issued 3,013,862 shares of
      common stock to Qiang Long.                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Prior to the issuance of the shares, the Company is
      required to hold a stockholders meeting to increase the number of common
      shares authorized, in order to have enough common shares to satisfy its
      stock obligations to Qiang Long. Qiang Long does not have the right to
      cancel its subscription and the consideration is not refundable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In January 2004 the Company issued 24,036,269 shares of
      its common stock to Kingsrich Development Limited in satisfaction of debt
      in accordance with a prior agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On January 29, 2004 the Company issued 28,210,000 shares
      of its common stock in the acquisition of the 15% minority interest in
      Minghua China. The shares were valued at $.14 per share. The transaction
      is further discussed in Note 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In February 2004, the Company issued 4,000,000 shares of
      its common stock in exercise of stock options. The exercise price was paid
      in services to the Company. Compensation expense of $480,000 was charged
      to current expense as a result of the transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During May of 2004 the Company issued 16,483,514 shares
      of its common stock to China Cardinal Limited, of Hong Kong, in
      satisfaction of a subscription agreement. The stock was sold at a price of
      $.14 per share, for an aggregate amount of
$2,307,692.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-17

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|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|4. | STOCKHOLDERS' EQUITY (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Luck Pond Enterprises Limited by Hong Kong (Luck Pond)
      had provided consulting services and acted as a finder in connection with
      the above-mentioned two subscription agreements with Qiang Long and an
      investment that was made in January 2004 by China Cardinal Limited of Hong
      Kong. In consideration of those services, Luck Pond will receive a ten
      percent commission on the total investment proceeds from both investors,
      payable in common stock of the Company and was determined by management to
      be equivalent to 28,390,531 common shares. This commission is contingent
      upon final funding of 100% of all the three above-mentioned subscription
      agreements. During 2004, at the completion of two of the agreements, the
      Company charged $830,100 to expense. The amount was included in accrued
      liabilities at December 31, 2004, and in January 2005, the Company issued
      5,770,000 shares of its common stock in payment of the
liability.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On June 29, 2007, the Board of Directors of Company
      unanimously approved, subject to the Majority Shareholders approval, the
      1-for-20 Reverse Split of companys issued and outstanding Common Stock,
      which will be effectuated in conjunction with the adoption of the
      Certificate of Amendment. The Majority Shareholders also approved this
      action in the Written Consent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Reverse Split reduce the number of issued and
      outstanding shares of Companys Common Stock and effectively increase the
      number of authorized and unissued shares of our Common Stock available for
      future issuance. The Reverse Split will become effective on the Effective
      Date, which occurs when the Certificate of Amendment is filed with the
      Secretary of State for the State of New York following the expiration of
      the 20-day period mandated by Rule 14c of the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Effect of Reverse Split on Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The table below sets forth, as of the Record Date and as
      of the Effective Date the following information both before and after the
      proposed Reverse Split (subject to slight adjustments resulting rounding
      of fractional shares):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

- The number of issued and outstanding shares of
  Common Stock
- The number of authorized and reserved shares of
  Common Stock;
- The number of authorized but unissued and
  unreserved shares of Common Stock.

| | CAPITALIZATION STRUCTURE OF THE COMPANY AT
      VARIOUS TIMES     
| | -------------------------------------------------------------------
| |                                                                    
| |                                                                    
| |                                                                    
| |                                                                    
| | Issued and outstanding shares of Common Stock                      
| | Authorized and reserved shares of Common
      Stock               
| |                                                                    
| | Authorized but unissued and unreserved
      shares of Common Stock

As shown in the table above, the
Reverse Split of the outstanding shares of our Common Stock will reduce the
number of issued and outstanding shares of our Common Stock and effectively
increase the number of authorized and unissued shares of our Common Stock
available for future issuance.

On January 29,2004, company entered
into a certain contract with Qiang Long Real Estate Development Co., Ltd., under
which, as amended and supplemented from time to time, Qiang Long is obligated to
purchase 140,000,000 shares of the Companys common stock, par value $0.01 at an
aggregate purchase price of US$ 29,400,000, or $0.21 per Share, US$ 653,795 of
which was paid to the Company as a performance bond at the signing of the
Agreement, US$ 632,911 of which was paid to the Company in 2006 in exchange from
3,013,862 Shares, and the balance of US$ 28,113,294 (the Final Installment) of
which was to be paid in full by June 30, 2007, for the remaining 136,986,138
Shares.

F-18

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|4. | STOCKHOLDERS' EQUITY (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | On June 29, 2007, the Company and Qiang Long entered into
      a letter agreement (the letter Agreement), pursuant to which the Company
      and Qiang Long acknowledged their consummation of the Qiang Long Contract.
      Pursuant to the Letter Agreement, the Company acknowledged its receipt of
      the Final Installment in cash from Qiang Long as fulfillment of Qiang
      Longs investment obligation, and agreed to issue the remaining Shares to
      Qiang Long as follows:

| | 1. | The Company will issue 50,000,000 of the Shares to Qiang
      Long on or before July 23, 2007, the date that is fifteen business days
      after the Company receives the Final Installment from Qiang Long;
    and                                                                                                                                                                            
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2. | Within fifteen (15) business days following the effective
      date of an amendment to the Companys Certificate of Incorporation to
      effect a one-for-twenty reverse split of the Companys outstanding Common
      Stock (the Amendment), the Company will issue the remaining 86,986,138
      Shares to Qiang Long, which will be equal to 4,349,307 Shares post-reverse
      split.

On July 27, 2007, the Company
instructed prior Transfer Agent to issue the 50,000,000 shares of common stock
to deliverable Qiang Long in the name of Jolly Concept Management Limited, in
accordance with Qiang Longs instructions.

On December 14, 2007, according to
Qiang Longs request, company instructed present Transfer Agent to issue the
replacement certificate showing the new name of the Company and the correct
number of shares, post reverse-split, and the remaining 4,349,307 shares of
common stock issuable to Qiang Long, to Jolly Concept Management Limited and to
Zhang, Lifang. The Company also agreed to issue 1,131,026 shares of common stock
post-reverse-split to Luck Pond Enterprises Limited or its designee, for its
services as finder in connection with the Qiang Long investment.

On November 12, 2007, the Company
completed an acquisition transaction with Top Time whereby we paid Daykeen a
total consideration of $54.9 million, in exchange for 100% ownership of Top
Time, consisting of $30 million in cash and $24.9 million in shares of our
common stock issuable within 90 days of the closing. The equity portion of the
purchase price amounts to a total of 62,250,000 shares of our common stock. The
share number was calculated based upon $0.02/share, the average of the closing
price of the Companys common stock on the OTCBB for the 365 calendar days prior
to May 31, 2007, which was adjusted for our stock split which occurred on
October 16, 2007. As a result, the effective purchase price per share was
$0.40.

On December 14, 2007, the Company
instructed present Transfer Agent to issue the total amount of 62,250,000 shares
of the Companys common stock, post-reverse-split, issuable to Daykeen, to
Daykeen Investment Limited.

The Company's capital structure as of
December 31, 2010 and 2009 was as follows:

| | Common stock  par value $0.01 | Authorized  | Issued and outstanding
| | ------------------------------ | ----------- | ----------------------
| | December 31, 2010              | 200,000,000 | 77,655,862            
| | December 31, 2009              | 200,000,000 | 77,655,862            

STOCK OPTION PLAN

On April 5, 2001, the Company's 2001
Stock Option Plan (the 2001 Plan) was adopted by the board of directors and
was approved by the Company's shareholders at the stockholders' annual meeting
on August 2, 2001. Pursuant to the 2001 Plan, the Company may grant incentive
and non-statutory (nonqualified) stock options to key employees and directors of
the Company. A total of 20,000,000 shares of common stock have been reserved for
issuance under the 2001 Plan. No employee may be granted options for more than
2,000,000 restricted shares under the 2001 Plan in any one fiscal year.

F-19

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|   | The maximum term of options granted under the 2001 Plan
      is ten years. Options granted are nontransferable and generally expire
      within three months after the termination of the grantee's
  services.                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                       
|4. | STOCKHOLDERS' EQUITY (Continued)                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                       
|   | The exercise price of incentive stock options must not be
      less than the fair value of the common stock on the date of the grant. The
      authority to grant new options under the 2001 Plan will terminate on April
      5, 2011, unless the 2001 Plan is terminated prior to that time by the
      board of directors.     
|   |                                                                                                                                                                                                                                                                                                                                       
|   | In 2001, the Company granted 2,000,000 nonqualified stock
      options under the 2001 Plan to the Chairman with a 5-year expiration date,
      and an exercise price of $1.75 per share. However, all 2,000,000 options
      were forfeited on May 10, 2004 when the chairman resigned.                                            
|   |                                                                                                                                                                                                                                                                                                                                       
|5. | INVESTMENT                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                       
|   | The Company has a one year deposit certificate with an
      investment company in the PRC. The certificate earns interest at 5.5% to
      8% per annum. The principal amount for the years ended December 31, 2010
      and 2009 was $377,263 and $692,699, and was recorded on the balance sheet
      as a short term investment.
|   |                                                                                                                                                                                                                                                                                                                                       
|6. | INVENTORIES                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                       
|   | Inventories at December 31, 2010 and 2009 consisted
      of:                                                                                                                                                                                                                                                                         

| |                       |   | 2010    |  |   | 2009    | 
| | --------------------- | - | ------- |  | - | ------- | 
| | Materials             | $ | 35,033  |  | $ | 34,225  | 
| | Low value consumables |   | 13,752  |  |   | 13,342  | 
| | Work in progress      |   | 270,860 |  |   | 262,785 | 
| | Finished goods        |   | 98,840  |  |   | 91,879  | 
| |                       | $ | 418,485 |  | $ | 402,231 | 

|7. | PROPERTY AND EQUIPMENT                        
|-- | ----------------------------------------------
|   |                                               
|   | Property and equipment at cost consisted
  of:

| |                                                        |   | 2010     |   |   | 2009     |  
| | ------------------------------------------------------ | - | -------- | - | - | -------- | -
| | Transportation equipment                               | $ | 66,416   |   | $ | 64,436   |  
| | Furniture and office equipment                         |   | 35,599   |   |   | 33,879   |  
| | Production equipment, buildings
      and improvements |   | 398,356  |   |   | 386,480  |  
| | Subtotal                                               |   | 500,371  |   |   | 484,795  |  
| | Less: impairment provision                             |   | (27,330  | ) |   | (26,515  | )
| | accumulated depreciation                               |   | (153,766 | ) |   | (109,145 | )
| |                                                        |   | 319,275  |   |   | 349,135  |  
| | Construction in progress                               |   | 182,078  |   |   | 176,650  |  
| |                                                        | $ | 501,353  |   | $ | 525,785  |  

Depreciation expense for the years ended December 31, 2010 and
2009 was $44,621 and $32,824, respectively. Impairment for the year ended
December 31, 2010 and 2009 was $ 27,330 and $26,515, respectively.

F-20

---

|CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
|-------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                    
|Notes to consolidated financial statements       
|(Audited)                                        

|8.  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company accounts for income taxes in accordance with
      the provisions of SFAS No. 109 (ASC Topic 740), Accounting for Income
      Taxes.                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Income tax expense is based on reported income before
      income taxes. Deferred income taxes reflect the effect of temporary
      differences between assets and liabilities that are recognized for
      financial reporting purposes and the amounts that are recognized for
      income tax purposes. In accordance with SFAS No. 109, Accounting for
      Income Taxes, these deferred income taxes are measured by applying
      currently enacted tax laws.                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company has a United States federal net operating
      loss carryforward of approximately $(5.24) million expiring in the years
      2021 - 2025. The tax benefit of this net operating loss has been offset by
      a full valuation allowance. A portion of the net operating loss
      carryforward will be subject to a limitation due to the Change of
      ownership provisions under Section 382 of the Internal Revenue Code and
      similar state provisions.                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Net operating income (loss) carry forwards are allowed
      under the Hong Kong and Chinese governments tax systems. In China, the
      previous five years net operating loss are allowed to be carried forward
      to offset future taxable income. In Hong Kong, the net operating loss can
      be carried forward indefinitely to offset future taxable income.                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9.  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | From time to time, the Company has disputes that arise in
      the ordinary course of its business. Currently, according to management,
      there are no material legal proceedings to which the Company is a party to
      or to which any of their property is subject that will have a material
      adverse effect on the Companys financial condition.                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10. | FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Statement of Financial Accounting Standards No. 107 (ASC
      Topic 825), Disclosures about Fair Value of Financial Instruments
      requires entities to disclose the fair values of financial instruments
      except when it is not practicable to do so. Under SFAS No. 107ASC Topic
      825, it is not practicable to make this disclosure when the costs of
      formulating the estimated values exceed the benefit when considering how
      meaningful the information would be to financial statement
users.             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | As a result of the difficulties presented in the
      valuation of the loans payable to related entities/parties because of
      their related party nature, estimating the fair value of these financial
      instruments is not considered practical. The fair values of all other
      assets and liabilities do not differ materially from their carrying
      amounts. None of the financial instruments held are derivative financial
      instruments and none were acquired or held for trading purposes in 2009
      and 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|11. | SUBSEQUENT EVENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The management assessed there were no events occurring
      after balance date as of December 31, 2010 and prior to the time of annual
      report completion which might affect the financial
  report.                                                                                                                                                                                                                                                                                                                                    

F-21

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