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<TITLE>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
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<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 20-F</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(Mark One)

</DIV>
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    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)&nbsp;OF THE SECURITIES EXCHANGE ACT OF
1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

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    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended December&nbsp;31, 2005</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

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    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

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    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SMALL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>Date of event requiring this shell company report ............
</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number 000-29008</B></DIV>

<DIV align="center" style="font-size: 17pt; margin-top: 12pt"><B><FONT style="border-bottom: 1px solid #000000">CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION</FONT></B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of Registrant as specified in its charter)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt">(Translation of Registrant&#146;s name into English)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt">British Virgin Islands</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt">(Jurisdiction of incorporation or organization)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Room&nbsp;2413, 24<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Floor, Shui On Centre, 8 Harbour Road, Wanchai, Hong Kong
<DIV style="border-bottom: 1px solid #000000; font-size: 0px">&nbsp;</DIV>
(Address of principal executive offices)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(b) of the Act.
</DIV>

<DIV align="center">
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<TR valign="bottom">
    <TD align="center" valign="top">Title of each class
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Name of each exchange on which registered</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">None
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Not Applicable</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
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</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(g) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Common Stock, Par Value US$0.01 each<BR>
<DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
(Title of Class)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None<BR>
<DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
(Title of Class)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of August&nbsp;31, 2006, there were 11,274,497 shares of Common Stock outstanding, with par value of
US$0.01 each.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of
the Securities Act.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT>
Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT>
Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note &#150; Checking the box will not relieve any registrant required to file reports pursuant to
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#254;</FONT>
Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#111;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in
Rule&nbsp;12b-2 of the Exchange Act. (Check one):
</DIV>

<DIV align="center" style="font-size: 10pt">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated filer <FONT face="Wingdings">&#254;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark which financial statement item the registrant has elected to follow
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT> Item&nbsp;17 <FONT face="Wingdings">&#254;</FONT> Item&nbsp;18 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule&nbsp;12b-2 of the Exchange Act).
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT> Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT> No &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">&nbsp;
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Introduction</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This annual report on Form 20-F includes our audited consolidated financial statements as of
December&nbsp;31, 2004 and 2005, and for each of the three years in the period ended December&nbsp;31, 2003,
2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We list our common stock, par value of US$0.01 on the Nasdaq Capital Market, or Nasdaq, under the
symbol &#147;CTDC&#148; (formerly known as &#147;TRFDF&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Except as otherwise required and for purposes of this Annual Report only:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;CTDC&#148;, &#147;Company&#148;, &#147;us&#148; or &#147;we&#148; refer to China Technology Development Group Corporation.
The term &#147;you&#148; refers to holders of our common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;Hong Kong&#148; and the &#147;Government&#148; refer to the Hong Kong Special Administrative Region of
the People&#146;s Republic of China and its government, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;China&#148; and the &#147;Chinese government&#148; refer to the People&#146;s Republic of China and its government.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All references to &#147;Renminbi,&#148; or &#147;Rmb&#148;
are to the legal currency of China, all references to
&#147;U.S. dollars,&#148; &#147;dollars,&#148; &#147;$&#148; or &#147;US&#148; are to the legal currency of the United States and
all references to &#147;Hong Kong dollars&#148; or &#147;HK$&#148; are to the legal currency of Hong Kong.
Any discrepancies in any table between totals and sums of the amounts listed are due to
rounding.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Description of Business</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China Technology Development Group Corporation (formerly known as &#147;Tramford International Limited&#148;)
was incorporated as an International Business Company under the laws of the British Virgin Islands
in September&nbsp;1995. The Company is a dynamic growth company with its main portfolio business based
in China. Headquartered in Hong Kong, the Company operates the business in Hong Kong, Beijing,
Shenzhen, and the Zhejiang Province. The Company became a NASDAQ listed company in 1996, one of the
very first China-based technology companies listed on the NASDAQ Capital Market. The Company
capitalizes its unique techniques of developing ingredients for health food products and food
supplements utilizing bio-active components of bamboo to enter the fast growing Chinese
nutraceutical market. Besides that, it is also one of the leading network security solution
providers in China.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Recent major events</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;13, 2005, the Company entered into a sale and purchase agreement with Beijing Holdings
Limited (&#147;Beijing Holdings&#148;), its then 47.18% shareholder, pursuant to which the Company acquired
51% of the issued and outstanding stock of a nutraceutical corporation in China, named Future
Solutions Development Inc. (now known as &#147;China Natures
Technology Inc.&#148;, &#147;CNT&#148;). On the same day,
the Company also entered into an option agreement with Beijing Holdings to acquire the remaining
issued and outstanding stock of CNT. At the Annual Meeting of Stockholders of the Company held on
October&nbsp;21, 2005, special resolution to approve the acquisition by the Company of the 51% equity
interest in CNT and the option to acquire the remaining 49% equity
interest in CNT were passed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;31, 2005, the transaction to acquire from Beijing Holdings the 51% equity interest of
the issued and outstanding stock of CNT closed and as a result, the Company issued 2,233,800
shares of the Company&#146;s common stock of US$0.01 each to Beijing Holdings. After the closing,
Beijing Holdings&#146; ownership of shares of the Company&#146;s common stock increased from 47.18% to 60.11%
and the Company had total outstanding shares of 9,128,297 shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;22, 2005, the Company exercised its option to acquire, from Beijing Holdings, the
remaining 49% equity interest of CNT in exchange for 2,146,200 shares of the Company&#146;s common
stock. As a result of the closing of the transaction, CNT became a wholly owned subsidiary of the
Company and Beijing Holdings&#146; aggregate ownership in the Company increased from 60.11% to 67.70% and the Company had total outstanding shares of 11,274,497 shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;9, 2006, the name of the Company was changed to China Technology Development Group
Corporation and its common stock continued to trade on NASDAQ Capital Market under the new symbol
&#147;CTDC&#148;. Along with the corporate name change, the Company also moved its corporate website to a
new domain at www.chinactdc.com and the CUSIP number of the Company&#146;s common stock was also changed
to G84384 10 9.
</DIV>


<P align="center" style="font-size: 10pt">1
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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

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<TR><TD colspan="9"><A HREF="#000">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1. Identity of Directors, Senior Management and Advisers</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">Item&nbsp;2. Offer Statistics and Expected Timetable</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;3. Key Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;4. Information on the Company</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">Item&nbsp;4A. Unsolved Staff Comments</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;5 Operating and Financial Review and Prospects</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;6 Directors, Senior Management and Employees</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;7 Major Shareholders and Related Party Transactions</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;8 Financial Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;9 The Offer and Listing</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;10 Additional Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;11 Quantitative and Qualitative Disclosures About Market Risk</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;12 Description of Securities Other than Equity Securities</A></TD></TR>
<TR><TD colspan="9"><A HREF="#014">PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">Item&nbsp;13 Default, Dividend Arrearages and Delinquencies</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">Item&nbsp;14 Material Modifications to the Rights of Security Holders and Use of Proceeds</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">Item&nbsp;15 Controls and Procedures</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">Item&nbsp;16A Audit Committee Financial Expert</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">Item&nbsp;16B. Code of Ethics</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#020">Item&nbsp;16C. Principal Accountant Fees and Services</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#021">Item&nbsp;16D. Exemptions from the Listing Standards for Audit Committee</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#022">Item&nbsp;16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#023">Item&nbsp;17 Financial Statements</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#024">Item&nbsp;18 Financial Statements</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#025">Item&nbsp;19 Exhibits</A></TD></TR>
<TR><TD colspan="9"><A HREF="#026">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv3w1.htm">EX-3.1 AMENDED MEMORANDUM AND ARTICLES OF ASSOCIATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w1.htm">EX-10.1 AGREEMENT WITH IVORY CAPITAL ASIA LTD.</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w2.htm">EX-10.2 AGREEMENT WITH BEIJING HOLDINGS LTD.</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w3.htm">EX-10.3 OPTION AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w4.htm">EX-10.4 SUPPLY OF GOODS AGREEMENT WITH CHINA NEW ERA</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w5.htm">EX-10.5 FRAMEWORK AGREEMENT WITH LEGEND</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w6.htm">EX-10.6 FRAMEWORK AGREEMENT WITH LEGENDSEC</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv10w7.htm">EX-10.7 FRAMEWORK AGREEMENT WITH MR. HU LINFU</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv14w1.htm">EX-14.1 CODE OF ETHICS</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv21w1.htm">EX-21.1 LIST OF THE COMPANY'S SIGNIFICANT SUBSIDIARIES</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv31w1.htm">EX-31.1 CERTIFICATION OF CEO REQUIRED BY SEC. 302</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv31w2.htm">EX-31.2 CERTIFICATION OF CEO REQUIRED BY SEC. 302</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv31w3.htm">EX-31.3 CERTIFICATION OF CFO REQUIRED BY SEC. 302</A></TD></TR>
<TR><TD colspan="9"><A HREF="h00634exv32w1.htm">EX-32.1 CERTIFICATION OF CEO AND CFO REQUIRED BY SEC. 906</A></TD></TR>
</TABLE>
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<!-- link1 "PART I" -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PART I</B>
</DIV>

<!-- link2 "Item&nbsp;1. Identity of Directors, Senior Management and Advisers" -->
<DIV align="left"><A NAME="001"></A></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;1. Identity of Directors, Senior Management and Advisers</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable.
</DIV>
<!-- link2 "Item&nbsp;2. Offer Statistics and Expected Timetable" -->
<DIV align="left"><A NAME="002"></A></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. Offer Statistics and Expected Timetable</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable.
</DIV>
<!-- link2 "Item&nbsp;3. Key Information" -->
<DIV align="left"><A NAME="003"></A></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3. Key Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp; <B>A. </B><B><I>Selected financial data.</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected financial data should be read in conjunction with Item&nbsp;5 &#151; the
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#148;, and the
Financial Statements and Notes thereto included elsewhere in this Annual Report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected financial data at December&nbsp;31, 2004 and 2005 and years ended December&nbsp;31, 2003,
2004 and 2005 have been derived from and should be read with our audited consolidated financial
statements, including notes to the consolidated financial statements, included in this Annual
Report beginning on page F-1. We derived the selected financial data at December&nbsp;31, 2003, 2002
and 2001 and for the years ended December&nbsp;31, 2002 and 2001 from our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP, but have not been included in
this Annual Report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All financial data included elsewhere in this Annual Report are expressed, unless otherwise
stated, in the nearest thousand of Renminbi. This Annual Report contains
translations of Renminbi amounts into U.S. dollar amounts, solely for your convenience. Unless
otherwise indicated, the translations have been made at Rmb8.0702 = US$1.00, which was the noon
buying rate in The City of New York for cable transfers in Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York on December&nbsp;30, 2005. See Item&nbsp;3 &#147;Key Information
&#151; Selected Financial Data &#151; Exchange Rate Information&#148; for historical information regarding this
noon buying rate. You should not construe these translations as representations that the Renminbi
actually represents such U.S. dollar amounts or could have been or could be converted into U.S.
dollars at the rate indicated or at any other rates.
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000">(Amounts in thousands, except per share data)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2001</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2002</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb(1)</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">US$(2)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated Statement
of Operations Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating
Loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,751</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,105</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,886</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,215</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,628</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(325</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from continuing
operations before
minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,790</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,198</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,956</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,472</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) from
discontinued
operations before
income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(610</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,805</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(288</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,141</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,446</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,420</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share from
continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.23</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.31</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Loss)/earnings per
share from
discontinued
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.70</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000">(Amounts in thousands, except per share data)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2001</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2002</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">US$(2)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental data
to Consolidated
Statements of
Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated
Balance Sheet Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,902</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>During the fiscal year ended December 31, 2005, we disposed
the service rendering operating segment. The operating result up to
the date of this disposal and the loss resulted from the disposal
were reported as discontinued operations. To conform with the
presentation of this year, the comparative operating results of the
disposed segment for the years ended December 31, 2001, 2002, 2003
and 2004 were consistently summarized into discontinued operations.</TD>
</TR>

<TR valign="bottom" style="font-size: 3pt">
    <TD>&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>For the convenience of the reader, translation of amounts from Renminbi into United States
Dollars has been made at the noon buying rate in New York City for cable transfer in
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York
on December&nbsp;31, 2005 of Rmb 8.0702 = US$1.00.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Rate Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;21, 2005 the Chinese government changed its policy of pegging the value of the Renminbi to
the U.S. dollar. This revaluation of the Renminbi was based on a conversion of Renminbi &nbsp;into
United States dollars at an exchange rate of US$1.00=Rmb8.11. Under the new policy, the
Renminbi will be permitted to fluctuate within a band against a basket of certain foreign
currencies. This change in policy resulted initially in an approximately 2.0% appreciation in the
value of the Renminbi against the U.S. dollar and could result in further and more significant
appreciations. Although the Company generates substantially all of its revenue in Renminbi which
has become more valuable in U.S. dollars, the Company&#146;s U.S. dollars cash deposits are subject to
foreign currency translations which will impact net income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have calculated and presented
our financial statements in Renminbi. Our business is
primarily conducted in China and denominated in Renminbi. Reports will be made to shareholders and
will be expressed in Renminbi. The conversion of
Renminbi into U.S. dollars in this Annual Reports is based on the noon buying rate in The city of
New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve
Bank of New York. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this
annual report were made at US$1.00 to Rmb8.0702, which was the prevailing rate on December&nbsp;31, 2005.
The prevailing rate on August&nbsp;31, 2006 was US$1.00 to Rmb7.9538. We make no representation that any
Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or
Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The
Chinese government imposes controls over its foreign currency reserves in part through direct
regulation of the conversion of Renminbi into foreign exchange and though restrictions on foreign
trade.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth various information concerning exchange rates between the Renminbi
and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the
preparation of our periodic reports or any other information to be provided to you. The source of
these rates is the Federal Reserve Bank of New York.
</DIV>


<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Period-end</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><I>(Rmb per U.S. $1.00)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2001 (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2770</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2786</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2676</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2766</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2002 (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2770</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2800</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2669</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2800</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2003 (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2770</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2800</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2765</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2769</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2004 (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2768</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2774</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2764</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2765</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2005 (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.1472</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2765</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0702</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0702</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">November&nbsp;2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0839</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0877</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0796</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0796</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0764</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0808</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0709</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0709</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">January&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0668</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0705</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0608</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0608</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">February&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0500</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0608</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0420</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0420</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0345</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0503</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0170</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0170</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">April&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0155</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0248</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0040</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0165</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">May&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0131</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0300</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0005</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0215</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">June&nbsp;30, 2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0042</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0225</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9943</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9943</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">July&nbsp;2006 (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9897</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0018</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9690</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9690</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">August&nbsp;2006 (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9722</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9538</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.0000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.9538</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Annual averages are calculated by averaging the rates on the last business day of each month
during the relevant period.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Monthly average are calculated by averaging the daily rates during the relevant period.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp; <B>B. </B><B><I>Capitalization and indebtedness.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp; <B>C. </B><B><I>Reasons for the offer and use of proceeds.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp; <B>D. </B><B><I>Risk factors.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following matters and other additional risks not presently known to us or that we deem
immaterial, may have a material adverse effect on our business, financial condition, liquidity,
results of operations or prospects, financial or otherwise. Reference to this cautionary statement
in the context of a forward-looking statement or statements shall be deemed to be a statement that
any one or more of the following factors may cause actual results to differ materially from those
in such forward-looking statement or statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">You should carefully consider the risks described below and other information in this annual report
before deciding to invest in the Company.
</DIV>


<P align="center" style="font-size: 10pt">5
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Forward Looking Statements</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Some of the statements contained in this Annual Report contain forward-looking information within
the meaning of the <I>Private Securities Litigation Reform Act of 1995</I>. These statements are found in
this Item&nbsp;3, Item&nbsp;4, Item&nbsp;5 and other sections in which the future prospects of the Company are
discussed. These statements include information concerning:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to achieve or sustain profitability in the rapidly changing Internet and nutraceutical market in which we
operate;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to successfully integrate acquired businesses, products and technologies;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to keep pace with the rapidly changing technology and products in the market we operate;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to achieve our future pricing strategies or policies;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to achieve our plans to expand our sales;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to achieve our plans to diversify our sources of revenues industry;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to respond to competition in the China market;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to maintain and protect our intellectual property.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">You can identify these statements by forward-looking terminology such as &#147;anticipate&#148;, &#147;expect&#148;,
&#147;believe&#148;, &#147;goal&#148;, &#147;plan&#148;, &#147;intend&#148;, &#147;estimate&#148;, &#147;may&#148;, &#147;can&#148;, &#147;could&#148;, &#147;will&#148; and &#147;would&#148; or
similar words. These forward-looking statements involve known and unknown risks, uncertainties and
other factors, including those described in this Item&nbsp;3 and elsewhere in this annual report that
could cause our actual results to differ materially from those anticipated. &#147;CTDC&#148;, &#147;Company&#148;, &#147;us&#148;
or &#147;we&#148; refer to China Technology Development Group Corporation. The term &#147;you&#148; refers to holders
of our common stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(a)&nbsp;Risks Associated with Our Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(1)&nbsp;We have limited operating history and evolving business model and strategy.</I></B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have limited experience in the businesses that we are currently involved, including the network
security and nutraceutical products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We were originally engaged in the sanitary wares and ceramic tiles manufacturing business, which
was changed to the Internet related business in June&nbsp;2000 and then the addition of nutraceutical
related business in October&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For Internet related business, we started with a focus on system integration services (&#147;SI&#148;). In
2001, SI was terminated due to very keen competition and a low profit margin. We then positioned
ourselves as a network security services provider and started developing our own products. Major
development of our existing products were completed in 2002 and certificates for these products
were obtained from the Police Bureau, Security Bureau, etc in subsequent months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
nutraceutical related business is operated by the CNT and its
subsidiaries which was newly acquired by us in October 2005. The
business comprised commercializing the unique techniques of various types of
bamboo extracts. As of August&nbsp;28, 2006, there have been ten
(10)&nbsp;patents filed in China, three (3)
of them have been approved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Both network security market and nutraceutical product market of China are rapidly evolving. We
lack experience in managing these new markets. We are planning to strengthen the sales and marketing
function to minimize this risk, such as, active participation in exhibitions, recruitments of
qualified sales team and interview of senior management of customers. However, we cannot assure you
that we will finally succeed
</DIV>


<P align="center" style="font-size: 10pt">6
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in meeting customers&#146; needs in these markets. If we fail to modify our business model or strategy
to adapt to these market changes, our business financial condition and results of operations may
suffer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(2)&nbsp;We
have continued to incur operating losses and we cannot provide assurance that we can achieve or
sustain profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have incurred operating losses in the preceding five years as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Operating loss</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(in thousands of Rmb)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2001
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">(12,751</TD>
    <TD nowrap valign="top">)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2002
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">(15,105</TD>
    <TD nowrap valign="top">)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2003
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">(4,378</TD>
    <TD nowrap valign="top">)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">(10,779</TD>
    <TD nowrap valign="top">)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">(17,886</TD>
    <TD nowrap valign="top">)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The rapidly evolving Internet market and the newly acquired nutraceutical business in which we
operate have made it difficult for us to estimate our future performance and profitability. We
cannot give any assurances that operating losses will not increase in the future because our
revenues, gross margins and operating results may fluctuate significantly due to, among other
things:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to obtain timely and accurate user sales information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the effectiveness of our distribution channel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>product upgrading or updating progress by us or our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the mix of products sold;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our competitors&#146; price changes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our research and development and marketing abilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our acquisition costs of new technology or businesses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>employee wage pressure arising from increased competition for skilled employees and increased
governmental staff welfare regulations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extraordinary costs incurred for acquisitions or any reductions in work force, if any;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The above factors make predicting revenues more difficult and may adversely affect our performance
and profitability. Although we believe new or additional sales contracts may be entered into in the
future, there is no assurance that these contracts can be successfully executed, or even if
successfully executed, we may not be able to control our costs effectively. The operating results
would be materially adversely affected in case the contracts are not successfully obtained and
costs are not effectively controlled.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(3)&nbsp;We may not be competitive and increased competition could seriously harm our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Many of our competitors in the fast growing network and nutraceutical market in China have one or
more of the following advantages over us:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Longer operating history;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Greater financial, technical, marketing, sales and other resources;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Greater profitability in their operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Superior product functionality in certain areas;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Greater name recognition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A broader range of products to offer; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A larger base of customers.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Current and potential competitors have established, or may establish, cooperative relationships
among themselves or with third parties to enhance their products, which may result in increased
competition. As a result of these and other factors, we may be unable to compete successfully with
our existing or new competitors. With China entering into World Trade Organization (WTO), more and
more foreign companies are entering into network and nutraceutical market in China. They also
impose great potential competition to our business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(4)&nbsp;We may not successfully integrate acquired businesses, products and technologies.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a component of our business and growth strategy, we intend to acquire companies, products and
technologies that we feel will enhance our business model, revenue base, operations and
profitability. The acquisitions may result in use of significant amounts of cash, dilutive
issuances of common stock, amortization expenses related to certain intangible assets and annual
impairment of goodwill on acquisition, each of these could materially adversely affect our results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may also encounter problems in implementing effective controls over acquired businesses,
including:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the difficulties of integrating, assimilating and managing the operations, technologies, intellectual property,
products and personnel of the acquired business; including the implementation of controls, procedures, and policies
appropriate for a listed company at the acquired business that prior to acquisition had lacked such controls, policies
and procedures, particularly if the acquired business will exist as a separate line of business of us or as a
subsidiary not wholly owned by us.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the diversion of management attention to business concerns of the acquired business from that of our existing operation.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>declining employee morale and retention issues for employees in the acquired business.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the risk of litigation by terminated employees and contractors.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our lack of familiarly with other conditions and business practices of the acquired business.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The acquisition implementation process may last longer than one financial reporting period. Any
failure in such implementation may have an adverse effect on our business, results of operations
and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(5)&nbsp;We
have experienced deficiencies in our ability to integrate a newly
acquired business.</I></B></DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In
December&nbsp;2005, after the acquisition of the remaining 49% of
CNT, we proposed to strengthen internal controls at Anji Bio, a 93.67% subsidiary
of Zhejiang Innoessen, the 71.43% subsidiary of the newly acquired CNT. However, we
faced resistance  from Mr. Hu&nbsp;Linfu(&#147;Mr. Hu&#148;), the then
general manager of Anji Bio, and Mdm. Chen Shuizhen (&#147;Mdm.
Chan&#148;), the wife of Mr. Hu and
the minority shareholder of Anji Bio (collectively, the &#147;Anji
Buyers&#148;). Consequently, the Anji Buyers refused to provide financial statements and prohibited the
access by staff sent by the Company at the site of Anji Bio. Having reviewed the
situation and expected that the future smooth control of Anji Bio
would potentially cause the Company to incur significant costs, management decided to dispose of our entire interest in Anji Bio and started the
negotiation of disposal with the Anji Buyers. At such time, we also
terminated Mr. Hu as the general manager of Anji Bio. Following the termination
of Mr.&nbsp;Hu, the Anji Buyers filed litigation against Zhejiang Innoessen to the People&#146;s
Court of Anji County (the &#147;Anji Court&#148;). In the litigation, the Anji Buyers requested the Anji
Court to rule that the termination of the service of Mr.&nbsp;Hu was
unlawful and further requested the Anji Court to order the Company to
pay Mr.&nbsp;Hu, an economic compensation of Rmb 50,000 for such
unlawful termination. The Company restarted its negotiation with the Anji Buyers in
July&nbsp;2006 and entered into a memorandum with the Anji
Buyers on July&nbsp;27, 2006 in relation to the potential disposal of
Anji Bio. (the &#147;Anji
Memorandum&#148;) (filed as Exhibit&nbsp;10.6 hereto). Upon the execution of the Anji Memorandum, Zhejiang
Innoessen and the Anji Buyers mutually applied to the Anji County to delay the litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
disputes with the Anji Buyers has had significant effects on our
operations,
including the late submission of financial information to
<font style="white-space: nowrap">PricewaterhouseCoopers,</font> our independent registered public accounting firm which finally
lead to late commencement of our audit and thus the late filing of
this Annual Report. Because of the late filing of this Annual Report, we face the risk of delisting from Nasdaq. We
</DIV>
<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">may also
face resuming litigation with the Anji Buyers.
We believe that our proposed disposal of Anji Bio will cause us to incur additional capital expenditures because we will need to invest in a new
plant facility to replace the Anji Bio facility in order to enable us
to maintain the Company&#146;s productivity. Substantial
legal costs may also be incurred as a result of the litigation with the Anji Buyers in case the final settlement with
the Anji Buyers is not successful.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently
the Anji Bio is the main production  base of the Group. In case the
proposed disposal is completed and new plant facility to replace the
Anji Bio facility is not successfully found, we may face the risk
of having no production facility. Our results of operations and financial
conditions may be adversely mutually affected.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(6)&nbsp;We may face risks in retaining current employees.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Many of
our key employees are located in areas and have skills in fields where there is high worker
mobility and work force turnover. The departure of a large number of
our key employees can be disruptive and could
materially adversely impact our business, including our ability of new product development,
existing products upgrading and products sales and marketing.
Currently we do not have employment contracts with our key employees. We expect to rely, and will continue to rely, on a number of key technical and
management employees. We can make no assurance that we will be able
to hire, motivate and retain highly effective key employees. If any of our key employees leave, our business, results of operations and
financial condition could suffer. Besides, we currently do not use our own employees or members of our management team to operate certain of
our operating subsidiaries. Key management at these companies has been in place for several years
and has established solid relationships with their customers. Competition in our industry for
executive-level personnel is strong and we can make no assurance that we will be able to retain the
highly effective executive employees. Although we plan to provide incentives to management to stay
with the acquired business, we have not entered into agreements with them. If such key persons were
to resign we might face impairment of relationships with remaining employees or customers, which
might result in further resignation by employees, and might cause long-term clients to terminate
their relationship with us. Furthermore, we have not entered into any non-competition and
confidentiality agreements with these employees and management. Due to the limited enforceability
of these types of agreements in China, we face the risk that employees of the operating subsidiary
might divulge our protected intellectual property or trade secrets to competitors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(7)&nbsp;We are subject to risks of excessive reliance on certain significant customers and risks of
non-recurring contracts and cost controls.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For our
network security business, the two largest customers in 2005
accounted for over 38.3% of our
total sales, compared to 79.9 % of its 2004 total sales of the segment. For our nutraceutical
business, the two largest customers in 2005 accounted for over 59.8% of our total sales. Although we
believe that we have maintained good relationships with these customers, we cannot assure you that
we will continue to maintain good relationships with these customers. A loss of one or both of
these customers could have a material adverse effect on our business, results of operation and
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Prior to 2004, a substantial portion of our contracts signed by our subsidiary &#151; BBHL were
short-term, individual and non-recurring.  In 2004, we
attempted to improve this situation by seeking longer term
contracts:</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a) On
March&nbsp;14, 2003, we had
entered into a three years long term contract
with the Legend Group (subsequently renamed the Lenovo Group).
</DIV>
<P align="center" style="font-size: 10pt">9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The sales
to Legend Group amounted to Rmb1.3&nbsp;million in 2003, Rmb
0.68&nbsp;million in 2004 and Rmb 2.47&nbsp;million in 2005, representing
respectively, 15.2%, 58.6% and 38.3% of the revenues of BBHL of the year. The contract with the
Legend Group had expired in March&nbsp;2006. We are currently negotiating the renewal of the contract
and sales with the Legend Group since the expiry of the old contract are conducted on individual
basis.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On February 10, 2005, we had entered into a two years&#146;
contract with the Legendsec (Beijing) Limited (&#147;Legendsec&#148;)
at exactly the same terms of the Legend Group;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We acquired Zhejiang Innoessen,
a 71.43% subsidiary of CNT in October 2005 which had an existing long term contract with the
China New Era Health Industry Group Limited (&#147;New Era&#148;).
The sales made by our Nutraceutical Operations to New Era in the
2004 and 2005 Period amounted to Rmb1.32 million and Rmb2.86 million,
representing respectively 42.1% and 54.7% of the total revenues of our
Nutraceutical Operations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We cannot
assure you that these contracts can be maintained successfully or what
level of sales will be generated under these contracts. Any failure in
maintaining the contract could materially and adversely affect the
Company&#146;s revenues, Besides, any additional changes in the
contract terms could have material adverse effect on our business,
results of operations and financial conditions.
</DIV>


<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(8)&nbsp;We may not be able to keep pace with the rapid technological changes in the market, new
competition, and new product developments.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The markets in which our business are involved are highly fragmented and characterized by ongoing
technological developments, evolving industry standards and rapid changes in customer requirements.
Our success will depend on our ability to:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide a broad range of network security, network management software products and
nutraceutical products;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>timely develop and introduce new products with technological advances;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>respond promptly to new customer requirements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>comply promptly with evolving industry standards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide upgrades and updates to users frequently at the lowest costs; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain compatibility of our products with popular operating systems and develop products
that are compatible with new or otherwise emerging operating systems.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our product enhancements or new products may not adequately address the changing needs of the
marketplace. New products with new technological capabilities could replace or shorten the life
cycle of our products or cause our customers to defer or cancel
purchases of our existing products. Our Technology is subject to the
risk of obsolence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our product development efforts are impacted by the adoption or evolution of forthcoming industry
standards. As industry standards are adopted or evolve, we may have to modify existing products or
develop and support new versions of existing products. In addition, if an industry standard does
not develop, our products and our competitors&#146; products could be incompatible, which could prevent
or delay overall development of the market for a particular product. If our products fail to comply
with existing or evolving industry standards in a timely fashion, if any in the future, our
business, results of operation and financial condition could be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our long-term success depends on our ability to upgrade and update existing product offerings,
modify and enhance acquired products and introduce new products, which meet our customers&#146; needs.
Future upgrades and updates may include additional functionality, response to user problems or
address compatibility problems with changing environments. We believe that our ability to provide
these upgrades and updates frequently and at low costs is key to our success. Failure to release
upgrades and updates could have a material adverse effect on our business, results of operations
and financial condition. Our failure to introduce in a timely manner new products that are
compatible with requirements preferred by users would materially and adversely affect our business,
results of operations and financial condition.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(9)&nbsp;We do not intend to pay dividends.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payment of dividends is within the discretion of our Board of Directors. Our Board of Directors
does not intend to declare any dividends in the foreseeable future, but instead intends to retain
all future earnings, if any, for use in our business operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(10)&nbsp;We are subject to risk of computer hackers&#146; attacks.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Following the increase in computer crimes in China, computer hackers may create viruses to sabotage
or otherwise attack our products. Although no such event has occurred or been discovered to date,
the adverse impact arising from any virus sabotage or attacks cannot be ignored. If sabotage or
attacks on our products
</DIV>
<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">do happen, our customers&#146; computer systems could be seriously damaged. Consequently, our business
will be adversely impacted as a result of our impaired professional image.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(11)&nbsp;Our
subsidiaries are subject to termination.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
agreements for our 76% held, 71.43% held and 93.67% held subsidiaries,
respectively BBHL, Zhejiang Innoessen and Anji Bio, provides for an initial term of 50&nbsp;years, 20
years and 10&nbsp;years respectively. Following the Anji Memorandum,
upon the completion, Anji Bio may be disposed and thus its term may be
less than the  initial term. In the event the term of agreements is not
extended, the subsidiaries will be dissolved and liquidated pursuant to the provisions of the
applicable law and the applicable  agreements. In
addition, subsidiaries may be
terminated prior to the expiration of the agreements upon the occurrence of certain
events, including without limitation, the inability of the enterprise to conduct its business due
to financial losses or a breach of the agreements by one of the parties.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(12)&nbsp;We
may not be able to adequately control the business of our
subsidiaries. We have experienced integration issues with one of our
subsidiaries.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may not be as effective in providing and maintaining control over our operating subsidiaries and
their business operations as direct or indirect owners of these businesses. We may not be able to
take control of the operating subsidiary upon the occurrence of certain events, such as the
imposition of statutory liens, judgments, court orders, death or capacity. Furthermore, if the
operating subsidiary fails to perform as required, we will have to rely on the Chinese legal system to
enforce our rights and due to the uncertainties that exist under Chinese Law about the structure of our
organization, there is no guarantee that we will be successful in an enforcement action. In
addition, the Chinese government may propose new laws or amend current laws that may be detrimental to
our current relationships with our operating subsidiaries, which may in turn have a material
adverse effect on our business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We experienced problems
while attempting to integrate Anji Bio as mentioned in the fourth and
fifth paragraphs of the fourth risk factor under the subheading
&#147;Risks-Associated with Our Business&#148;. The
delayed preparation of our financial statements and the delayed
filing of our Annual Report and the possible delisting of our common
stock from Nasdaq have resulted from our integration problems with
Anji Bio. The potential disposal of Anji Bio to the Anji Buyers in
accordance with the terms of the Anji Memorandum will likely result
in the incurrence by the Company of additional capital expenditures
in order to
restore its production capacity. In addition, substantial legal costs may result from
litigations with Anji Buyers. As of date we do not have similar
problems with any of our other subsidiaries, however we cannot be
certain that such an incident may not recur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(13)&nbsp;We
may fail to consummate the settlement with the Anji Buyers.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant
to the Anji Memorandum dated July 27, 2006, we have to complete the
disposal of the Anji Bio before September 30, 2006. We cannot assure
you that settlement can be completed on time. We may face the
resuming of
litigation and further diversion of our resources in dealing with
the litigations
which eventually may cause material adverse effect on our results of
operations and financial conditions.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(14)&nbsp;We may not be able to successfully implement our growth strategies.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are pursuing a number of growth strategies, which will require us to introduce more
technological products through partnerships, joint ventures and acquisitions. Some of these
strategies relate to new technological products for which there are no established markets in
China, or relate to technological
</DIV>
<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">products in which we lack experience and expertise. We cannot assure you that we will be able to
deliver new technological products on a commercially viable basis or in a timely manner, or at all.
Any failure in implementation of our strategies could materially adversely affect our business,
financial condition and results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(15)&nbsp;We may face difficulties in implementing our acquisition strategy, including identifying
suitable opportunities and integrating them with our existing operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As part of our business strategy, we intend to use partnerships and acquisitions to facilitate the
introduction of new service offerings as well as to add capabilities that we do not currently have.
For example, we may consider acquiring or entering into partnerships with firms that specialize in
unique technology where expertise is not easily obtained.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">However, our ability to implement this strategy will depend on the availability of suitable
acquisition candidates at an acceptable cost, our ability to compete effectively to attract and
reach agreement with acquisition candidates or joint venture partners on commercially reasonable
terms, the availability of financing to complete larger acquisitions or joint ventures, as well as
our ability to obtain any required governmental approvals. In addition, the benefits of a
partnership, acquisition or joint venture transaction may take considerable time to develop, and
there is no assurance that any particular partnership, acquisition or joint venture will produce
the intended benefits. For example, we may experience difficulties in integrating acquisitions with
our existing operations and personnel. The identification and completion of these transactions may
require us to expend significant management time and resources. Moreover, the partnership,
acquisition and joint venture strategies we pursue could also cause earnings or ownership dilution
to our shareholders&#146; interests, which could result in losses to investors.
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(16)&nbsp;Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We rely on applicable trademark and copyright laws and
confidentiality agreements with our employees, customers, business partners and others to protect
our intellectual property rights in China. We own and
have exclusive licenses to a number of China and foreign patents and patent applications, and
intend to seek additional patents as we deem appropriate. Whether patents will be issued for any
of our pending applications or even if patents are issued, it is uncertain that any claims allowed will
be sufficiently broad to cover our products or to effectively limit competition against us.
Furthermore, any patents that may be issued to us may be challenged, invalidated or circumvented.
Litigation may result from our use of registered trademarks or common law marks and, if litigation
against us were successful, a resulting loss of the right to use a trademark could reduce sales of
our products and could result in a significant damage award. Although we intend to defend the
proprietary rights, policing unauthorized use of proprietary technology and products is difficult.
International operations may be affected by changes in intellectual property legal protections and
remedies in foreign countries in which we do business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Besides, despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in technological industries are
uncertain and still evolving. In particular, the laws and enforcement procedures in China do not
protect intellectual property rights to the same extent as do the laws and enforcement procedures
in the United States. Moreover, litigation may be necessary in the future to enforce our
intellectual property rights. Future litigation could result in substantial costs and diversion of
our resources, and could disrupt our business, as well as have a material adverse effect on our
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(17)&nbsp;Because there is limited business insurance coverage in China, any business disruption or
litigation we experience might result in our incurring substantial costs and the diversion of
resources.</I></B>
</DIV>


<P align="center" style="font-size: 10pt">13
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The insurance industry in China is still at an early stage of development. Insurance companies in
China offer limited business insurance products and do not, to our knowledge, offer business
liability insurance. While business disruption insurance is available to a limited extent in China,
we have determined that the risks of disruption, cost of such insurance and the difficulties
associated with acquiring such insurance make having such insurance impractical for us. As a
result, except for directors and officers insurance, employees&#146; compensation insurance and fire
insurance we do not have any other business liability, disruption or litigation insurance coverage
for our operations in China. Any business disruption or litigation might result in our incurring
substantial costs and the diversion of resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(18)&nbsp;We are subject to risks of acquisition of new business, products and technologies.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
Internet Security and nutraceutical industries are highly competitive.
They have experienced, and are expected to continue to experience, a significant amount of
consolidation. It is one of our growth strategies to acquire or make investments in complementary
companies, products and technologies in future. However, a number of
companies, many of which have greater financial resources, marketing
capabilities and research and development capacities than ours, are
actively engaged in the development of products similar to the
products we produce. These industries are characterized by extensive
and ongoing research efforts. Other competitors may succeed in developing
products superior to those we market. It may be difficult for us to
maintain or increase sales volume and market share due to keep
competiton and
may have a material adverse effect on our financial conditions and
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Beside, our acquisitions and strategic investments involve a number of risks and we may not realize the
expected benefits of these transactions. We may lose all or a portion of our investment. Our available cash and
securities may be used to buy or invest in companies or products, which could result in significant
acquisition-related charges to earnings and dilution to our shareholders. Moreover, we may have to
incur or assume the acquiree&#146;s liabilities, including liabilities that are unknown at the time of
acquisition, which may result in a material adverse effect on us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> In the
event that the acquiree does not perform as anticipated, we would be required to
incur a significant impairment of goodwill. Any impairment of goodwill may adversely and materially
affect our results of operations and financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(19)&nbsp;We may need additional financing.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
business currently has limited amounts of capital. The existing
capital is only sufficient for maintaining our current level of
business. As we increase our sales and expand our business or follow
our intended growth strategy
through continuous acquisitions of new businesses, we may need
additional funding sooner than anticipated. We cannot assure
you that such financing would be available on terms satisfactory to us, if at all. If we need to
pay higher than anticipated costs for additional financing, our results of operations or financial
conditions may be materially and adversely affected. Besides, upon new shares issued for financing
or acquisition purposes, interests of existing shareholders will also be diluted.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(b)&nbsp;Risks Associated with China</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A substantial majority of our assets are located in China and a substantial majority of our revenue
is derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(1)&nbsp;We are subject to risks relating to operating a business in China.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may face foreign competition as a result of China&#146;s entry into the WTO. </I>China formally became a
member of the WTO in 2002. China is required to reduce tariffs and to eliminate other trade
restrictions, which may lead to increased foreign investment and foreign competition in China&#146;s
markets from international companies and the impact of which on China&#146;s economy and our business
would remain uncertain. The foreign competitors are usually characterized by better research and
development and financial backup who can bear a longer period of net operating loss and have larger
scaled marketing campaign. Even with locally developed products occupying the majority of the
existing market share, we cannot assure you that this strength will be maintained, particularly
when foreign competitors form joint ventures with certain local competitors. Any success in
increasing market share by foreign competitors will materially and adversely affect our business,
results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may experience foreign currency losses due to fluctuations in exchange rates. </I>The Chinese
government controls the conversion of the Chinese currency, the Renminbi. We must rely on the
Chinese government&#146;s foreign currency conversion policies, which may change at any time, in regard
to our currency exchange needs. In 2005 and 2004, respectively 100% and 40.8% of our total revenue
was received in Renminbi, which is not freely convertible into other foreign currencies. In China,
the government has control over Renminbi reserves through, among other things, direct regulation of
the conversion of Renminbi into other foreign currencies and restrictions on foreign imports.
Although foreign currencies which are required for current account transactions, such as the
payment of dividends to shareholders to foreign invested enterprises such as ourselves, 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. This type of heavy
regulation by the Chinese government of foreign currency exchange restricts certain of our business
operations and a change in any of these government policies, or any other, could further negatively
impact our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving effect to any
underlying change in our business or results of operations. For example, due to the recent
devaluation of the U.S. dollar against other reserve currencies, as well as pressure from a number of other governments (including the United States), the Chinese government has indicated
that it may adjust the current rate at which Renminbi-U.S. dollar exchanges are fixed, as well as
reevaluate its decades-old policy of using a fixed-rate regime to govern foreign currency
transactions, although the Chinese government has not committed itself to take any such action
currently. Fluctuations in the exchange rate will also affect the relative value of any dividend we
issue which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar
denominated investments we make in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Very limited hedging transactions are available in China to reduce our exposure to exchange rate
fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our
exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedges may be limited and we may not be
able to successfully hedge our exposure at all. In addition, our currency exchange losses may be
magnified by Chinese exchange control regulations that restrict our ability to convert Renminbi
into foreign currency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because a significant portion of our revenue and cash operations are denominated in Renminbi,
fluctuations in exchange rates between U.S. dollars and Renminbi will affect our balance sheet and
earnings per share in U.S. dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our operations and assets in China are subject to significant political and economic uncertainties.</I>
Changes in laws and regulations, or their interpretation, or the imposition of confiscatory
taxation, restrictions on currency conversion, imports and sources of supply, devaluations of
currency or the nationalization or other expropriation of private enterprises could have a material
adverse effect on our business, results of operations and financial condition. Under its current
leadership, the Chinese government has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no assurance, however,
that the Chinese government will continue to pursue these policies, or that it will not
significantly alter these policies from time to time without notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may have limited legal recourse under Chinese law if disputes arise under our contracts with
third parties. </I>The Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which decided legal cases have little precedential value. In
1979, the Chinese government began to promulgate a comprehensive system of laws and regulations
governing economic matters in general. The overall effect of legislation over the past 25&nbsp;years has
significantly enhanced the protections afforded to various forms of foreign investment in China.
However, the laws, regulations and legal requirements are constantly changing, and their
interpretation and enforcement involve uncertainties. These uncertainties could limit the legal
protections available to us and other foreign investors, including you. In addition, we cannot predict the effect of future developments in the Chinese
legal system, particularly with regard to the Internet, including the promulgation of new laws,
changes to existing laws or the interpretation or enforcement thereof, or the preemption of local
regulations by national laws. The Chinese government has enacted some laws and regulations dealing
with matters such as corporate organization and governance, foreign investment, commerce, taxation
and trade. However, their experience in implementing, interpreting and enforcing these laws and
regulations is limited, and our ability to enforce commercial claims or to resolve commercial
disputes is unpredictable. Due to our current business operations, we may be subject to the
implementations, interpretations and enforcement of China&#146;s laws by its courts or governmental
agencies in connection with our contracts with third parties. The resolution of any such matters
may be subject to the exercise of considerable discretion by agencies of the Chinese government,
and forces unrelated to the legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an injunction under
Chinese law, in either of these cases, are severely limited, and without a means of recourse by
virtue of the Chinese legal system, we may be unable to prevent these situations from occurring.
The occurrence of any such events could have a material adverse effect on our business, financial
condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The recurrence of Severe Acute Respiratory Syndrome (&#147;SARS&#146;) in China, or similar adverse public
health developments, such as Bird Flu (Avian Influenza), may materially and adversely affect our
business and operating results. </I>From December&nbsp;2002 to June&nbsp;2003, China and certain other countries
experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome, or SARS. On July&nbsp;5, 2003, the World Health Organization declared
that the SARS outbreak had been contained. Since September&nbsp;2003, however, a number of isolated new
cases of SARS have been reported, most recently in central China in April&nbsp;2004. During May and June
of 2003, many businesses in China were closed by the Chinese government to prevent transmission of
SARS. Any recurrence of the SARS outbreak, or a development of a similar health hazard in China,
may adversely affect our business and operating results. For instance, a recurrence of SARS or the
spread out of Bird Flu or any other epidemic in China may reduce the level of economic activity in
affected areas and negatively impact China&#146;s economy. In addition, health or other government
regulations may require temporary closure of our offices, which will severely disrupt our business
operations and have a material adverse effect on our financial condition and results of operations.
</DIV>





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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(2)&nbsp;Our business may be adversely affected by Chinese government regulations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Internet Security</I></B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China is regulating its Internet sector through new pronouncements and regulations regarding the
legality of foreign investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities offerings by companies
operating in the Chinese Internet sector. There are substantial uncertainties regarding the proper
interpretation of current and future Chinese Internet laws and regulations. Although we believe and
have been advised that many current regulations will not apply to us, we cannot assure that
existing or future regulations will be interpreted differently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A majority of Chinese laws, regulations and legal requirements governing the Internet are
relatively new and untested, their interpretation and enforcement of what is deemed to be socially
destabilizing by Chinese authorities may involve significant uncertainty. In addition, the Chinese
legal system is a civil law system in which decided legal cases have little precedential value. As
a result, we cannot predict the actions of Chinese legal authorities, particularly with regard to
the Internet and software, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement of local regulations by national laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Besides, the interpretation and application of existing Chinese laws and regulations, the stated
positions of the Ministry of Information Industry and the possible new laws or regulations have
created substantial uncertainties regarding the legality of existing and future foreign investments
in, and the businesses and activities of, Chinese Internet businesses. Accordingly, it is possible
that the relevant Chinese authorities could, at any time, assert that any portion or all of our
existing or future ownership structure and businesses violate Chinese laws and regulations. It is
also possible that the new laws or regulations governing the Chinese Internet sector that may be
adopted in the future will prohibit or restrict foreign investment in, or other aspects of, any of
our current or proposed businesses and operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Nutraceutical Business</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Several government agencies in China regulate the manufacturing, packaging, labeling, advertising,
promotion, distribution, and the sale of nutrition, health, beauty, and weight management
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">According to the Food and Health Hygiene Law of China, and health dietary supplement is subject to
the inspection by the Center of Inspection of Health Dietary Supplement. The maker of the medicine
needs to obtain approval from the Bureau of Health Dietary Supplement of Department of Drug
Registration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There is also regulation governing the production and distribution of food ingredients and
additives issued by the Ministry of Public Health of China. The test including intoxication and
safety reports of the health dietary supplement. Manufacturing of health and dietary supplement
must be done by facilities that have passed the inspection of GMP for Health Dietary Supplement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we are found to be in violation of any existing or future Chinese laws or regulations, the
relevant Chinese authorities would have broad discretion in dealing with such a violation,
including, without limitation, the following:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>levying fines;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>revoking our business license;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requiring us to restructure our ownership structure or operations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>-</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requiring us to discontinue any portion or all of our business.</TD>
</TR>

</TABLE>
</DIV>
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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(c)&nbsp;Risks Related to Our Technology and Product Research and Development</B>
</DIV>





<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(1)&nbsp;Inspection of Manufacturing Facilities</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The China regulatory agencies may periodically inspect our manufacturing facilities and certain
facilities of our suppliers of our nutraceutical business. Such inspections resulted in the
identification of certain minor
</DIV>


<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">deficiencies. We developed and implemented action plans to remedy the deficiencies. Should these
deficiencies not be remedied to the satisfaction of the regulatory body, product supply could be
affected and our operating results could be adversely affected.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(2)&nbsp;Possible Claims Relating to Products</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We could be exposed to possible claims for personal injury resulting from allegedly defective
products manufactured by third parties with whom we have entered into manufacturing agreements or
by us. We do not maintain product liability insurance coverage for claims arising from the use of
our products. Therefore, we could be subject to product liability claims in excess of our financial
ability. Any significant product liability claims not within the scope of our insurance coverage
could have a material adverse effect on us.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(3)&nbsp;We must respond quickly and effectively to new research and developments.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our businesses are highly dependent on new products. Our failure to maintain the superiority of
our research capabilities or to respond effectively to technological changes could adversely affect
our business, results of operations or financial condition. Our future success also depends on our
ability to enhance products and introduce new products to respond to changing market trends. If we
are unable to successfully develop and bring to market new products in a timely manner, our
competitors&#146; products may render ours noncompetitive or obsolete. Any such event would have a
material adverse effect on our operating results.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(d)&nbsp;Risks Associated with Investing in our common stock.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock prices of technological-related companies, particularly companies with business operations
primarily in China, have fluctuated widely in recent years, which could result in substantial
losses to investors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(1)&nbsp;Our stock price has been and may continue to be volatile.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our stock price was volatile and ranged from a per-share high of US$14.5 to low of US$1.20 during
the period from January&nbsp;1, 2005 to August&nbsp;31, 2006. On August&nbsp;31, 2006, the closing price of
our common stock was US$3.46 per share. Many factors affect our stock price which we cannot
control. Our ability to meet the expectations of investors with respect to our operating and
financial results may contribute to current and future stock price volatility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;3, 2006, the Nasdaq Stock Market, Inc. halted trading of our common stock at a trading
price of $9.64 requesting &#147;additional information&#148; . The Company provided the additional
information on February&nbsp;6, 2006 and trading resumed at 2:15 p.m. New York Time on that date. Our
stock price may be adversely affected by the performance and fluctuation of the stock prices of
other technology companies with business operations mainly in China that have listed their
securities in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The price and trading volume of our common stock may be highly volatile for business specific
reasons. Factors such as variations in our revenue, earnings and cash flow, announcements of new
investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our
services and technological products could cause the market price for our common stock to change
substantially. Any of these factors may result in large and sudden changes in the volume and price
at which our common stock shall trade. There is no assurance that these factors will not occur in
the future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>(2)&nbsp;Our stock may be delisted from trading on the NASDAQ Stock Market</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;19, 2006, we received correspondence from the Nasdaq Stock Market indicating that as a
result of our failure to timely file with the Securities and Exchange Commission this Annual Report
on Form 20-F for the fiscal year ended December&nbsp;31, 2005, we are not in compliance with the Nasdaq
requirements for continued listing set forth in Nasdaq Marketplace Rule&nbsp;4320(e)(12). Nasdaq
Marketplace Rule&nbsp;4320(e)(12) requires us to make on a timely
basis all filings with the Securities
and Exchange Commission, as required by the Securities Exchange Act 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our securities were subject to delisting from the Nasdaq Stock Market beginning at the opening of
business on July&nbsp;28, 2006. We have appealled the Nasdaq Staff&#146;s determination by requesting a
hearing before the Nasdaq Listing Qualifications Panel, which has delayed the delisting of our
common stock pending the
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Panel&#146;s
review and determination. The hearing was
 held on September&nbsp;7, 2006.  We are awaiting the Panel&#146;s
determination.
 There
can be no assurance that the Panel will grant our request for continued listing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(3)&nbsp;The sale or availability for sale of substantial amounts of our common stock could adversely
affect their market price.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales of substantial amounts of our common stock in the public market in future, or the perception
that these sales could occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(4)&nbsp;Rights of Shareholders under British Virgin Islands Law May Be Less Than Those of Shareholders
in U.S. Jurisdictions.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our corporate affairs are governed by our Memorandum and Articles of Association and by the
International Business Companies Act of the British Virgin Islands. Principles of law relating to
such matters as the validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders differ from those that
would apply if we were incorporated in a jurisdiction within the United States. Further, the rights
of shareholders under British Virgin Islands law are not as clearly established as the rights of
shareholders under legislation or judicial precedent in existence in most United States
jurisdictions. Thus, our public shareholders may have more difficulty in protecting their interests
in the face of actions by the management, directors or controlling shareholders than they might
have as shareholders of a corporation incorporated in the United States jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the laws of most jurisdictions in the United States, majority and controlling shareholders
generally have certain &#147;fiduciary&#148; responsibilities to the minority shareholders. Shareholder
action must be taken in good faith and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. British Virgin Islands law protecting the interests of
minority shareholders may not be as protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. In addition, in most United States jurisdictions,
directors owe a fiduciary duty to the corporation and its shareholders, including a duty of care,
pursuant to which directors must properly apprise themselves of all reasonably available
information, and a duty of loyalty, pursuant to which they must protect the interests of the
corporation and refrain from conduct that injures the corporation or its shareholders or that
deprives the corporation or its shareholders of any profit or advantage. Many United States
jurisdictions have enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited. Under British Virgin Islands law, liability of a corporate
director to the corporation is basically limited to cases of willful malfeasance in the performance
of his duties or to cases where the director has not acted honestly and in good faith and with a
view to the best interests of the corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">It is unknown whether the courts of the British Virgin Islands would enforce, either in an original
action or in an action for enforcement of judgments of United States courts, liabilities which are
predicated upon the securities laws of the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>(5)&nbsp;Compliance with requirements under Section&nbsp;404 of the Sarbanes-Oxley Act of 2002</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our company will become subject to Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 in the fiscal year
ending December&nbsp;31, 2007, and will need to evaluate and test our abilities to comply with the
statute as well as take such remedial actions that may be necessary to ensure our compliance. We
cannot be certain that evaluations, tests and remedial actions will all be timely completed. We
also do not know how compliance with Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 will affect our
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our efforts to comply with Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 may present us with
significant challenges. In connection with their audit of our consolidated financial statements as
of and for the year ended December&nbsp;31, 2005, our independent registered public accounting firm, identified to our management and audit committee certain internal control
deficiencies in our internal control over financial reporting that they considered to constitute
material weakness in our internal control over financial reporting. See the section headed &#147;Item&nbsp;15
&#151; Controls and Procedures&#148;. If up to the fiscal year ending December&nbsp;31, 2007, we are unable to
effectively implement the measures necessary for our compliance with Section&nbsp;404 of the
Sarbanes-Oxley Act of 2002, including any remedial actions that are required to address any
internal control weakness already detected by our independent registered public accounting firm,
our auditors may not be able to provide us with an attestation regarding the effectiveness of our
internal control over financial reporting. Even if our management believes that our internal control
over financial reporting is effective, our independent registered public accounting firm may
disagree. In addition, if they are not satisfied with our internal control over financial reporting
or the level at which our controls are documented, designed, operated, reviewed or evaluated, or if
they interpret the relevant requirements, rules or regulations differently from us, then they may
decline to attest to our management&#146;s assessment or may issue an adverse opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any of these possible outcomes may result in an adverse reaction in the financial marketplace
and/or a loss of investor confidence in the reliability of our consolidated financial statements.
We could also become subject to regulatory investigations and sanctions by regulators such as the
Securities and Exchange Commission. We may also be required to incur greater than expected costs to
improve our internal control processes. All of these factors could materially and adversely affect
our business.
</DIV>



<!-- link2 "Item&nbsp;4. Information on the Company" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4. Information on the Company</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>A. History and development of the Company.</I></B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our company was incorporated as an International Business Company under the laws of the British
Virgin Islands in September&nbsp;1995. We previously owned, through our wholly owned subsidiaries, Jing
Tai Industrial Investment Company Limited which was subsequently renamed to BHL Networks Technology
Company Limited (&#147;BHLHK&#148;), and Jolly Mind Company Limited (&#147;Jolly Mind&#148;), both Hong Kong companies,
95% equity interests in each of Linyi Baoquan Bathtub Company Limited (&#147;Baoquan&#148;) and Linyi Xinhua
Building Ceramics Company Limited (&#147;Xinhua&#148;, and together with Baoquan, the &#147;Disposed Operations&#148;).
The Disposed Operations are Sino-foreign equity joint ventures incorporated under the laws of
China. A wholly owned subsidiary of BHLHK, Beijing Taigong Sanitary Wares Company Limited
(&#147;Taigong&#148;), was also incorporated in Beijing in 1997 under the laws of China as our administrative
and sales support office of our Disposed Operations.
</DIV>


<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to certain sales and purchases agreements entered into among BHLHK, Shandong Linyi
Industrial Enamel Joint Stock Company (&#147;Linyi Industrial&#148;), Jolly Mind and Shandong Luozhang Group
Company (&#147;Shandong Luozhang&#148;), on July&nbsp;2, 1999, BHLHK sold its 60% interests in each of the
Disposed Operations to Shandong Luozhang for cash consideration of Rmb28&nbsp;million. Pursuant to a
Share Purchase Agreement dated July&nbsp;2, 1999 entered into between our company and Linyi Industrial,
we sold all of our interest in Jolly Mind, which owned a 35% interest in each of the Disposed
Operations, to Linyi Industrial in consideration of 1,952,291 shares (the &#147;Consideration Shares&#148;)
of Common Stock of the Company. Taigong was voluntarily dissolved in March, 2000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;30, 2000, Jingle Technology Co., Ltd., our wholly owned subsidiary incorporated in the
British Virgin Islands, entered into an agreement with China Internet Technology Co., Ltd. (&#147;China
Internet&#148;) and Great Legend Internet Technology and Service Co., Ltd. (&#147;Great Legend&#148;) to acquire
the entire outstanding shares of BHL Networks Technology Co. Ltd. (&#147;BHLNet&#148;), a company
incorporated under the laws of the Cayman Islands, which owns a 76% interest in Beijing BHL
Networks Technology Co. Ltd. (&#147;BBHL&#148;), a company incorporated under the laws of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;31, 2005, the Company acquired from Beijing Holdings of the 51% equity interest of the
issued and outstanding stock of CNT and on December&nbsp;22, 2005, the Company exercised the option to
acquire from Beijing Holdings the remaining 49% equity interest of CNT and close the transaction on
the same day. As a result of closing the transactions, the Company became the shareholder of 100%
equity interest in CNT. CNT currently owns 71.43% interest in Zhejiang University (Hangzhou)
Innoessen Bio-technology Inc. (&#147;Zhejiang Innoessen&#148;), which then owns 93.67% interest in Anji
Science Bio-Product Inc. (&#147;Anji Bio&#148;) and 51% in Jian&#146;ou Yingshi Food Technology Ltd (&#147;Jian&#146;ou&#148;).
Zhejiang Innoessen is the head office of CNT&#146;s research and development and sale and marketing
functions. Anji Bio is currently the manufacturing center and Jian&#146;ou is the newly established
manufacturing base in Fujian, China. CNT also owns 100% of Shenzhen Innoessen Bio-Tech Inc. which
is engaged in sales and marketing of nutraceutical products in South China. CNT was incorporated
in the British Virgin Islands on January&nbsp;28, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following diagram illustrates our corporate and share ownership structure as at August&nbsp;31, 2006:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h00634h0063402.gif" alt="(FLOW CHART)">
</DIV>


<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our registered office is located at P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, BVI.
Only corporate administrative matters are conducted at this office, through our registered agent,
HWR Services Limited. Our principal executive office is located at Room&nbsp;2413-18, Shui On Centre, 8
Harbour Road, Wanchai, Hong Kong.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>B. Business overview.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company used to be engaged primarily
in  providing information network security solutions in People&#146;s
Republic of China. The Company&#146;s certified hardware and software products are used by numerous
Chinese business enterprises, financial institutions and government agencies and have been rewarded
as the leading network security solutions in China. With the acquisition of CNT in 2005, which
develops nutraceutical products utilizing bio-active components of bamboo, the Company has entered the
Chinese nutraceutical market. All sales of the Company are conducted in China . The Company&#146;s major
shareholder is Beijing Holdings. As of August&nbsp;15, 2006, Beijing Holdings was the beneficial holder
of 62.73% of the Company&#146;s outstanding shares of Common Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Market Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Network Security Business:</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Chinese network security market has grown during the last three years. According to IDC&#146;s
recently released China IT Security Product Market Size and Forecast, 2006 &#150; 2010 (2005 Second
Half) (File No.: CN324100N), the 2005 total sales of the IT security market in China amounted to
approximately US$378&nbsp;million, which was US$15&nbsp;million higher than that estimated by the IDC in
early 2005. It is also expected that the performance of the China
security market will maintain  a
steady growth rate, with an annual CAGR of approximately 20.9% in the coming five years. It is
estimated that the 2010 total sales will reach US$976&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nutraceutical Business:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">According to the statistics from the Market Research Committee of the Association of Health Care of
China, the health dietary supplement market in China is RMB 60&nbsp;billion with a growth rate of
approximately 20% per annum. There are approximately 2,025 dietary supplement
companies in China. Most of them are small in size. Most of the products are based on traditional
Chinese medicinal and manufacturing processes. Approximately 50% of the market is located in
Beijing, Shanghai, Guangdong, and Zhejiang province.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that the market will continue to grow as more people become concerned with health and
have more disposable income. Following increased urbanization, an estimated 300&nbsp;million people in
the next 10&nbsp;years will add constant growth element to the market in cities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The products are likely to become more scientifically based, have higher potency, and higher value
added to human health. New technology results in new products and result in a change from
traditional methods of production. The functional food market in China is still in its early stage
and is expected to experience high growth with a focus on food ingredients and health dietary
supplement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Company Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company was originally engaged in the sanitary wares and ceramic tiles manufacturing business
and transitioned to Internet related business in June&nbsp;2000, with a specific focus on system
integration services (&#147;SI&#148;). In 2001, the Company phased out the SI business due to strong
competition and low profit margins. As a result, we transformed to a network security service
provider after our acquisition of BHLNet in 2002. Our current business focuses on the network
security and related software development. We stress innovation, reliability, flexibility and
efficiency to ensure a high degree of advancement in technology and commercialization of research
results. We believe the existing market preference of local products and
</DIV>
<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">services, the governmental regulations and our technological advancement will create good market
opportunities for our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Upon the acquisition of BHLNet, we
positioned ourselves as a provider of system integration
services, network security and network management solutions. As a
result of our limited investment in research
and development at the initial stage, due to  our difficulties in recruiting qualified
staff and our reliance on a shift of mature technologies from the Institute of Computing Technology
(&#147;ICT&#148;), our products were generally similar to those provided by our competitors. In order to be
pioneers in our key markets, we switched our business focus to self-developed security software in
2001 and had established a research and development team formed by experienced research staff
recruited from universities and competitors. This change was proved
to be successful, in particular in
the development of the Intranet / Internet Physical Separation Security Solution (the &#147;IPSSS&#148;), a
unique product which was generally recognized and certified by the relevant government agencies and
had accounted for the majority of the 2002 sales. In 2003, based on the technology backbone of the
IPSSS, we further developed the BHL Information Security Gate System (the &#147;Security Gate&#148;). The
Security Gate enhanced the safe exchange of information between two networks which were completely
physically separated.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The management believed that along with China&#146;s tremendous economic growth, there are emerging
industries positioned to become the future growth engine for the new economy. The Company needs to
seize the opportunity of entering into these emerging industries in China. The acquisition of CNT
opened the door for the Company to venture into the nutraceutical industry, which is one of the most
promising industries of the new economy. This industry is expected to have high growth opportunity
as well as above average return on investment. The Company completed the acquisition of the entire
issued share capital of CNT in December&nbsp;2005 and the Company&#146;s management expected the newly
acquired business will contribute to the revenue and profitability of the Company&#146;s operation in
the coming years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The nutraceutical industry in China is still at its early stage of development. China has over 2000
years of history of herbal medicine. Herbal medicine in recent years has become increasing popular
and is playing more important role in healing and enhancing overall wellbeing of human body and
mind. China&#146;s 1.3&nbsp;billion of population with increasing purchasing power presents the largest
growth market for nutraceutical products in the world. The intended acquisition brings cutting edge
technology knowledge, unique products and applications, market experience, industry expertise and
talents, and seasoned management team to the Company, giving the Company a very strong head start
in this industry. The management believes that the Company can leverage its capital market strength
to invest, consolidate and develop nutraceutical related industries in China and to achieve
significant returns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005<B>, </B>the Company began to carry out its investment and acquisition strategy in these two
industries by seeking companies with ownership of leading intellectual properties, proven products,
unique value proposition in the marketplace, profitable, strong management team, and growing
customer base.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Capital Expenditures</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For our network security business, there were no significant amounts of capital expenditures
incurred during the past three years. For our nutraceutical business, except for an aggregate
amount of Rmb 2.4&nbsp;million valued production line, located at the factory site controlled by Anji
Bio, which was purchased but not used, all production lines purchased were assembled and utilized
in our production before CNT was acquired by us in October&nbsp;2005. The capital expenditures of CNT
incurred for the fiscal years 2003, 2004 and 2005 were, respectively,
approximately Rmb 0.23&nbsp;million,
Rmb 4.18&nbsp;million and Rmb 3.08&nbsp;million. As of December&nbsp;31, 2005, except as disclosed above, we had no
other capital commitments incurred.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Seasonal sales</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company is not subject to seasonal fluctuations in its sales.
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Source of raw materials</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The major raw materials used in our network security business are computer components such as
integrated circuits and circuits boards. All of these raw materials could be easily purchased from
the open market at competitive price. Besides, we are not subject to shortage of raw materials as
there existed a huge number of suppliers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For our nutraceutical business, the primary raw material used in our product is bamboo leaf. Bamboo
leaf is purchased annually in the winter of each year from local farmers. There are no recurring
contracts with the farmers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Description of Products and Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Network Security Business:</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We focus on network security solutions and related products</I>. They mainly include the Security Gate,
IPSSS, Secure Channel and Secure Server. Our major target customers include large enterprises and
government bureaus, who are less price sensitive and are financially capable to pay. We have
obtained ten certificates as related to our security products from all related government bureaus
in the past three years, which represent their recognition of the validity of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our most outstanding products in the network security sector include Security Gate and IPSSS. Due
to complicated technical requirements, we believe these products face the lowest competition in the
market and provide us the highest gross profit margin compared to other products in the market.
Security Gate is a newly developed technology. We believe its acceptance by users will expand,
particularly by government agencies. In 2005, we successfully developed the Security Gate
application for the Power Supply Industry. We plan to further focus on the development of a series
of Security Gate applications in future in order to fit the specific requirements of different
industries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Another service of ours is network management. Network management primarily includes the BHL LDAP
Catalogue Server, BHL Search Engine V2.0, BHL Charging Proxy of Network Expenses and BHL
Re-broadcasting system V2.0. These products are highly efficient, intelligent and provide high
performance in assisting enterprises in increasing the automatic abstraction and classification of
information influx and control of network expenses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nutraceutical Business:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The newly acquired subsidiary, CNT, is a leading nutraceutical company in China. CNT has developed
a series of nutraceutical products based on bamboo extracts and other botanical plants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Scientists at CNT discovered that various parts of bamboo (leaf, bark and shoot) are rich in
bio-active components such as flavonoids, lactones, terpenoids, sterols, and polysaccharides, that
are known to have medical and health benefits. Extractives of bamboo (EOB)&nbsp;made with CNT&#146;s
state-of-art biotechnology have multiple applications, as pharmaceutical ingredients, nutraceutical
dietary supplements, and an organic anti-oxidant food additive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The research and development team of CNT has developed 10 patented applications of bamboo
extractives in nutraceutical and pharmaceutical fields. There are four major product lines based
on the patents: 1) Zhukangning Capsule as a dietary supplement; 2) EOB product series as
pharmaceutical ingredients and functional food additives; 3) AOB antioxidant as a natural food
preservative; 4) EOBS and EOBB product pipeline for applications in medicine and food industries.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Business Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We intend to achieve our business goals primarily through the following strategies:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Expanding distribution channels by cooperating with market leaders</I>
</DIV>


<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since it is costly to establish owned distribution channels, we will cooperate with enterprises
having wide and mature distribution channels in China to enhance easier penetration of our products
into more industrial sectors, through OEM (producing under their brand name) production of their
products. Through the established distribution networks of these large enterprises, we believe we
can penetrate into the market at minimum cost.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, in connection with our nutraceutical business, we plan to target manufacturers of food
and beverages in China. We are working with industry organizations in meat processing, seafood,
canned and preserved food, and fast food to provide research results, product information and their
applications within each industry. We also work with the Ministry of Health and State Food and Drug
Agency to create industry standards which would adopt our product specifications. By making our
products an example of approved industry standards, we may create an entry barrier for competition
and ensure our leading position in the industry.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Strengthen the management team</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We plan to invite capable candidates to join our management team, and we have in the last year
appointed new directors and officers. We currently have as advisers financial, operational,
investment and public relation experts, and will in the foreseeable future, focus on the
recruitment of investor relations, marketing and research and development experts. We believe a
strong management team can significantly contribute to the strategic planning and its
implementation to our company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Acquiring
companies with potential and expansion of product applicability</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Following the appointment of our new Chief Investment Officer in May&nbsp;2005, we have achieved growth
through merger and acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with our Internet Security business, we plan to expand our product lines to cover
additional industries. We have successfully developed Security Gate for Power Supply Industry and
plan in the current year to focus on upgrading Security Gate for the Transportation Industry. In
connection with our nutraceutical business, we plan to acquire other
nutraceutical businesses in
China to expand our product lines from bamboo based to other herbal extracts, including tea,
gingko, and soy<B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp; <B><I>C. Organizational structure.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conduct substantially all of our business through BBHL and Zhejiang Innoessen, our respective
76% and 71.43% indirect subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table set forth the details of our subsidiaries as at the date of this Annual Report:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Country of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Ownerships</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Interests</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Direct Parent</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BHL Networks
Technology Co Ltd
(&#147;BHLHK&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China Technology<BR>
Development Group<BR>
Corporation</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jingle Technology
Co Ltd (&#147;Jingle&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BVI
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China Technology<BR>
Development Group<BR>
Corporation</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BHL Networks
Technology Co Ltd
(&#147;BHLNet&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Jingle</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing BHL
Networks Technology
Co Ltd (&#147;BBHL&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">76</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BHLNet</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Natures
Technology Inc.
(&#147;CNT&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BVI
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China Technology<BR>
Development Group<BR>
Corporation</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Country of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Ownerships</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Interests</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Direct Parent</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhejiang University
(Hangzhou)
Innoessen
Bio-technology Inc.
(&#147;Zhejiang
Innoessen&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.43</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CNT</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shenzhen Innoessen
Bio-Tech Inc.
(&#147;Shenzhen
Innoessen&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CNT</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Anji Science
Bio-Product Inc.
(&#147;Anji Bio&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">93.67</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Zhejiang Innoessen</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jian&#146;ou Yingshi
Food Technology Ltd
(&#147;Jian&#146;ou&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Zhejiang Innoessen</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BHLHK is the cash management vehicle of the Company. BHLNet
and Jingle are investment-holding
vehicles. BBHL specializes in network technology. With network security and information security
technology and support software as its main business, the company has established its brand image
with specialized technology, system products and comprehensive service. The principal technology of
the company include: accreditation and encryption, coding, information protection and testing,
network security technical standard and related technology as well as products and solutions in the
aspect of network information processing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CNT is currently an investment holding company for our
nutraceutical business. It owns 71.43%
interest in Zhejiang Innoessen, which then owns 93.67% interest in Anji Bio. Zhejiang Innoessen is
the head office of CNT&#146;s research and development and sale and marketing functions. Anji Bio is
currently the manufacturing center. Shenzhen Innoessen was established in Shenzhen and was wholly
owned by the CNT. It acted as the sale and marketing office of our nutraceutical business in the
South China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In January&nbsp;2006, Zhejiang Innoessen entered into a
joint venture agreement with Fujian Jian&#146;ou Food
Production Limited, pursuant to which, Jian&#146;ou, the 51% subsidiary of Zhejiang Innoessen, was
established as our  additional production center  in Fujian Province, another bamboo rich area
in China. Since early June of 2006, however, the Fujian Province of China had been subject to the worst heavy
rainstorms and floods in the past fifty years, Jian'ou, one of the
cities in the Fujian Province, suffered the most damage. As
a result of this flooding, the production facilities held by Fujian
Jian'ou, having started their trial run in May 2006,
were damaged  and all
operations of Fujian Jian&#146;ou were stopped. Management is in the
process of quantifying the  losses suffered by the Company as a
result of this flood. Management&#146;s
preliminary assessment is that the cleanup of the site and restoration of the factory's capability will not be completed
 before the middle of September 2006.
</DIV>


<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>D. Property, plant and equipment.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our principal executive office is located at Room&nbsp;2413-18, Shui On Centre, 8 Harbour Road, Wanchai,
Hong Kong. We signed a month-to-month lease on May&nbsp;20, 2005, for a period of two years, with
monthly rent of Rmb 33,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BBHL leases its office at Room&nbsp;214-216, Tai Li Min Yuan Office Building, No.&nbsp;1, Wai Guan Xie
Street, Chaoyang District, Beijing, 100011, China (&#147;Tai Li Min Yuan&#148;) at a monthly rent of Rmb
53,000 for a period of two years commencing September&nbsp;20, 2002. Upon the expiry of the lease
agreement on September&nbsp;20, 2004, BBHL exercised the option granted by the lease agreement to extend
the lease for an additional one year at the same terms. Due to an increase in number of staff, BBHL
also leased another office at Room&nbsp;316 of Tai Li Min Yuan, at a monthly rent of Rmb 11,000, for the
period from June&nbsp;1, 2005 to October&nbsp;31, 2005. BBHL has
subsequently obtained oral extensions of each of these
 two leases of office space on the   same terms as those contained in the expired leases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CNT&#146;s manufacture facility, Anji Bio, is located at Anji City, Zhejiang Province, one of the top
ten cities in China with the richest bamboo resources. The facility of Anji Bio was approved to
manufacture bamboo flavonoids in March, 1998, by the Department of Health, Zhejiang Province.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are two production lines controlled by Anji Bio. The older line has an annual production
capacity of ten tons of flavonoids and its current utilization is approximately 50%. The new line
was purchased in 2004. It has an annual production capacity of 50 tons of flavonoids, however, it
has not been used since acquired because our sales growth is lower than expected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since their acquisition, we have not to our knowledge violated any environmental laws, ordinances
or regulations, and believe that all of our operations comply fully with applicable environmental
laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;27, 2006, we entered into the Anji Memorandum with
the Anji Buyers pursuant to which, among
other things, we agreed to dispose Zhejiang Innoessen&#146;s equity interest in Anji Bio, the sole
production base of our nutraceutical business. Pursuant to the Anji Memorandum, part of the
consideration for the disposal of Anji Bio&#146;s shares will be
settled by the transfer to Zhejiang Innoessen of unused new production
line as mentioned above. In anticipation of the sale, we are in the process of making arrangements
with other producers to service our nutraceutical business. We are in the process of selecting such
potential producers and have identified at least one such producer, subject to final cooperative
agreements pending finalization.



</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">

We intend that our flooded production line located in Jian&#146;ou will be used for production
of a new product. Since time is required to repair the line and cleanup the factory site, the launch of this new product
 will be delayed. We have been informed by our engineers, following
their Completion of an  assessment, that the flooded production line can be
 restored to its full function again.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Assuming that the above arrangements are finalized with
 potential producers and the production line is restored to its full function, we believe that physical
facilities are adequate to conduct our business for the next twelve months.
</DIV>


<!-- link2 "Item&nbsp;4A. Unsolved Staff Comments" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4A. Unsolved Staff Comments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<!-- link2 "Item&nbsp;5 Operating and Financial Review and Prospects" -->
<DIV align="left"><A NAME="006"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5 Operating and Financial Review and Prospects</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following discussion of the financial condition and results of operations should be read in
conjunction with the consolidated financial statements and related notes thereto. The following
discussion contains certain forward-looking statements that involve risk and uncertainties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our actual results could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, risks and uncertainties related to
the need for additional funds, the rapid growth of the operations and our ability to operate
profitably in future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All financial data referred to in the following management&#146;s discussion has been prepared in
accordance with U.S. GAAP. Results of operations for the years ended December&nbsp;31, 2003, 2004 and
2005 refer to our audited consolidated results. U.S. GAAP requires that we adopt the accounting
policies and make estimates that management believe are most appropriate in the circumstances for
the purposes of giving a true and fair view of our results and financial condition. Our principal
accounting policies are set forth in Note 2 to our consolidated financial statements. However,
different policies, estimates and assumptions in critical areas
</DIV>



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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">could lead to materially different results. Critical accounting policies are defined as those
that are reflective of significant judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. We believe the following critical
accounting policies may affect our judgments and estimates used in the preparation of this
consolidated financial statements: -</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue
recognition. </I>Our revenue includes product sales and the rendering of services. Revenue is generally recognized when all of the following criteria are met (i)&nbsp;persuasive evidence
of an arrangement exists; (ii)&nbsp;delivery has occurred or services have been rendered; (iii)&nbsp;the
sellers&#146; price to the buyer is fixed or determinable, and (iv)&nbsp;collectibility is reasonably
assured. Specially, product sales represent the invoiced value of
goods, net of discounts, supplied to customers. Revenues of product sales are recognized upon delivery to customers and when title has
passed. Rendering of services represent fees charged on the provision of information
technology and network security consultancy services. Fees on such
services are recognized upon the completion of
the underlying services and when collectibility to the fees is reasonably assured.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><i>Impairment.
</i>Annual impairment test for goodwill is carried out in two steps. The first step of the
impairment test which is used to identify potential impairment, compares the fair value of the
reporting unit with its carrying amount, including goodwill. The fair value is determined by the
forecasted discounted net cash inflows of the reporting unit for a period of five years. If the
carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is
considered impaired. The second step of the impairment test quantifies the amount of the
impairment loss by comparing the carrying amount of goodwill to its implied fair value. An
impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair
value. Goodwill must be tested for impairment at least annually, or more frequently if warranted.
The Group has performed the required impairment test for 2005 and no impairment loss was
identified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying value of a long-lived asset is considered impaired by the Group when the
anticipated undiscounted cash flow from such asset is less than its carrying value. If an
impairment is identified, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk involved or based
on independent appraisals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets, including certain identifiable intangibles with finite-lives, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable.
</DIV>


<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Recent accounting pronouncements.</I>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In
December&nbsp;2004, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued Statement of Financial Accounting Standard
(&#147;SFAS&#148;) No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS No.
123R&#148;). This statement is a revision to SFAS No.&nbsp;123 and supersedes APB Opinion No.&nbsp;25. This
Statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, and addresses transactions in which an entity obtains
employee services in share-based payment transactions. Entities are required to measure the cost of
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite service period (usually the
vesting period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the original award
immediately before the modification. This statement is effective as of the beginning of the first
interim or annual reporting period that begins after June&nbsp;15, 2005. In accordance with the
standard, the Group is required to adopt SFAS No.&nbsp;123R effective January&nbsp;1, 2006.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon adoption, the Group has two application methods to choose from: the modified-prospective
transition approach or the modified-retrospective transition approach. Under the
modified-prospective transition method the Group would be required to recognize compensation cost
for share-based awards to employees based on their grant-date fair value from the beginning of the
fiscal period in which the recognition provision are first applied as well as compensation cost for
awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain
unchanged and pro forma disclosures previously required by SFAS No.&nbsp;123 continue to be required.
Under the modified-retrospective transition method, the Group would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No.&nbsp;123. Under this method, the Group is permitted to apply this presentation
to all periods presented or to the start of the fiscal year in which SFAS No.&nbsp;123R is adopted. The
Company plans to adopt SFAS No. 123R using the modified-prospective transition method. Although the
Group is currently evaluating the impact of this Standard, it is
expected that the adoption may
not have a significant impact on the results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequently
in August, October and November 2005, the FASB released  Staff
Position (&#147;FSP&#148;) 123(R)-1, "Classification and Measurement of Freestanding
Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R)," FSP123(R)-2,
"Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)" and
FSP 123(R)-3, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards."
Additionally, on February 1, 2006, the FASB issued FSP 123(R)-4, "Classification of Options and Similar Instruments Issued as Employee Compensation
That Allow for Cash Settlement upon the Occurrence of a Contingent Event." The FSPs clarify certain accounting provisions
set forth in SFAS No. 123(R). The requirements and guidance prescribed in
SFAS No. 123(R), Staff Accounting Bulletin No. 107 and the FSPs is
effective in 2006. The Group considers that the adoption of SFAS No. 123R will not have significant impact on its financial statements.
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, &#147;Accounting Changes and Error Corrections&#148; (SFAS
No. 154&#148;), which was a replacement of APB Opinion No.&nbsp;20 and FAS No.&nbsp;3 effective for accounting changes
made in fiscal years beginning after December&nbsp;15, 2005. SFAS No. 154 requires restrospective
application to prior periods&#146; financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. It also requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change.</DIV>

<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">SFAS
No. 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting estimate effected by a change in
accounting principle. The Company does not expect the adoption of SFAS No.&nbsp;154 on January&nbsp;1, 2006
to have a material impact on its results of operations and financial condition.</DIV>



<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">
In November 2005, the FASB issued FSP FAS115-1 and FAS 124-1, which nullifies certain provisions of EITF Issue 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments", and completely supersedes EITF Topic D-44,
"Recognition of Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value", addresses (1)
determining when an investment should be considered impaired, (2) determining whether an impairment should be deemed other than temporary,
and (3) measuring impairment loss. FAS 115-1 and FAS 124-1 are
effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company
does not expect the adoption of FAS 115-1 and FAS 124-1 on January,
2006 will have a significant effect on its financial statements.


</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets&#151;An Amendment of FASB Statement No. 140" ("SFAS") No. 156. SFAS No. 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006, which for the Group will be as of the beginning of fiscal 2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.




</DIV>















<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">




In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes" (&#147;FIN 48&#148;), which is an interpretation of SFAS No. 109,
"Accounting for Income Taxes" (&#147;SFAS No. 109&#148;). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise&#146;s
financial statements in accordance with SFAS No. 109 and prescribes a
recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective
as of the beginning of an entity&#146;s first fiscal year that begins after December 15, 2006, which for the Group will be as of the
beginning of fiscal 2007. The Company does not believe that the
adoption of FIN48 will have a significant effect on its financial statements.
</DIV>





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;</B><B><I>Results of Operations</I></B>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The following table presents selected statement of operations data and such data expressed as a
percentage of net sales for the years ended December&nbsp;31, 2003, 2004 and 2005.</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 0px solid #000000">(Amounts in thousands, Rmb)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">2005(Note 1)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Percentage</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Percentage</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Percentage</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of Net</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of Net</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of Net</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">sales</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">sales</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">sales</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">52.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">51.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">47.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">48.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">56.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and
administrative
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">99.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">285.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">292.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment of
goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">159.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bad debt expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,886</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-operating
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"></TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(249</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests &#150;
continuing
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from continuing
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,244</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued
operations
Income/(loss) from
discontinued
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(288</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Note
1:</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The results for the fiscal year ended December&nbsp;31, 2005 included:</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">(1)&nbsp;the results for the period from November 1 to December&nbsp;31, 2005 of our newly acquired CNT and
its subsidiaries including Zhejiang Innoessen Anji Bio and Shenijhen
Innoessen;</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">(2)&nbsp;the results for the period from January 1 to March&nbsp;31, 2005 of the Zhuhai branch of BBHL which
was disposed on March&nbsp;31,2005; and</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">(3)&nbsp;the results for the period from January 1 to December&nbsp;31, 2005 of the remaining operating units
of BBHL and the Company and our other subsidiaries including Jingle, BHLHK and BHLNet.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The operating results for the years ended December&nbsp;31, 2003 and 2004, together with the operating
results from January 1 to March&nbsp;31, 2005 of the Zhuhai branch
disposed off (which represented the entire service rendering business
segment of the Company) were grouped into the line of
&#147;Income/(loss) from discontinued operations&#148;. A description of the disposal is also included in
this Management Discussion and Analysis section (the &#147;MD&#038;A&#148;) and this is referred to as &#147;Disposed
Section&#148; in this MD&#038;A.</DIV>


<P align="center" style="font-size: 10pt">29
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The newly acquired CNT and its subsidiaries will be referred to as the CNT group in this MD&#038;A.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The remaining operating units of BBHL, excluding the disposed Zhuhai branch, will be referred to as
the &#147;IT Operation&#148; in this MD&#038;A.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The
Company, Jingle, BHLHK and  BHLNet  will be collectively referred to as &#147;Corporate Office&#148; in
this MD&#038;A.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Year ended December&nbsp;31, 2005 compared to year ended December&nbsp;31, </B></U><U><B>2004.</B></U>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Revenues. </I>
Revenues increased by Rmb4.78&nbsp;million, or 175.8%, from Rmb2.72&nbsp;million of the year ended
December&nbsp;31, 2004 (the &#147;2004 Period&#148;) to Rmb7.5&nbsp;million of the year ended December&nbsp;31, 2005 (the
&#147;2005 Period&#148;). The CNT group contributed a total revenues
of Rmb 1.03&nbsp;million for the 2005 Period
after it was acquired by the Company. Excluding this, the revenues of the IT Operations increased
by Rmb3.75&nbsp;million, or 137.8%, from Rmb2.72&nbsp;million, which of the 2004 Period to Rmb6.47&nbsp;million of the
2005 Period. The increase was primarily due to: (1) the resumed
contract with the Legend Group, which increased the revenues earned from this customer by Rmb1.79&nbsp;million,
 or 260.6%, from Rmb0.68&nbsp;million of the 2004 Period to
Rmb2.47&nbsp;million of the 2005 Period;. (2) the addition of one large
 customer in the 2005 Period, namely Wuxi Jiangnan Computing Research
Center ("Wuxi Jiangnan"), which contributed Rmb1.39&nbsp;million to
our revenues; and (3) an increase in smaller sales contracts with
other customers as a result of the increased acceptance of our products in the market.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Cost
of sales. </I>Cost of sales increased by Rmb1.90&nbsp;million, or
136.0%, from Rmb1.39&nbsp;million of the
2004 Period to Rmb3.29 million of the 2005 Period. The cost of sales
of the CNT group amounted to Rmb0.80
million after it was acquired by the Company. Excluding this, the cost of sales of the IT
Operations amounted to Rmb2.49&nbsp;million, which was increased by
Rmb1.10&nbsp;million, or 78.6%, from
Rmb1.39&nbsp;million of the 2004 Period. The increase in cost of
sales of the IT Operations was in line with the increase in net sales, however, the percentage
increase was less than that of the net sales, as the majority of sales of the 2005 Period
represented sales of self-developed products for which we had more effective control on material costs.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Gross
profit. </I>Gross profit increased by Rmb2.88&nbsp;million, or 217.7%, from Rmb1.33&nbsp;million of the
2004 Period to Rmb4.21&nbsp;million of the 2005 Period. The gross profit of the CNT group amounted to
Rmb0.23&nbsp;million. Excluding this, the gross profit for IT
Operations amounted to Rmb3.98&nbsp;million,
which was increased by Rmb2.65&nbsp;million, or 200%, from
Rmb1.33&nbsp;million of the 2004 Period. As a percentage of sales,
the gross profit margin of the IT Operations increased by 12.7% from
48.8% of the 2004 Period to 61.5% of the 2005 Period. The significant
increase was mainly due to an increase in the  proportion to 60% of revenues
generated in the 2005 Period from large customers such as the Legend
Group and Wuxi Jiangnan whose gross profit margin is between 68% and
72%, as compared to the proportion of 30% of the Company&#146;s revenues generated from the
 Legend Group in the 2004 Period whose gross profit margin was 74%.
Excluding these large customers, the gross profit margin of the
Company&#146;s remaining revenues during the 2005 Period was
approximately 49%, which represented an increase of approximately 9%,
from the Company&#146;s gross profit margin of 40% of the 2004 Period.
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Selling, general and administrative expenses. </I>Selling, general and administrative expenses
increased by Rmb14.2&nbsp;million, or 182.8%, from
Rmb7.77&nbsp;million of the 2004 Period to Rmb21.97
million of the 2005 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The increase in selling, general and administrative expenses was as a result of the following:</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>salaries and benefits increased by Rmb6.75&nbsp;million, or
215.1%, from Rmb3.14&nbsp;million of the
2004 Period to Rmb9.89&nbsp;million of the 2005 Period. The salaries
and benefits of the CNT group incurred since acquired amounted to
Rmb0.19&nbsp;million. Excluding this, the salaries
and benefits of our IT operations and Corporate Office were increased
by Rmb6.56&nbsp;million, or
208.9%, from Rmb3.14&nbsp;million of the 2004 Period to Rmb9.70&nbsp;million of the 2005 Period. The
increase was due primarily to significant increase in headcounts during the 2005 Period.
The increase could be further segmented as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="margin-left: 3%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">(i)&nbsp;salaries
and benefits of IT Operations increased by Rmb1.77&nbsp;million, or
67.6%, from
Rmb2.62&nbsp;million of the 2004 Period to Rmb4.39&nbsp;million of the 2005 Period, the increase was in
line with our increase in headcounts from 37 employees during the 2004 Period to 63
employees during the 2005 Period;</DIV>


<DIV align="left" style="margin-left: 3%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">(ii)&nbsp;salaries
and benefits of our Corporate Office increased by Rmb
4.79&nbsp;million, or 921.2%,
from Rmb 0.52&nbsp;million of the 2004 Period to Rmb
5.31&nbsp;million of the 2005 Period. The significant increase was
primarily due to: (a) an amount of Rmb2.48 million, being the
difference between the exercise price and market price of options
granted to the newly appointed chairman and CEO in the 2005 Period,
was recognized as staff costs; and (b) the size of our Corporate
Office team was expanded in the 2005 Period which included newly created
co-Chief Executive Officer positions. An aggregate of eight employees were newly recruited,
including two Co-CEOs and a Chief Scientist.</DIV>


<P align="center" style="font-size: 10pt">30
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Rental charges increased by Rmb0.65&nbsp;million, or 160.4%,
from Rmb0.40&nbsp;million of the 2004
Period to Rmb1.05&nbsp;million of the 2005 Period. The rental charges incurred by the CNT group in
the 2005 Period amounted to Rmb0.10&nbsp;million. Excluding this, the rental charge was increased
by Rmb0.55&nbsp;million, or 136.4%, from Rmb0.41&nbsp;million of the
2004 Period to Rmb0.95&nbsp;million of
the 2005 Period. The increase was mainly caused by:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a new office was rented in May&nbsp;2005 in Hong Kong to accommodate the increase in
headcount of our Corporate Office, thus leading to additional rental charges equal to Rmb0.3&nbsp;million
during the 2005 Period, compared to free use of office of the Beijing Holdings by
the Company in the 2004 Period.; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>additional office space was rented for our IT Operations in June&nbsp;2006,
leading to increased rental expenses of Rmb0.25&nbsp;million in the 2005 Period.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Audit fees increased by Rmb1.16&nbsp;million, or 190.0%, from Rmb0.61&nbsp;million of the 2004
Period to Rmb1.77&nbsp;million of the 2005 Period, due primarily to increased audit work caused
by increased activities of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal and professional fees increased by
Rmb3.58&nbsp;million, or 334.6%, from Rmb1.07
million of the 2004 Period to Rmb4.65&nbsp;million of the 2005 Period. The significant increase
was mainly due to:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fees of Rmb0.84&nbsp;million were incurred in the 2005
Period in connection with the Company&#146;s pre-acquisition
assessment of the CNT group. These fees included Rmb0.52&nbsp;million for valuation,
Rmb0.5&nbsp;million for legal issues and Rmb0.34&nbsp;million for independent audit;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A retainer fee of Rmb1.94&nbsp;million was incurred in the
2005 Period in consideration for the non-exclusive advisory services performed by Ivory Capital Asia
Pte. Ltd. to assist the Company in raising up to US$20&nbsp;million;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A fee of Rmb0.69&nbsp;million was accounted for in the 2005
Period as the fair value of the
options granted to certain consultants recruited by the Company to provide
capital market advisory services to the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A consultants fee of Rmb0.60&nbsp;million was incurred by BBHL relating
to various sub-contractors for testing and post-sale maintenance services of the
Security Gate.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Traveling and entertainment expenses increased by
Rmb0.40&nbsp;million, or 95.3%, from Rmb
0.43&nbsp;million of the 2004 Period to Rmb0.83&nbsp;million of the 2005 Period. The CNT group
contributed Rmb0.11&nbsp;million of the traveling and entertainment expenses of the 2005 Period.
Excluding this, traveling expenses of our IT Operations and Corporate
Office were increased
by Rmb0.29&nbsp;million, or 68.5%, from Rmb 0.43&nbsp;million of the
2004 Period to Rmb0.72&nbsp;million of
the 2005 Period, due primarily to more frequent travel for acquisition of the CNT group and
promotion of our business;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization charge of intangible assets of Rmb0.22&nbsp;million was incurred in the 2005
Period, being the amortization of the extraction of bamboo flavonoids and its application
patents of the CNT group incurred for the period from November 1 to December&nbsp;31, 2005.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation charge was increased by Rmb0.3&nbsp;million, or
375.0%, from Rmb0.08&nbsp;million of the
2004 Period to Rmb0.38&nbsp;million of the 2005 Period, due primarily to increased fixed assets as
a result of the acquisition of the CNT group.</TD>
</TR>

</TABLE>
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Bad
debt. </I>Due to its long outstanding nature, bad debt of Rmb0.13&nbsp;million had been accounted for
in the 2005 Period, which mainly represented unrecovered advances to ex-staff and trade receivables
of BBHL.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Non-operating
income. </I>Non-operating income increased by Rmb0.11&nbsp;million,
or 65.3% from Rmb0.17
million of the 2004 Period to Rmb0.28&nbsp;million of the 2005 Period. The non-operating income mainly
represented Rmb 0.11&nbsp;million of dividend
income received by  Corporate Office in Hong Kong and
Rmb0.16&nbsp;million of subsidies from government in respect of a
research project.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Non-operating
expense. </I>Non-operating expense of Rmb 2.63&nbsp;million mainly
represented the realization of Rmb2.60&nbsp;million of the
accumulated unrealized losses of our available-for-sale securities
upon our disposal of such securities in the 2005 Period. These
unrealized losses were reflected in previous years&#146; comprehensive
income/loss.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Loss from discontinued operations. </I>On March&nbsp;31, 2005, BBHL had entered into agreement with Beijing
Enterprise Development Corporation (&#147;BEDC&#148;), the shareholder of China Internet Technology Company
Limited, the then 17.21% shareholder of the Company, to dispose its Zhuhai branch, at a cash consideration
of Rmb1.3&nbsp;million. The loss from discontinued operation
represented: (1)&nbsp;net income of Rmb0.22&nbsp;million, being
the operating income of the Disposed Section up to the effective date of disposal, which
represented the net effect of the revenues of Rmb1.04&nbsp;million
less the cost of sales and selling,
general and administrative expenses of Rmb0.68&nbsp;million
and
Rmb0.14&nbsp;million respectively, and (2)&nbsp;loss of Rmb0.51
million, being the net loss of net assets of the Disposed Section disposed by the Company.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Net
loss. </I>Net loss for the 2005 Period was Rmb 19.53&nbsp;million, an
increase of Rmb 9.42&nbsp;million, or
93.1%, from Rmb 10.11&nbsp;million of the 2004 Period.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Year ended December&nbsp;31, 2004 compared to year ended December&nbsp;31, 2003.</B></U>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Revenues. </I>Revenues decreased by Rmb5.69&nbsp;million, or 67.6%, from Rmb8.41&nbsp;million of the year ended
December&nbsp;31, 2003 (the &#147;2003 Period&#148;) to Rmb2.72&nbsp;million of the year ended December&nbsp;31, 2004 (the
&#147;2004 Period&#148;). The decrease was mainly attributable to the restructuring exercise undertaken by
the Legend Group, the largest customer of the IT Operations, during the year, which led to
cessation of revenue from it in the second and third quarters of the 2004 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Cost of sales. </I>Cost of sales primarily represented the direct material costs of our self-developed
products sold to customers. Cost of sales of decreased by Rmb 3.03&nbsp;million, or 68.5%, from Rmb 4.42
million of the 2003 Period to Rmb 1.39&nbsp;million of the 2004 Period. The decrease in cost of sales
was mainly due to the decrease in net sales.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Gross
profit. </I>Gross profit decreased by Rmb2.66&nbsp;million, or 66.7%, from Rmb3.99&nbsp;million of the 2003
Period to Rmb1.33&nbsp;million of the 2004 Period. As a percentage of sales, gross profit of IT
Operations increased by 1.4%, from 47.4% of the 2003 Period to 48.8% of the 2004 Period. The gross
profit remained stable for the 2003 and 2004 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Selling, general and administrative expenses. </I>Selling, general and administrative expenses
decreased by Rmb0.59&nbsp;million, or 7.1%, from Rmb8.36&nbsp;million of the 2003 Period to Rmb7.77&nbsp;million
of the 2004 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The decrease in selling and general and administrative expenses was mainly due to the following
factors:</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization of intangible assets and software development costs of our IT Operations
decreased by Rmb1.09&nbsp;million, or 100%. No amortization of intangible assets and capitalized
software development cost were made for the 2004 Period as it had been fully amortized in the
2003 Period.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation charge decreased by Rmb0.4&nbsp;million, or 84.2% from Rmb0.48&nbsp;million of the 2003
Period to Rmb 0.08&nbsp;million of the 2004 Period because most of the fixed assets had been fully
depreciated in prior year.
</TD>
</TR>
</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">32
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal and professional fee increased by Rmb0.3&nbsp;million, or 38.2%, from Rmb0.77&nbsp;million of the
2003 Period to Rmb1.07&nbsp;million of the 2004 Period, which was mainly due to increase in legal
services incurred by our Corporate Office for our proposed registration of the Company&#146;s 2000
stock option plan with the SEC and providing advice in respect of restrictions applicable to
exercise of options.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Insurance expenses of our Corporate Office increased by Rmb 0.42&nbsp;million, or 165.7, from Rmb
0.25&nbsp;million of the 2003 Period to Rmb0.67&nbsp;million of the 2004 Period. The increase was mainly
due to the increased amount of our directors and officers insurance.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Audit fee increased by Rmb0.13&nbsp;million, or 27.9%, from Rmb0.48&nbsp;million of the 2003 Period to
Rmb0.61&nbsp;million of the 2004 Period, due primarily to the increased workloads of our
independent registered public accounting firm.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Impairment
of goodwill. </I>The goodwill recognized before the 2005 Period was attributable to the
purchase of BHLNet in 2000, and which was subject to an annual impairment test. The annual
impairment test was performed based on a comparison between the fair value, which was determined by
the forecasted discounted net cash inflow and our carrying amount of
each of the reporting units. In the 2004 Period, an assessment for impairment was carried out after the annual forecasting
process. In view of the underperformance of the IT Operations, the earning forecast was revised to
a lower level. Based on the revised forecast, the present value of future cash flow of the IT
Operations was lower than the carrying value of goodwill and therefore, a goodwill impairment loss
of Rmb4.34&nbsp;million was reported.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Non-operating income. </I>Non-operating income decreased by Rmb 2.14&nbsp;million, or 92.8% from Rmb2.31
million of the 2003 Period to Rmb0.17&nbsp;million of the 2004 Period. The decrease was mainly due to
the net combined effect of the following:</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>decrease of Rmb1.9&nbsp;million, or 95%, from Rmb2&nbsp;million of the 2003 Period to Rmb0.1&nbsp;million of
the 2004 Period, of realized gain on available-for-sale securities;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>decrease of Rmb0.23&nbsp;million, or 77.3%, from Rmb0.30&nbsp;million of the 2003 Period to Rmb 0.07
million of the 2004 Period, of dividend income from marketable securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Income from
discontinued operations</I>. This represented the net operating gain
of the Disposed Section in the 2004 Period, which comprised revenues of Rmb3.95&nbsp;million, less cost of sales,
selling, general and administrative expenses and impairment of goodwill of, respectively, Rmb2.76
million, Rmb0.53&nbsp;million and Rmb0.41&nbsp;million, resulting in a net operating gain of Rmb0.25&nbsp;million.
The revenue of the 2004 Period was Rmb3.95&nbsp;million, which was increased by Rmb0.61&nbsp;million, or
18.3%, from Rmb3.34&nbsp;million of the 2003 Period, due primarily to increase in number of professional
technicians requested by customers. The cost of sales of the 2004
Period was Rmb2.76&nbsp;million, which
was increased by Rmb0.55&nbsp;million, or 25%, from Rmb2.21&nbsp;million of the 2003 Period, due primarily to
increase in discount given to the customers of the discontinued operations, as a term of the
customer&#146;s promising headcount increase in the 2004 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Net loss. Net loss for the 2004 Period was Rmb10.11&nbsp;million, an increase of Rmb9.17&nbsp;million, or
973.8%, from Rmb0.94&nbsp;million of the 2003 Period.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Taxation</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our Company, CNT and Jingle were incorporated under the laws of the British Virgin Islands (BVI),
and under current BVI law, are not subject to tax on income or capital gains as we did not carry
out business in BVI.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">BBHL, Zhejiang Innoessen and Shenzhen Innoessen are all Sino-foreign joint ventures
established in China. Pursuant to the applicable PRC income tax laws, they are fully exempt from
the PRC state income tax for two years, starting from the first profit-making year followed by a
50% reduction over the ensuing three years (&#147;tax holidays&#148;). BBHL and Zhejiang Innoessen and Anji Bio
incurred losses since their incorporation, and therefore, the tax holidays were not started.</DIV>


<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">BHLHK is subject to taxation in Hong Kong. Since no estimated net assessable profit is recognized
for the 2005 Period , no tax provision is made for BHLHK. There was also no tax provision made for
the 2004 Period because no net assessable profit was recognized. For the fiscal year ended December
31, 2003, a tax provision of Rmb0.25&nbsp;million was incurred for net assessable profit estimated for the
year.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In the Cayman Islands, there are no taxes other than import duties and stamp duty (at certain
occasions). Therefore, BHLNet is not subject to taxes in the Cayman Island.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;</B><B><I>Liquidity and capital resources</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cash flows and working capital</B>

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We have neither engaged in any form of off-balance sheet arrangement/ relationships with
unconsolidated entities or other persons that are reasonably likely to affect materially liquidity
and the availability of or requirements for capital resources, nor any trading activities that
include non-exchange traded contracts accounted for at fair value. Except for the operating lease
commitment, as fully disclosed in the financial statements, we are not involved in any kind of
other commitments, both expressed or contingent, which may cause us to make future payments under
contracts.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our
cash and cash equivalents on hand as of December&nbsp;31, 2005 was
Rmb18.32&nbsp;million, which increased
by Rmb13.07&nbsp;million from Rmb5.26&nbsp;million at the beginning of the year.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The
net cash outflow of the operating activities of the 2005 Period was
Rmb18.16&nbsp;million, which
increased by Rmb15.15&nbsp;million, or 503%, from an outflow of Rmb3.01&nbsp;million of the 2004 Period. The
increase in net cash outflow of the 2005 Period was mainly due to increase in the selling, general
and administrative expenses.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The
net cash inflow of the investing activities of the 2005 Period was
Rmb28.20&nbsp;million, which
increased by Rmb27.34&nbsp;million, or 3,160.6%, from the net cash inflow of Rmb0.86&nbsp;million of the 2004
Period. The significant increase in net cash inflow of the 2005
Period, was mainly due to the combined effects of: (1)
withdrawal of Rmb6.76&nbsp;million of funds previously kept in securities house; (2)&nbsp;withdrawal of
Rmb10.08&nbsp;million of funds previously held by Beijing Holdings and Beijing Holdings Investment
Management Center (&#147;BIMC&#148;), a 100% subsidiary of Beijing Holdings incorporated in China, for
security investment purpose; (3)&nbsp;proceeds of Rmb12.51&nbsp;million received from disposal of
available-for-sale securities; (4)&nbsp;cash of Rmb0.35&nbsp;million
disposed of upon disposal of our discontinued operations; and
(5)&nbsp;outflows of Rmb0.88&nbsp;million arising from purchases of
property, plant and equipments.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">As of December&nbsp;31, 2005, after deducting the total liabilities from the cash and cash equivalents
(&#147;net cash balance&#148;), we had a net cash balance of
Rmb4.70&nbsp;million, which increased by Rmb5.95
million from a cash deficit of Rmb1.25&nbsp;million of the 2004 Period. We believe that we have enough
cash resources to sustain our operation for the next twelve months.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Capital resources</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">There was no significant capital expenditures incurred for the years ended December&nbsp;31, 2003, 2004
and 2005.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">
We do not have a fixed plan of capital expenditure for the year
ending December&nbsp;31, 2006. The Capital expenditures increased up
to the date of this Annual Report, however, amounted to
Rmb0.60&nbsp;million as part of our share capital injected into Fujian
Jian'ou. Capital expenditures in the 2004 and 2005 Periods have been funded through our retained cash.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We believes our current cash and cash equivalents will be sufficient to meet our anticipated cash
needs, including for our working capital needs, for the foreseeable future. We may, however,
require additional cash resources due to changes in business conditions or other future
developments. If these sources are insufficient to satisfy our cash requirements, we may seek to
sell debt securities or additional equity securities or obtain a credit facility. The sale of
convertible debt securities obligations or additional equity securities could result in additional
dilution to our shareholders. The incurrence of indebtedness would result in debt service
obligations and could result in operating and financial covenants that would restrict our
operations. We cannot assure you that financing will be available in amounts or on terms acceptable
to us, if at all.</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">From
time to time, we also evaluate potential investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or
conduct a investment. As a result
of the above possible actions, we may need to obtain additional funds through issuance of new
equity or debt. Again, we may have to seek additional financing sooner than currently anticipated
and there can be no assurance that we would be able to obtain additional financing on terms
acceptable to us.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;</B><B><I>Research and development, patents and licenses, etc.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Network Security Business:</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We acquired, through BBHL, a technological platform for the development of Internet security
devices from ICT of the CAS at a cash consideration of Rmb 4&nbsp;million in 2000. This intangible asset
had been fully amortized in 2003. Subsequent to that, we did not incur significant expenses in
acquiring techniques but had maintained a research and development team to upgrade the existing
products and all costs of which had been recorded as expenses in the consolidated statement of
operations when incurred.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nutraceutical Business:</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our major research and development section for bamboo-related products is in Zhejinag Innoessen,
which is affiliated to Zhejiang University, China&#146;s third largest university. Professor Ying Zhang
is the section leader and, also, our Chief Scientist, with a team consisting of experienced
scientists and graduate students. The research facility of Zhejiang Innoessen includes one
analytical laboratory and a medium scale production facility for plant leaf extraction. The R&#038;D
team has been utilizing the extensive research resources within Zhejiang University, including one
analytical laboratory and one pilot plant, and the outside research institutes such as Zhejiang
Disease Control Center, Zhejiang Academy of Pharmaceutical, etc, to perform the world-class
research and experiments. Their study on bamboo extractives has been
published in numerous Chinese
and international research journals, which has established Dr.&nbsp;Zhang as one of the international
authorities in the field of biochemical utilization of bamboo.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Over the past eight years, Dr.&nbsp;Zhang and the R&#038;D team had filed in China ten patents on the
chemical components, preparation techniques, and the nutraceutical applications of bamboo
extractives. As of December&nbsp;31, 2005, three out of the ten filed patents had been approved by the
State Department of Health in China and had been applied in manufacturing Bamboo Flavonoid Powder,
Zhukangning Capsule and Bamboo Health Beer.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The R&#038;D team works closely with Anji Bio for technical trouble shooting and the scale-up
manufacturing of each new product and its procedure. The team has developed analytical testing
methods for the Quality Control Laboratory of Anji Bio, and provided technical support for the
manufacture.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The ten patents filed in China are:</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Preparation method of flavonoid concentrate and powder from bamboo leaves.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;17, 1998 and was granted in year 2001. This invention claims a
manufacturing procedure of extracting flavonoids from plants, particularly from bamboo leaves, to
prepare flavonoids concentrate or powder. Using bamboo leaves as raw material, after going through
extraction, separation, concentration, refining, or drying process, a product is obtained that
contains highly concentrated bamboo leaf flavonoid glycosides, phytophenolic
acidsanthraquinones-tertene lactones, etc. This preparation has excellent properties of
antioxidation, free radical scavenging ability, and can lower blood lipids. It carries an original
bamboo fragrance which can be used widely in various anti-ageing health food and as pharmaceutical
ingredients.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A health beer fortified with bamboo leaf flavonoids.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;17, 1998 and was granted in year 2000. This patent claims a food
technology, is about a health beer fortified with bamboo leaf flavonoids. This health beer is made
by adding a certain amount of bamboo leaf flavonoids into regular beer. The health beer, besides
its nutrition and flavor of a beer, has many health functionalities including scavenging free
radicals and liposome peroxidation residues, improving brain metabolism, lowering blood lipid, etc.
In addition, the beer has an original refreshing fragrance of bamboo.</DIV>


<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The composition, preparation and application of total triterpenoid sapogenins isolated from bamboo.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on December&nbsp;12, 2002 and was granted in June&nbsp;2006. PCT international patent
(PCT/CN03/00309) and patent applications for Japan, USA and Europe were also filed. The invention
provides compositions, preparation methods and applications of total triterpenoid sapogenins
isolated from bamboo. The extract in this invention has many kinds of excellent physiological and
pharmacological activities such as anti free radical, anti-oxidation, anti-tumor and
anti-hypertension. It has a great potential for the preparation of cardiovascular disease prevention
and the development of drugs and health food. Meanwhile, it can be applied in the field of daily
cosmetics.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Application of total flavonoids of bamboo leaf as an anti-aging and skin-care factor in cosmetics.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;3, 2003 and PCT international patent (PCT/CN2004/000136) was also
filed. This invention provides an application of bamboo leaf flavonoid in cosmetics, the purpose of
which is to provide the cosmetic industry with a natural anti-aging skin-care factor from a plant.
Total flavonoids of bamboo leaf has multiple functions including scavenging free radicals,
anti-oxidation, irradiation protection, anti-bacteria, enhancing multiplication of skin cells, skin
oxidization damage prevention, decreasing synthesis of melanin delaying senescence of skin, etc.
The flavonoid preparation can be applied to nutrition lotion, sunscreen lotion, anti-wrinkle cream,
face cleansing cream, shampoo, bath gel and many other personal care cosmetics.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Application of total flavonoids of bamboo leaf as preventive medicine and functional foods against
prostate disease.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;25, 2003 and PCT international patent (PCT/CN2004/000531) and patent
applications for Japan and USA were also filed. This invention provides an application of total
flavonoids of bamboo leaf as preventive medicine and functional foods against prostate disease.
This invention provides an effective plant extractive, the total flavonoids of bamboo leaf, with
abundant resources, safe to use, and highly effective.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Bamboo leaf antioxidant and its use.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on October&nbsp;10, 2003 and PCT international patent (PCT/CN2004/000531) and
patent applications for Japan and USA were also filed. This invention provides the composition and
application of antioxidant of bamboo (AOB), the purpose of which is to provide the food industry a
novel food additive that is abundant, safe, effective, low-cost, nutritious, and having multiple
functions. AOB is a yellowish brown powder or particles prepared from bamboo leaves. The main
antioxidant components are flavonoids, lactones, and phenolic acids. AOB has a smooth texture, no
medicine smell, no bitterness in taste or pungent smell. It has
excellent water solubility and is, stable,
resistant to acid hydrolyzation, heat hydrolyzation and enzyme hydrolyzation. AOB can be widely
applied in edible oil, oil-containing foods, meat products, sea foods, fruit juices, dairy, soft
drinks, wine, flavorings, and bakeries.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Application of bamboo leaf extract as acrylamide inhibitor in heat-treated foods.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;21, 2005 and PCT international patent (PCT/CN2006/000431) was filed
on March&nbsp;21, 2006. This invention provides a new application of bamboo leaf extract as acrylamide
inhibitor in heat-treated foods. When the bamboo leaf extract in this invention is used as
acrylamide inhibitor and used in the above food applications, it can inhibit the acrylamide
formation up to 20-98%.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Preparation method and application of phytosterols extracted from bamboo shoot.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on December&nbsp;29, 2004. This invention provides a preparation method and
application of phytosterols extracted from bamboo shoots. The
preparation has excellent functions of
anti-inflammation, lowering blood lipid and cholesterol inhibition of hyperplasia of leukemic
cells, and can be applied in cosmetics, foods, nutraceuticals and pharmaceuticals.</DIV>


<P align="center" style="font-size: 10pt">36
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Preparation method and application of amino acids and peptides extracted from bamboo shoots.</B>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on April&nbsp;27, 2005. This invention provides a preparation method and
application of amino acids and peptides extracted from bamboo shoot. The amino acids preparation
has multiple pharmaceutical and nutraceutical functions, including improving brain metabolism,
anti-depression, and slowing down memory loss. The preparation has an excellent texture and taste,
and can be widely used in functional food, beverages, and flavorings.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Preparation method and application of high quality non-soluble plant dietary fiber micro powder
extracted from bamboo shoots.</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This patent was filed on March&nbsp;16, 2006. This invention provides a preparation method and
application of high quality non-soluble plant dietary fiber micro powder extracted from bamboo
shoot. It has multiple pharmaceutical and nutraceutical functions, including purgation, de-toxin,
obesity control. The preparation has an excellent texture and taste, and can be widely used in
functional food, and conventional food.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D.&nbsp;</B><B><I>Trend Information</I></B>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends,
uncertainties, demands, commitments or events that are reasonably likely to have a material effect
on our net sales, profitability, liquidity or capital resources, or that caused the disclosed
financial information to be not necessarily indicative of future operating results or financial
conditions.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>E.&nbsp;</B><B><I>Off-balance Sheet Arrangements</I></B>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We have no outstanding off-balance sheet arrangements, derivative financial instruments, interest
rate swap transactions or foreign currency forward contracts. We do not engage in trading
activities involving non-exchange traded contracts.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>F.&nbsp;</B><B><I>Tabular disclosure of contractual obligations.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The
following table summarizes contractual obligations as of December 31,
2005.</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000">Payments
due by period</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Less than</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">More than</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">1 year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">1 to 3 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">3-5 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">5 years</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term
borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3,569</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating
leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">615</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total
contractual cash obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4,184</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is a party to four lease agreements for office premises
and staff quarters. The lease agreements are described below:
</DIV>

<P align="center" style="font-size: 10pt">37
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of our Corporate Office (situated in Hong
Kong) commenced on May&nbsp;27, 2005, and shall continue for a period of two
years, at a monthly rent of Rmb 33,000 As of December&nbsp;31, 2005, the future minimum lease payments
under this non-cancelable operating lease amounted to Rmb 358,000 and
Rmb 158,000 for years ended
December&nbsp;31, 2006 and 2007 respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of staff quarters (situated in Hong Kong)
for managers of our Corporate Office commenced on
December&nbsp;11, 2005, and shall continue for a period of two years, at a monthly rent
of Rmb 7,000. As of December&nbsp;31,
2005, the future minimum lease payments under this non-cancelable operating lease amounted
to Rmb 86,000 and Rmb 81,000 for years ended December&nbsp;31, 2006 and 2007 respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of staff quarters (situated in Hong Kong) for Alan Li, the executive director and Co-Chief
Executive Officer of the Company, commenced on December&nbsp;8, 2005,
and shall continue for a period of two years,
at a monthly rent of Rmb 8,000. As of December&nbsp;31, 2005, the future minimum lease payments under
this non-cancelable operating lease amounted to Rmb 100,000 and Rmb
93,000 for years ended December
31, 2006 and 2007 respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement for the office of Shenzhen Innoessen
(situated in Shenzhen, China) commenced on March&nbsp;23, 2005, and
shall continue for
a period of one year, at a monthly rent of Rmb 24,000. As of December&nbsp;31, 2005, the future minimum
lease payments under this non-cancelable operating lease amounted to
Rmb 71,000 for year ended
December&nbsp;31, 2006.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Lease
rental costs incurred by the Company for the year ended December&nbsp;31, 2003, 2004 and 2005
amounted to Rmb596,000, Rmb519,000 and Rmb1,052,000 respectively.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Except
as disclosed above, as of December&nbsp;31, 2005, we did not have
other contractual
obligations.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contingencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>G.&nbsp;</B><I>Safe Harbor.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Forward-Looking Statement Disclosure
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">This news release contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements regarding CTDC contained in this press release that
are not historical in nature, particularly those that utilize terminology such as &#147;may,&#148; &#147;will,&#148;
&#147;should,&#148; &#147;likely,&#148; &#147;expects,&#148; &#147;anticipates,&#148; &#147;estimates,&#148; &#147;believes&#148; or &#147;plans,&#148; or comparable
terminology, are forward-looking statements. Forward-looking statements are based on current
expectations and assumptions, and entail various risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking statements. Important
factors known to Tramford that cause actual results to differ materially from those expressed in
such forward-looking statements are identified and discussed in CTDC&#146;s filings with the Securities
and Exchange Commission.</DIV>

<!-- link2 "Item&nbsp;6 Directors, Senior Management and Employees" -->
<DIV align="left"><A NAME="007"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6 Directors, Senior Management and Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><B><I>Directors and senior management.</I></B>

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our directors and executive officers and their present positions with our company, as at the date
of this Annual Report, are as follows:</DIV>


<P align="center" style="font-size: 10pt">38
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Age</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Positions with the Company</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changshan Zhao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">41</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and Executive Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xu Qian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">42</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Executive Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan Li</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">38</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Co-Chief Executive Officer (Greater China) and Executive Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ju Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">44</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Michael Siu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">37</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director, Chief Financial Officer and Secretary</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter Fu (1)(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">51</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">L C Wan (1)(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">45</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Meng Wan (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">42</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yezhong Ni (1)(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">36</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weidong Wang (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">39</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xinping Shi (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aaron Zhu *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">38</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Co-Chief Executive Officer (International)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhenwei Lu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">35</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Investment Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Member of the Audit Committee</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Member of the Compensation Committee</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Member of the Nominating Committee</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Ceased to be Co-Chief Executive Officer on February&nbsp;21, 2006</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Information about Directors and Officers</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Set
forth below is certain information with respect to each director and
officer as of August&nbsp;31, 2006:</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Mr.&nbsp;Changshan Zhao</B>, 41, nominee of Beijing Holdings, was appointed the Chairman of the Board on
February&nbsp;8, 2005. He also was the Vice-Chairman and General Manager of Beijing Holdings. Mr.&nbsp;Zhao
obtained his master degree in business administration in the Guanghua School of Management of the
Beijing University. He was appointed the Vice-Chairman and General Manager of Beijing Holdings in
November&nbsp;2003. Prior thereto, he was a senior officer of the Beijing People&#146;s Municipal Government.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Mr.&nbsp;Xu Qian</B>, 42, nominee of Beijing Holdings, was appointed the Director and Co-Chief Executive
Officer of the Company on March&nbsp;29, 2005. Mr.&nbsp;Qian graduated from the Economics and Management
Faculty of the Beijing Industrial University with a bachelor degree in Economics in 1986. From 1986
to 1993, he worked as an economic analyst in the Statistics Bureau of the BPMG. From 1993 to 1996,
he worked as an independent auditor in Hong Kong and from 1996 to 1998, he worked as the Project
Chief Financial Officer of the TA Orient Telecommunication Co., Ltd. Since 1998, he worked as the
Finance Manager of Beijing Holdings. In March&nbsp;2005, he was promoted to serve as the Chief Financial
Officer of Beijing Holdings and was further promoted as the Assistant General Manager of Beijing
Holdings in March&nbsp;2006. Mr.&nbsp;Qian has extensive experience in merger and acquisition, corporate
restructuring and financial management.</DIV>


<P align="center" style="font-size: 10pt">39
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Mr.&nbsp;Alan Li</B>, 38 , was appointed the Co-Chief Executive Officer (Greater China) and Director of the
Company on May&nbsp;24, 2005. Mr.&nbsp;Li obtained his master degree in Business Administration from Murdoch
University, Australia. From 2000 to 2002, Mr.&nbsp;Li had been the Executive Director and
Vice President of Linchest Technology Ltd. (&#147;Linchest&#148;) and he had led Linchest in achieving the
60% market share of the School Management education software in China. Mr.&nbsp;Li has extensive
experience in management, financial planning and investments in China, and particularly, he has
deep exposure in overseas listing of Chinese companies. Mr.&nbsp;Li is currently responsible for
business development, mergers and acquisition and capital market development of the Company in the
Greater China Region.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Mr.&nbsp;Ju Zhang</B>, 44, was appointed a Director of the Company on May&nbsp;24, 2005. Mr.&nbsp;Zhang obtained his
master degree from the Chinese Academy of Social Sciences in Philosophy and a bachelor degree from
Tsinghua University in Energy Engineering. Mr.&nbsp;Zhang currently is the Assistant to General Manager
of the Research and Development Department of the China Merchants Group (&#147;CMG&#148;), one of the largest
state-owned enterprises directly under the administration of the China State Council and having its
business zones all across Hong Kong and China in real estate, energy, logistics and technology, and
the largest ports, highways, and industrial zones investor and operator in China. Prior thereto, he
was the Deputy Chairman and General Manager of China Merchants Technology Holdings Co. Ltd
(&#147;CMTH&#148;). a wholly owned subsidiary of CMG. Mr.&nbsp;Zhang was also the Associate Professor at the
Chinese Academy of Medical Sciences and Peking Union Medical College, the Assistant Director of
Department of Research in National Committee of Science &#038; Technology and Department of Research in
Chinese Ministry of Science &#038; Technology.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Michael Siu</B>, 37, was appointed a Director of the Company on February&nbsp;8, 2005. He had also served as
the Chief Financial Officer and Secretary of the Company since September&nbsp;1997. He is currently a
fellow member of the Association of Chartered Certified Accountants and an associate member of the
Hong Kong Institute of Certified Public Accountants.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Peter Fu</B>, 51, was appointed an Independent Director and a member of the Audit Committee of the
Company on April&nbsp;5, 2005. On May&nbsp;24, 2005, he was also appointed a member of the Company&#146;s
Compensation Committee. Mr.&nbsp;Fu began his career in the finance industry in 1978 after his
graduation from Wharton School, University of Pennsylvania. He made his mark as one of top
institutional sales in Hong Kong when he worked for HG Asia (currently known as ABN Amro) in the
mid-80s. Since then, Mr.&nbsp;Fu had taken up senior sales positions in other investment banks including
Citicorp Vickers and Barings Securities in Hong Kong. For the ten years between late 1991 and early
2001, Mr.&nbsp;Fu was one of the senior executives of the Peregrine Group in Hong Kong, which operates
currently under the name of BNP Paribas Peregrine. From 2003 to 2005, he was the head of the
corporate finance team of the Kim Eng Group focusing on Hong Kong and China business. Mr.&nbsp;Fu
currently is a senior advisor of the Goldbond Group, one of the leading investment bank in the
Asian capital market.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>L C Wan</B>, 45, was appointed an Independent Director and member and the financial expert of the Audit
Committee of the Company on March&nbsp;24, 2005. On May&nbsp;24, 2005, he was also appointed a member of the
Company&#146;s Compensation Committee. Mr.&nbsp;Wan graduated from the Coventry Polytechnic with a master
degree in 1988. He was fellow member of the Chartered Association of Certified Accountants and an
associate member of the Hong Kong Institute of Certified Public Accountants. Prior to his service
with the Company, he was the General Manager in Finance and Administration of the China Digital
satNet Limited and the Project Financial Controller of the C.P. Pokphand Co. Ltd. Mr.&nbsp;Wan had
extensive and valuable experience in financial management.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Meng Wan</B>, 42, was appointed an Independent Director of the Company on May&nbsp;24, 2005. On July&nbsp;28,
2005, he was also appointed a member of the Company&#146;s Nominating Committee. Professor Wan was the
Dean of Laws of the Beijing Foreign Studies University, an Arbitrator of the China International
Economic and Trade Arbitration Commission and China Maritime Arbitration Commission and a member of
The World Jurist Association. Professor Wan also received his doctorate and master of laws degrees
from Wuhan University Law School, and he taught as a guest professor at Wuhan University and at
Zhonnan University of Economics and Law. He was also a senior research fellow at the London
Institute of International Banking and Finance. Professor Wan specializes in economic law and is a
former President and Chief Justice of the Wuhan Maritime Court and Chief Judge of the Economic
Division of the Hubei High Court.</DIV>


<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Yezhong Ni</B>, 36, was appointed an Independent Director and a member of the Audit Committee of the
Company on April&nbsp;28, 2005. On May&nbsp;24, 2005, he was also appointed a member of the Company&#146;s
Compensation Committee. Mr.&nbsp;Ni is a partner of the Kingson Law Firm, one of the top law firms in
China. He graduated from the Law School of the Beijing University in 1990 and was experienced in
legal services for bankruptcy, derivatives and financial instruments. Mr.&nbsp;Ni had been appointed in
1999 as one of the lead attorneys for the liquidation of the Guangdong International Trust &#038;
Investment Company, the largest bankruptcy case of financial institution in the Chinese history.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Weidong Wang</B>, 39, was appointed an Independent Director and a member of the Nominating Committee of
the Company on July&nbsp;28, 2005. Mr.&nbsp;Wang had been the Business Representative of Henan Province in
Australia from February&nbsp;1990 to June&nbsp;1991 and the Business Director of China National Cereals, Oils
&#038; Foodstuffs Import &#038; Export Corporation from 1991 to 2000. Since March&nbsp;2000, Mr.&nbsp;Wang had been
appointed the Deputy General Manager of Ceroilfood Enterprises Limited &#151; Foreign Office of China
Business Department, in charge of overseas business development and management. Mr.&nbsp;Wang has ample
experience in national cereals, oils and foodstuffs import and export industry and has extensive
access to sale channels all over the world. He was awarded the qualification of International
Business Engineer in 1994 in China, and obtained his master degree in Public Finance from Tianjin
University of Finance &#038; Economics in 1999 and a MBA degree in 2000 from Murdoch University,
Australia.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Xinping Shi</B>, 48, was appointed an Independent Director and a member of the Nominating Committee of
the Company on July&nbsp;28, 2005. Dr.&nbsp;Shi is the Director of Logistics Management Research Centre,
Coordinator of the focused research area of Logistics and Supply Chain Management, and Associate
Professor of the Department of Finance and Decision Sciences of Hong Kong Baptist University. Dr.
Shi has been served as the Independent Director of China Merchants Shekou Holdings Company Limited,
a company listed on the Shenzhen Stock Exchange; the Director of Weboptimal International Limited,
a management consulting firm; Guest Professor of the College of Logistics, the Beijing Normal
University and the Advisor of the Chamber of Hong Kong Logistics. Dr.&nbsp;Shi obtained his doctorate
degree and master degree in Business Administration from Middlesex University and Lancaster
University, UK respectively and the Bachelor of Science from North-Western Polytechnic University,
Xian, China.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><B>Zhenwei Lu</B>, 35, was appointed the Chief Investment Officer of the Company on May&nbsp;24, 2005. Mr.&nbsp;Lu
obtained his bachelor degree from Shanghai Marine College and a master degree from Zhong Nan
Finance, Politics and Law University. He was also the Vice General Manager of CMTH. Since 1993, Mr.
Lu had served as an executive of China Merchants Group at its Guangzhou office, an executive of
Shenzhen Haihong Chemicals Co., Ltd., The Finance Manager of Hong Kong Haitong Limited, the Finance
Manager and Assistant to the General Manager of Shenzhen Zhaoxun Communication Co. Ltd, and
Assistant to General Manager of CMTH and Shenzhen Merchants Technology Investment Holdings Co.,
Ltd. Mr.&nbsp;Lu was appointed the General Manager of CMTH since March&nbsp;2006. Mr.&nbsp;Lu is currently
responsible for strategic corporate investment and mergers and acquisitions of the Company in the
Greater China Region<I>.</I></DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The directors were appointed at our shareholders meeting held on October&nbsp;21, 2005 and will serve
until the next annual shareholders meeting of the Company.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">There are no family relationships between the above named officers and directors. Beijing Holdings
is our 62.73% shareholder, however, we do not have any formal agreement and arrangement with
Beijing Holdings and pursuant to which the authority of direct nomination of directors into the
Company&#146;s board was granted. All of our directors are appointed through resolution passed in our
annual shareholders meeting. Nevertheless, prior to the establishment of our nominating committee
on July&nbsp;28, 2005, it was the Company&#146;s practice in previous year to include two candidates
recommended by Beijing Holdings in the list of candidates of directors eligible for election in
our annual shareholders meeting, as the Company&#146;s intention to
capitalize on the specific position of our major
shareholder in promoting our business in China. In the Company&#146;s 2005 Annual Shareholders Meeting, however, all candidates were
recommended by the Company&#146;s nomination committee based on their experience and capability and such
practice no longer existed. Mr.&nbsp;Changshan Zhao and Mr.&nbsp;Xu Qian were selected by the nominating
committee as candidates on the fact their senior positions in Beijing Holdings will enhance closer
involvement of Beijing Holdings in the future development of the Company.</DIV>


<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Audit Committee. </I>Mr.&nbsp;Peter Fu, Mr.&nbsp;L C Wan and Mr.&nbsp;Yezhong Ni were appointed the members of the
Audit Committee of our board of directors. According to the Charter of the Audit Committee, the
responsibilities of the Audit Committee include the oversight of (1)&nbsp;integrity of our financial
statements; (2)&nbsp;our compliance with legal and regulatory requirements; (3)&nbsp;the qualification,
appointment, compensation, retention and oversight of our independent auditors, including resolving
disagreements between management and the auditors regarding financial reporting; and (4)&nbsp;the
performance of our independent auditors and of our internal control function.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Audit Committee was given the resources and assistance necessary to discharge its
responsibilities, including appropriate funding, as determined by the Committee, the unrestricted
access to our personnel and documents and our independent auditors. The Committee shall also have
authority, with notice to the
Chairman of the Board, to engage outside legal, accounting and other advisors as it deems necessary
or appropriate.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Audit Committee is required to meet at least two times a year and may call special meeting as
required. All members of the Audit Committee shall be financially literate, having a basic
understanding of financial controls and reporting, and none of them shall receive directly or
indirectly any compensation from our company other than his or her directors&#146; fee and benefits.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Compensation Committee. </I>The Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for our officers, including our Chief Executive
Officer, and employees and administers our stock option plans. The Compensation Committee consists
of three directors, each of whom meets the independence requirements and standards established by
the NASDAQ rules and the SEC regulations. The Compensation Committee was established on May&nbsp;24,
2005 and Mr.&nbsp;Peter Fu, L C Wan and Yezhong Ni were appointed the members.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt"><I>Nominating Committee. </I>The purpose of the Nominating Committee is to assist the Board of Directors
in identifying qualified individuals to become board members, consultants and officers of the
Company, in determining the composition of the Board of Directors and in monitoring a process to
assess Board effectiveness. The Nominating Committee established on July&nbsp;28, 2005, consists of
three directors, each of whom meets the independence requirements and standards established by the
NASDAQ rules and the SEC regulations. Mr.&nbsp;Meng Wan, Weidong Wang and Xinping Shi were appointed the
members.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><B><I>Compensation.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Except Mr.&nbsp;Changshan Zhao who had been paid Rmb 405,000 in the 2005 Period for his capacity as the
Chairman of the Board of the Company, we did not pay any compensation to other directors in the
2005 Period.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The directors who also acted in their capacities as officers of the Company were paid in the 2005
Period as follows:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Compensation paid</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">(Amounts in thousand, Rmb)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 0px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 0px solid #000000">Management position held</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Changshan Zhao
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">405</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">&#151;
</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xu Qian
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">315</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">&#151;
</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Alan Li
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Co-Chief Executive
Officer (Greater China)
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">303</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">&#151;
</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Michael Siu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer
and Secretary
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">487</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">270</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Company has granted stock options to certain officers and directors as described in Item&nbsp;6E.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We do not have any employment contracts with our officers or directors except Mr.&nbsp;Michael Siu who
had entered into an employment contract with the Company when he joined on July&nbsp;1, 1997 as the
Finance Manager of the Company. The terms of the contract followed the sample employment contract
as suggested by the Labour Department of the Government of Hong Kong, such as five working days per
week, termination of contract by one month&#146;s notice and annual pay leave of seven days. The
contract also included guaranteed double pay of salary in the last month of each year, however,
there was no term of guaranteed stock options.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><B><I>Board practices.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">At the Annual Meeting on October&nbsp;21, 2005, Changshan Zhao, Xu Qian, Alan Li, Ju Zhang, Michael Siu,
Peter Fu, L C Wan, Meng Wan, Yezhong Ni, Weidong Wang and Xinping Shi were appointed the directors
of the Company. There was no subsequent change of directors of the Company up to the date of this
Annual Report.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">A total of seventeen (17)&nbsp;meetings of directors were held in 2005. Our Memorandum and Articles of
Association do not require the establishment of audit committee and compensation committee.
Following the requirements of the Sarbanes Oxley Act of 2002, we established an audit committee
comprised of the independent directors in 2004. On May&nbsp;24, 2005, we established the Compensation
Committee and on July&nbsp;28, 2005, we established the Nominating Committee. It is stated in the
respective charters that only independent directors are qualified to be appointed as members of
these committees.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><B><I>Employees.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">As of December&nbsp;31, 2005, our total staff consisted of 130 employees compared to that of 66 in 2004.
The increase was due to the completion of the acquisition of the 100% equity interest of CNT, the
nutraceutical business.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">An analysis of the employees by function is as follows:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and developments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Workers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We do not have any collective bargaining agreements with our employees. We have never experienced
any material labor disruptions and are unaware of any current efforts or plans to organize
employees. We believe we have good relationships with our employees.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. </B><B><I>Share ownership.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">None of our executive officers and directors own shares of the company as of June&nbsp;26, 2006:</DIV>


<P align="center" style="font-size: 10pt">43
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The names and titles of our executive officers and directors to whom we have granted options which
are outstanding as of August 31, 2006 and the number of shares of our common stock subject to
such options are set forth in the following table:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">per option</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 0px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 0px solid #000000">Title/Office</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">of options</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3">(US$)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 0px solid #000000">Expiration Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Changshan Zhao
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman and
Executive Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.15</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;28, 2009 (1)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">45,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xu Qian
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive
Officer and
Executive Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.15</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;28, 2009 (1)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">25,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Alan Li
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Co-Chief Executive
Officer and
Executive Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Michael Siu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial
Officer, Secretary
and Executive
Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">40,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.15</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;28, 2009 (1)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ju Zhang
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peter Fu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">L C Wan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Meng Wan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yezhong Ni
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Weidong Wang
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xinping Shi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Director
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhenwei Lu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Investment<BR>
Officer
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">40,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.85</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;20, 2016 (2)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>These options were granted under the Company&#146;s 1996 Stock Option Plan. These options were
granted pursuant to a board resolution passed on December&nbsp;28, 1999 (the &#147;Resolution&#148;) and are
fully vested as of December&nbsp;31, 2005. Pursuant to the Resolution, the persons holding the
position of Chairman and Chief Executive Officer were each granted 50,000 options. Unless the
options were exercised during their service period with the Company, the remaining unexercised
options can be succeeded by the newly appointed persons holding these positions. Mr.&nbsp;Xiaohong
Li and Mr.&nbsp;Xinhao Jiang had resigned on February&nbsp;8, 2005 and March&nbsp;9, 2005 respectively. They
had not exercised any of the above options granted and so Mr.&nbsp;Zhao Changshan and Mr.&nbsp;Jeff
Qian, respectively the newly appointed Chairman and Chief Executive Officer, succeeded all
granted options of their respective positions.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>These options were granted under the Company&#146;s 2000 Stock Option Plan. These options were
granted pursuant to a board resolution passed on September&nbsp;21, 2005 and are fully vested as of
December&nbsp;31, 2005.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">44
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stock Option Plans</B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Pursuant to shareholders&#146; resolutions passed on October&nbsp;10, 1996, September&nbsp;20, 2000 and October
21, 2005, the 1996 Stock Option Plan (the &#147;1996 Plan&#148;), the 2000 Stock Option Plan (the &#147;2000
Plan&#148;) and the 2005 Stock Option Plan (the &#147;2005 Plan&#148;) were approved respectively.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Details of these plans are as follows:</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>1996 Stock Option Plan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Types of Grants and Eligibility
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 1996 Plan is designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not our employees, and our present and future
subsidiary companies and to offer an additional inducement in obtaining the services of such
employees and consultants.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Shares Subject to the 1996 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The aggregate number of shares of our common stock, $0.01 par value per share (&#147;Common Stock&#148;) for
which options may be granted under the Plan shall not exceed 200,000. Such shares of Common Stock
may, in the discretion of our Board of Directors (the &#147;Board of Directors&#148;), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held
as treasury shares. Any shares of Common Stock subject to an option which for any reason expires,
is cancelled or is terminated unexercised or which ceases for any reason to be exercisable shall
again become available for the granting of options under the 1996 Plan. We shall at all times
during the term of the 1996 Plan reserve and keep available such number of shares of Common Stock
as will be sufficient to satisfy the requirements of it.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Administration of the 1996 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 1996 Plan shall be administered by the Board of Directors or, to the extent the Board of
Directors may determine, a committee of the Board of Directors (the &#147;Committee&#148;) consisting of not
less than two directors. A majority of the members of the Committee shall constitute a quorum, and
the acts of a majority of the members present at any meeting at which a quorum is present, and any
acts approved in writing by all members without a meeting, shall be the acts of the Committee. All
references in the 1996 Plan to determinations or actions of the Committee shall be deemed to
include determinations and actions by the Committee or the Board of Directors.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Committee may from time to time, in its sole discretion, consistent with the purposes of the
1996 Plan, grant options to employees (including officers and directors who are our employees, our
consultants or any of our subsidiaries. Such options granted shall cover such number of shares of
Common Stock as the Committee may determine in its sole discretion.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Subject to the express provisions of the 1996 Plan, the Committee shall have the authority, in its
sole discretion, to determine the employees and the consultants who shall be granted options; the
times when options shall be granted; the number of shares of Common Stock to be subject to each
option; the term of each option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments and, if in installments, the number of
shares of Common Stock to be subject to each installment, whether the installments shall be
cumulative, the date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or installment; whether shares of Common
Stock may be issued upon the exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price; the fair market value of
a share of Common Stock; whether to restrict the sale or other disposition of the shares of Common
Stock acquired upon the exercise of an option and, if so, whether to waive any such restriction;
whether to</DIV>

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</DIV>
</DIV>

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<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">subject the exercise of all or any portion of an option to the fulfillment of
contingencies as specified in the applicable stock option contract, including without limitation,
contingencies relating to entering into a covenant not to compete with us, any of subsidiaries or a
parent, to financial objectives for us, any of our subsidiaries or a parent, a division of any of
the foregoing, a product line or other category, and/or the period of continued employment of the
optionee with us, any of our subsidiaries or a parent, and to determine whether such contingencies
have been met; the amount, if any, necessary to satisfy our obligation to withhold taxes or other
amounts; whether an optionee is disabled; to construe the respective Contracts and the 1996 Plan;
with the consent of the optionee, to cancel or modify an option, <I>provided </I>such modified provision
would be permitted to be included in an option on the date of modification; to prescribe, amend and
rescind rules and regulations relating to the 1996 Plan; and to make all other determinations
necessary or advisable for administering the 1996 Plan. Any controversy or claim arising out of or
relating to the 1996 Plan, any option granted under the 1996 Plan or any applicable stock option
contract shall be determined unilaterally by the Committee in its sole discretion. The
determinations of the Committee on the above matters shall be conclusive and binding on the
parties. No member or former member of the Committee
shall be liable for any action, failure to act or determination made in good faith with respect to
the 1996 Plan or any option hereunder.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise Price
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The exercise price of the shares of Common Stock under each option shall be determined by the
Committee in its sole discretion; <I>provided</I>, however, the exercise price of an option shall not be
less than the fair market value of the Common Stock subject to such option on the date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Term
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The term of each option granted pursuant to the 1996 Plan shall be such term as is established by
the Committee, in its sole discretion; <I>provided, however, </I>that the term of each option granted
pursuant to the 1996 Plan shall be for a period not exceeding ten years from the date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">An option (or any part of installment thereof), to the extent then exercisable, shall be exercised
by giving written notice to us at our principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefore (or the amount due on
exercise if the Contract permits installment payments) (a)&nbsp;in cash or by certified check or (b)&nbsp;if
the applicable Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise equal to the aggregate exercise price of all
options being exercise, or with any combination of cash, certified check or shares of Common Stock.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Committee may, in its sole discretion, permit payment of the exercise price of an option by
delivery by the optionee of a properly executed notice, together with a copy of the optionee&#146;s
irrevocable instructions to a broker acceptable to the Committee to deliver promptly to us the
amount of sale of loan proceeds sufficient to pay such exercise price.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">A person entitled to receive Common Stock upon the exercise of an option shall not have the rights
of shareholder with respect to such shares of Common Stock until the date of issuance of a share
certificate to him for such shares; <I>provided, however, </I>that until such share certificate is issued,
any optionee using previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share of Common Stock be purchased or issued under the 1996
Plan.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Termination of Relationship
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any optionee whose relationship with us, our subsidiaries and parent as an employee or consultant
is terminated for any reason (other than his death or disability) may exercise such option, to the
extent exercisable on the date of such termination, at any time within three months after the date
of termination, but not thereafter and in no event after the date the option would otherwise have
expired; <I>provided, however,</I> that if such relationship is terminated either (a)&nbsp;for cause, or (b)
without our consent, such option shall terminate immediately.
</DIV>

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<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Notwithstanding the foregoing, except as may otherwise be expressly provided in the applicable
Contract, options granted under the 1996 Plan shall not be affected by any change in the status of
the optionee so long as the optionee continues to be our employee of, or our consultant, any of our
subsidiaries or a parent (regardless of having changed from one to the other or having been
transferred from one corporation to another).</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Nothing in the 1996 Plan or in any option granted under the 1996 Plan shall confer on any optionee
any right to continue in the employ of, or as consultant to us, our parent or any of our
subsidiaries, or interfere in any way with any right of ours, our parent or any of our subsidiaries
to terminate the optionee&#146;s relationship at any time for any reason whatsoever without liability to
us, our parent or any of our subsidiaries.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Death or Disability
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">If an individual optionee dies (a)&nbsp;while he is our employee of, our consultant, any of our
subsidiaries or a parent, (b)&nbsp;within three months after the termination of such relationship
(unless such termination was for cause or without our consent) or (c)&nbsp;within one year following the
termination of such relationship by reason of disability (as determined by the Board of Directors),
his option may be exercised, to the extent exercisable on the date of his death, by an executor,
administrator or other person who at the time is entitled by law to exercise the rights of a
deceased optionees under such option (the &#147;Legal Representative&#148;) at any time within one year after
death, but not thereafter and in no event after the date the option would otherwise have expired.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any optionee whose relationship has terminated by reason of disability (as determined by the Board
of Directors) may exercise his option, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter and in no event after
the date the option would otherwise have expired.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Adjustment upon changes in Common Stock
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Notwithstanding any other provision of the 1996 Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, spin-off, merger in which we are the surviving
corporation, or exchange of shares or the like which results in a change in the number or kind of
those shares of Common Stock which are outstanding immediately prior to such event, the aggregate
number and kind of shares subject to the 1996 Plan, the aggregate number and kind of shares subject
to each outstanding option and the exercise price thereof, whose determination shall be conclusive
and binding on all parties. Such adjustment may provide for the elimination of fractional shares
which might otherwise be subject to options without payment thereto.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In the event of (a)&nbsp;the liquidation or dissolution of our company, or (b)&nbsp;a merger in which we are
not the surviving corporation or a consolidation, any outstanding options shall terminate upon the
earliest of any such event, unless other provision is made therefore in the transaction.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Amendments and Termination of the 1996 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No option may be granted under the 1996 Plan after October&nbsp;2006. The Board of Directors, without
further approval of our shareholders, may at any time suspend or terminate the 1996 Plan, in whole
or in part, or amend it form time to time in such respects as it may deem advisable, including,
without limitation, to comply with, conform to or adopt any change in application law, regulations,
rulings or interpretations of administrative agencies; <I>provided, however, </I>that no amendment shall
be effective without the requisite prior or subsequent shareholder approval that would (a)&nbsp;increase
the maximum number of shares of Common Stock for which options may be granted under the 1996 Plan,
(b)&nbsp;materially increase the benefits accruing to participants under the 1996 Plan or (c)&nbsp;change the
eligibility requirements to receive options hereunder. No termination, suspension or amendment of
the 1996 Plan shall, without the consent of the holder of an existing and outstanding option
affected thereby, adversely affect his rights under such option. The power of the Committee to
construe and administer any options granted under the 1996 Plan prior to the termination or
suspension of the 1996 Plan nevertheless shall continue after such termination or during such
suspension.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Non-Transferability of Options
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No option granted under the 1996 Plan shall be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the optionee, only
by the optionee or his Legal Representatives. Except to the extent provided above, options may not
be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of
law or otherwise) and shall not be subject to execution, attachment or similar process, and any
such attempted assignment, transfer, pledge, hypothecation or disposition shall be null and void <I>ab
initio </I>of no force or effect.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">All
options to purchase 200,000 shares of common stock under the 1996 Stock Option Plan were
granted.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>2000 Stock Option Plan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Types of Grants and Eligibility

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 2000 Plan is designed to provide an incentive to our key employees (including officers and
directors who are key employees) and to consultants and directors who are not our employees or
employees of our present and future subsidiaries and to offer an additional inducement in obtaining
the services of such individuals.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Shares Subject to the 2000 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The aggregate number of shares of Common Stock for which options may be granted under the 2000 Plan
may not exceed 400,000; provided, however, that the maximum number of shares of Common Stock with
respect to which options may be granted to any individual in any fiscal year may not exceed
100,000. Such shares of Common Stock may consist either in whole or in part of authorized but
unissued shares of Common Stock or shares of Common Stock held in our treasury shares. Shares of
Common Stock subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable may again become available for the
granting of options under the 2000 Plan.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Administration of the 2000 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Except in the case of non-employee director options, in which case the Plan is administered by the
Board of Directors, the 2000 Plan is administered by a committee consisting of not less than two
directors (the &#147;2000 Plan Committee&#148;), each of whom shall be a &#147;non-employee director&#148; within the
meaning of rules and regulations promulgated by the Securities and Exchange Commission.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Subject to the express provisions of the 2000 Plan, the 2000 Plan Committee has the authority, in
its sole discretion, with respect to options, to determine, among other things: the key employees,
consultants and advisors who are to receive options; the times when they may receive options; the
number of shares of Common Stock to be subject to each option; the term of each option; the date
each option is to become exercisable; whether an option is to be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of Common Stock to be subject to
each installment; whether the installments are to be cumulative; the date each installment is to
become exercisable and the term of each installment; whether to accelerate the date of exercise of
any installment; whether shares of Common Stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price are to become due and
the amounts of such installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any such restriction; and whether to subject
the exercise of all or any portion of an option to the fulfillment of contingencies as specified in
an applicable stock option contract. With respect to all options, the 2000 Plan Committee has such
discretion to determine the amount, if any, necessary to satisfy our obligation to withhold taxes;
with the consent of the optionee, to cancel or modify an option, provided such option as modified
would be permitted to be granted on such date under the terms of the 2000 Plan; to prescribe, amend
and rescind rules and regulations relating to the 2000 Plan; and to make all other determinations
necessary or advisable for administering the 2000 Plan. The Board of Directors has the authority
described above with respect to the granting of non-employee director options.</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise Price
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The exercise price of the shares of Common Stock under each option is to be determined by the 2000
Plan Committee. The exercise price of the shares of Common Stock under each non-employee director
option is to be equal to the fair market value of the Common Stock subject to such option on the
date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Term
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The term of each option granted pursuant to the 2000 Plan is established by the 2000 Plan
Committee, in its sole discretion, at or before the time such option is granted. Subject to early
termination, each non-employee director option is to be exercisable on a term of ten years from the
date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">An option (or any part or installment thereof), to the extent then exercisable, is to be exercised
by giving written notice to us at our principal office. Payment in full of the aggregate exercise
price may be made (a)&nbsp;in cash or by certified check, or (b)&nbsp;if the applicable stock option contract
at the time of grant so permits,
with the authorization of the 2000 Plan Committee and with previously acquired shares of Common
Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate
exercise price of all options being exercised, or (c)&nbsp;with any combination of cash, certified check
or shares of Common Stock.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 2000 Plan Committee may, in its discretion, permit payment of the exercise price of an option
by delivery by the optionee of a properly executed exercise notice, together with a copy of his
irrevocable instructions to a broker acceptable to the 2000 Plan Committee to deliver promptly to
us the amount of sale or loan proceeds sufficient to pay such exercise price.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Termination of Relationship
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any employee holder of an option whose employment or relationship with us (and our parent and
subsidiaries) has terminated for any reason other than his death or disability may exercise such
option, to the extent exercisable on the date of such termination, at any time within three months
after the date of termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if his employment is terminated either (a)&nbsp;for
cause, or (b)&nbsp;without our consent, such option terminates immediately. Options granted to employees
under the 2000 Plan are not affected by any change in the status of the holder so long as he or she
continues to be our full-time employee, our parent or any of our subsidiaries (regardless of having
been transferred from one corporation to another).</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Death or Disability
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">If an optionee dies (a)&nbsp;while he is our employee, our consultant, our parent or any of our
subsidiaries, (b)&nbsp;within three months after the termination of such relationship (unless such
termination was for cause or without our consent), or (c)&nbsp;within one year following the termination
of such relationship by reason of disability, an option may be exercised, to the extent exercisable
on the date of death, by the Legal Representatives, at any time within one year after death, but
not thereafter and in no event after the date the option would otherwise have expired.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any optionee whose relationship has terminated by reason of disability may exercise his option, to
the extent exercisable upon the effective date of such termination, at any time within one year
after such date, but not thereafter and in no event after the date the option would otherwise have
expired.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Adjustments Upon Changes in Common Stock
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Notwithstanding any other provisions of the 2000 Plan, in the event of any change in the
outstanding Common Stock by reason of a share dividend, recapitalization, merger or consolidation
in which we are the surviving corporation, split-up, combination or exchange of shares or the like,
the aggregate number and</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">kind of shares subject to the 2000 Plan, the aggregate number and kind of
shares subject to each outstanding option and the exercise price thereof will be appropriately
adjusted by the Board of Directors, whose determination will be conclusive.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In the event of (a)&nbsp;the liquidation or dissolution of our company or (b)&nbsp;a merger or consolidation
in which we are not the surviving corporation, any outstanding options will terminate, unless other
provision is made therefore in the transaction.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Amendments and Termination of the 2000 Stock Option Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No option may be granted under the 2000 Plan after October&nbsp;2007. The Board of Directors, without
further approval of our stockholders, may at any time suspend or terminate the 2000 Plan, in whole
or in part, or amend it from time to time in such respects as it may deem advisable, including,
without limitation, to comply with the provisions of certain rules and regulations promulgated by
the Securities and Exchange Commission, among other things; provided, however, that no amendment
may be effective without the requisite prior or subsequent shareholder approval which would (a)
except as required for anti-dilution adjustments, increase the maximum number of shares of Common
Stock for which options may be granted under the 2000 Plan, (b)&nbsp;materially increase the benefits to
participants under the 2000 Plan, or (c)&nbsp;change the eligibility requirements for individuals
entitled to receive options under the 2000 Plan.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Non-Transferability of Options
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No option granted under the 2000 Plan may be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the holder thereof,
only by such holder or such holder&#146;s legal representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and may not be subject to execution, attachment or similar
process.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No optionee has any rights as a shareholder with respect to any shares subject to an option prior
to the date of the issuance of a certificate or certificates for such shares.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Options to subscribe 370,000 shares and 30,000 shares of common stock under the 2000 Stock Option
Plan were granted on September&nbsp;21, 2005 and July&nbsp;18, 2006 respectively.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>2005 Stock Option Plan</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Types of Grants and Eligibility

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 2005 Plan is designed to provide incentives to employees (including key employees such as
officers and directors) of the Company and to consultants and directors who are not employees of
the Company and its subsidiary companies and to offer an additional inducement in obtaining the
services of such individuals.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Shares Subject to the 2005 Stock Option Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The
aggregate number of Shares for which the options may be granted under the 2005 Plan may not exceed
1,000,000 shares; such Shares may consist either in whole or in part of authorized but un-issued
shares of common stock or shares of common stock held in the treasury of the Company. Shares of
common stock subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable may again become available for the
granting of options under the 2005 Plan.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Administration of the 2005 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The 2005 Plan is administered by the Company&#146;s Compensation Committee (the &#147;Committee&#148;).</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Subject to the express provisions of the 2005 Plan, the Committee has the authority, in its sole
discretion, with respect to options, to determine, among other things: the key employees,
consultants and advisors who are to receive options; the times when they may receive options; the
number of shares of common stock to be subject to each option; the term of each option; the date
each option is to become exercisable; whether an</DIV>

<P align="center" style="font-size: 10pt">50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">option is to be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of common stock to be subject to
each installment; whether the installments are to be cumulative; the date each installment is to
become exercisable and the term of each installment; whether to accelerate the date of exercise of
any installment; whether shares of common stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price are to become due and
the amounts of such installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares of common stock
acquired upon the exercise of an option and to waive any such restriction; and whether to subject
the exercise of all or any portion of an option to the fulfillment of contingencies as specified in
an applicable stock option contract. With respect to all options, the Committee has such
discretion to determine the amount, if any, necessary to satisfy the Company&#146;s obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option, provides such
option as modified would be permitted to be granted on such date under the terms of the 2005 Plan;
to prescribe, amend and rescind rules and regulations relating to the 2005 Plan; and to make all
other determinations necessary or advisable for administering the 2005 Plan. The Board of
Directors also has the authority described above with respect to the granting of director options.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise Price
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The exercise price of the shares of common stock under each option is determined by the
Committee at the time of the grant. The exercise price of the shares of common stock is to be
equal to the fair market value of the common stock subject to such option on the date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Term
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The term of each option granted pursuant to the 2005 Plan is established by the Committee, in its
sole discretion, at or before the time such option is granted. Subject to early termination, the
option of each non-employee director is exercisable for a term of ten years from the date of grant.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Exercise
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">An option (or any part or installment thereof), to the extent then exercisable, is to be exercised
by giving written notice to the Company at its principal office. Payment in full of the aggregate
exercise price may be made (a)&nbsp;in cash or by certified check, or (b)&nbsp;if the applicable stock option
contract at the time of grant so permits, with the authorization of the Committee, with previously
acquired shares of common stock having an aggregate fair market value, on the date of exercise,
equal to the aggregate exercise price of all options being exercised, or (c)&nbsp;with any combination
of cash, certified check or shares of common stock.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The Committee may, in its discretion, permit payment of the exercise price of an option by delivery
by the optionee of a properly executed exercise notice, together with a copy of his irrevocable
instructions to a broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Termination of Relationship
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any employee holder of an option whose employment or relationship with the Company (and its parent
and subsidiaries) has terminated for any reason other than his death or disability may exercise
such option, to the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after the date the option
would otherwise have expired; provided, however, that if his employment is terminated either (a)
for cause, or (b)&nbsp;without the consent of the Company, said option terminates immediately. Options
granted to employees under the 2005 Plan are not affected by any change in the status of the holder
so long as he or she continues to be a full-time employee of the Company, its parent or any of its
subsidiaries (regardless of having been transferred from one corporation to another).</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Death or Disability
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">If an optionee dies (a)&nbsp;while he is an employee or consultant to, the Company, its parent or any of
its subsidiaries, (b)&nbsp;within three months after the termination of such relationship (unless such
termination was </DIV>

<P align="center" style="font-size: 10pt">51
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">for cause or without the consent of the Company), or (c)&nbsp;within one year following
the termination of such relationship by reason of disability, an option may be exercised, to be
extent exercisable on the date of death, by an executor, administrator or other person at the time
entitled by law to the rights of the optionee under such option, at any time within one year after
death, but not thereafter and in no event after the date the option would otherwise have expired.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Any optionee whose relationship has terminated by reason of disability may exercise his option, to
the extent exercisable upon the effective date of such termination, at any time within one year
after such date, but not thereafter and in no event after the date the option would otherwise have
expired.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Adjustments upon Changes in Common Stock
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Notwithstanding any other provisions of the 2005 Plan, in the event of any change in the
outstanding common stock by reason of a share dividend, recapitalization, merger or consolidation
in which the Company is the surviving corporation, split-up, combination or exchange of shares or
the like, the aggregate number and kind of shares subject to the 2005 Plan, the aggregate number
and kind of shares subject to each outstanding option and the exercise price thereof will be
appropriately adjusted by the Board of Directors, whose determination will be conclusive.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">In the event of (a)&nbsp;the liquidation or dissolution of the Company or (b)&nbsp;a merger or consolidation
in which the Company is not the surviving corporation, any outstanding options will terminate,
unless other provision is made therefore in the transaction.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Amendments and Termination of the 2005 Plan
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No
option may be granted under the 2005 Plan after October&nbsp;20, 2015. The Board of Directors, without
further approval of the Company&#146;s stockholders, may at any time suspend or terminate the 2005 Plan,
in whole or in part, or amend it from time to time in such respects as it may deem advisable,
including, without limitation, to comply with the provisions of certain rules and regulations
promulgated by the Securities and Exchange Commission, among other things; provided, however, that
no amendment may be effective without the requisite prior or subsequent Stockholder approval which
would (a)&nbsp;except as required for anti-dilution adjustments, increase the maximum number of shares
of common stock for which options may be granted under the 2005 Plan, (b)&nbsp;materially increase the
benefits to participants under the 2005 Plan, or (c)&nbsp;change the eligibility requirements for
individuals entitled to receive options under the 2005 Plan.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Non-Transferability of Options
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No option granted under the 2005 Plan may be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the holder thereof,
only by such holder or such holder&#146;s legal representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and may not be subject to execution, attachment or similar
process.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">No
options were granted under the 2005 Plan.</DIV>

<!-- link2 "Item&nbsp;7 Major Shareholders and Related Party Transactions" -->
<DIV align="left"><A NAME="008"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;7 Major Shareholders and Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><B><I>Major shareholders.</I></B>

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The following
table sets forth as of August&nbsp;31, 2006, the beneficial ownership of (i)&nbsp;all persons
known to us to be beneficial owners of equal or more than five percent or more of our common stock
and (ii)&nbsp;our current officers and directors and (iii)&nbsp;our current officers and director as a group.</DIV>


<P align="center" style="font-size: 10pt">52
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares of common stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal Stockholder</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">beneficially owned (1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Percent of class</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Holdings of Room&nbsp;4301,<BR>
Central Plaza, 18 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,072,882</TD>
    <TD nowrap valign="top">(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">62.73</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Internet Technology Co.,<BR>
Ltd. of c/o Room&nbsp;2413-18, 24/F.,<BR>
Shui On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,186,441</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10.52</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great Legend Internet<BR>
Technology and Service Co., Ltd.<BR>
of c/o Room&nbsp;2413-18, 24/F., Shui<BR>
On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">508,474</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.51</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Changshan Zhao of c/o Room<BR>
4301, Central Plaza, 18 Harbour<BR>
Road, Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(3)(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xu Qian of c/o Room<BR>
4301, Central Plaza, 18 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(3)(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ju Zhang of c/o Room&nbsp;2413,<BR>
Shui On Centre, 8 Harbour Road, <BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Michael Siu of c/o Room&nbsp;2413,<BR>
Shui On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peter Fu of c/o Room&nbsp;2413, Shui<BR>
On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">L C Wan of c/o Room&nbsp;2413, <BR>
Shui On Centre, 8 Harbour Road, <BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Meng Wan of c/o Room&nbsp;2413,<BR>
Shui On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yezhong Ni of c/o Room<BR>
2413, Shui On Centre, 8 Harbour Road,<BR>
 Wanchai,
Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Weidong Wang of c/o Room <BR>
2413, Shui On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Xinping Shi c/o Room&nbsp;2413, Shui<BR>
On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhenwei Lu of c/o Room&nbsp;2413,<BR>
Shui On Centre, 8 Harbour Road,<BR>
Wanchai, Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">All officers and directors as a<BR>
group (twelve persons)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD nowrap align="right" valign="top">8,767,797(2)(3)(4</TD>
    <TD nowrap valign="top">)(5)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">77.76</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">53
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>less than 1%.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Unless otherwise noted, all persons named in the table have sole voting and investment power
with respect to all shares of common stock beneficially owned by them.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Included in the 7,072,882 shares owned by Beijing Holdings are 974,576 shares and 849,576
shares owned by CMEC Ceramics Holdings Limited (&#147;CMEC&#148;) and Perfect Capital Holdings Limited
(&#147;Perfect Capital&#148;) respectively. CMEC was previously owned by CMEC-GE Capital China
Industrial Holding Limited. Pursuant to a sale and purchase agreement date June&nbsp;30, 2000,
Beijing Holdings acquired the entire interest of CMEC. Pursuant to another sale and purchase
agreement dated May&nbsp;30, 2002, Beijing Holdings, through Perfect capital, a 100% subsidiary,
acquired the entire shares of the Company held by Oriental Patron China Investment Limited, an
initial shareholder of the Company.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Changshan Zhao, Chairman of the Board, and
Mr.&nbsp;Xu Qian, our Chief Executive Officer, are respectively, the General Manager and Assistant General Manager of Beijing Holdings and
therefore they may be deemed to beneficially own the shares of Common Stock owned by Beijing
Holdings. In addition to them, the Beijing Enterprises Group Corporation Limited, the sole
shareholder of Beijing Holdings, may be deemed to beneficially own the shares of Common Stock
owned by Beijing Holdings.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Prior to the establishment of the Company&#146;s nominating committee on July&nbsp;28, 2005, it is our
practice to include two candidates recommended by Beijing Holdings in the list of candidates
of directors eligible for election in the our annual shareholders
meeting, as the Company&#146;s intention to capitalize on the specific
position of our major shareholder in promoting our business in China. In the Company&#146;s 2005
Annual Shareholders Meeting, however, all qualified candidates were selected by our nominating
committee based on the candidates&#146; experience and capability and this practice no longer
existed. Mr.&nbsp;Changshan Zhao and Mr.&nbsp;Xu Qian were selected by the nominating committee as
candidates as their senior positions in Beijing Holdings will enhance closer
involvement of Beijing Holdings in the future development of the Company.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Holds options which are not currently exercisable or which
vest within 60&nbsp;days of the August&nbsp;31,
2006.</TD>
</TR>

</TABLE>



<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Except as disclosed below, there was no significant related party transactions made with major
shareholders</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><B><I>Related party transactions.</I></B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The transactions and balances with related parties are analyzed as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Transactions with related parties</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10">Year ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
<TD nowrap align="left" style="border-bottom: 0px solid #000000"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
<TD nowrap align="left" style="border-bottom: 0px solid #000000"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>




</TR>

<TR style="font-size: 8pt" valign="bottom">
<TD nowrap align="left" style="border-bottom: 0px solid #000000"><b>Transactions
with related parties</b></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"></TD>
</TR>
<!-- Blank Space -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->


<TR valign="bottom" style="background: #cceeff">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Disposal
of Zhuhai branch of BBHL to BEDC (Note a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top">1,300</TD>
    <TD nowrap valign="top" align="right"></TD>
</TR>



<TR valign="bottom">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Net operating cash outflows of Zhuhai branch reimbursed. (Note a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top"></TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top">(1,300</TD>
    <TD nowrap valign="top" align="left">)</TD>
</TR>






<TR valign="bottom" style="background: #cceeff">
<TD valign="top"><DIV style="margin-left:0px; text-indent:0px">Acquisition
of CNT from Beijing Holdings by issuance of 2,233,800 new shares at US$2.41 per share and<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,146,200 new shares at US$2.1 per share respectively (Note b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="bottom">79,928</TD>
    <TD nowrap valign="top" align="right"></TD>
</TR>

<TR valign="bottom">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Disposal
of available-for-sale securities to Beijing Holdings (Note c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top">2,167</TD>
    <TD nowrap valign="top" align="right"></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">54
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">

    <TD width="1%">Note</TD>
<TR><TD>&nbsp;</TD></TR>



<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;31, 2005 BBHL entered into an agreement with BEDC, the sole shareholder of China Internet Technology Company
Limited (&#147;China Internet&#148;), the then 17.21% shareholder of the Company, to sell its Zhuhai branch for a consideration of Rmb&nbsp;1.3&nbsp;million.
The consideration was determined based on the operating cashflow generated by Zhuhai branch from May&nbsp;1, 2002 to March&nbsp;31, 2005, the period of which
Zhuhai branch was managed and controlled by the Company. Upon disposal, the Company agreed to reimburse the same aggregated net operating cash outflows of
Rmb&nbsp;1.3&nbsp;million to the Zhuhai branch as part of the conditions of disposal. The consideration of the transaction is zero as the Company received Rmb1.3&nbsp;million
from BEDC and at the same time the Company transferred Rmb1.3&nbsp;million to Zhuhai branch. The transaction was closed on March&nbsp;31, 2005 and resulted in a disposal loss of Rmb0.51&nbsp;million.
</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;13, 2005, the Company entered into agreements with Beijing Holdings, the then 47.18% shareholder
 of the Company, to (i) Acquire a 51% equity interest in CNT in
exchange for 2,233,800 shares of the Company and (ii) obtain an
option to acquire the remaining 49% equity interest in CNT in
exchange for 2,146,200 shares of the Company. Effective October 31,
2005, the acquisition of 51% of CNT was completed and effective
December 22, 2005, the option was also exercised to acquire the
remaining 49% equity interest in CNT.</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;17 2005, the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the 6,312,000&nbsp;shares invested in Xi&#146;an
Haitian Antenna Company Limited (&#147;Xi&#146;an Haitian&#148;) then
holding the Company for a
cash consideration of Rmb&nbsp;2.17 million. These shares were
previously held as available-for-sale securities by the Company and
represented less than 1% of the total outstanding shares of
Xi&#146;an Haitian (approximately 0.975%). The sale consideration was determined by the quoted closing stock
price of Xi&#146;an Haitian at HK$0.33 per share at the date of the agreement. Xi&#146;an Haitian is a
company engaged in research, development, production, sales, installation, services and
wireless communication network optimization of base station antennas and is also listed on the
Growth Enterprise Market of the Hong Kong Stock Exchange. The shares were acquired upon the
initial public offering (&#147;IPO&#148;) of Xi&#146;an Haitian. Its stock price dropped continuously after
the IPO due to poorer operating results as a result of the keen competition in the market.
Beijing Holdings is also a passive investor of Xi&#146;an Haitian who owns approximately 8% equity
interest of Xi&#146;an Haitian after its IPO. Beijing Holdings
currently nominates one non-executive director to the board of
Xi&#146;an Haitian. The Company does not currently participate in the
management or operations of Xi&#146;an Haitian.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Balances with related parties</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2004 and 2005, the balances with related parties were as follows:-</TD>
</TR>

</TABLE>
</DIV>



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">December 31</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">(Amounts in thousand, Rmb)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balances with related parties</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held
by Beijing Holdings, the ultimate holding company, for security
investment purposes (Note d)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds receivable from Beijing Holdings, the ultimate holding company, in
respect of sale of shares of Xi&#146;an Haitian Antenna
(Note e)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held by Beijing Holdings Investment
Management Center, a fellow subsidiary, for security investment purposes
(Note f)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held
by China Biotech Holdings Limited, a related company with common
director, for potential
acquisition of technology and business in China
(Note g)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,262</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due from
Beijing Investments (BVI)&nbsp;Limited, a fellow subsidiary, for
security investment purposes (Note h)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due from
Great Legend Internet Technology and Service Co. Ltd., a shareholder,
for expenses paid on behalf</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due to BEDC,
the holding company of a shareholder
(Note&nbsp;i)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due to China
Biotech Holdings Limited, a related company with common director (Note j)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><DIV align="left"><DIV style="font-size: 3pt; margin-top: 13pt; width: 18%; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Due to Beijing Holding&#146;s good relationships with leading
investment banks and the Company&#146;s desire to access potential investment
opportunities as a result of these relationships, the Company previously deposited funds
with Beijing Holdings (since 2002) to invest on its behalf in Hong Kong. Nevertheless, due
to the poor performance of the Hong Kong Stock market in the last two
years, the Company withdrew its entire deposit of Rmb 6.53 million in May&nbsp;2005. There was no agreement signed with Beijing Holdings
for the deposit.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;17, 2005 the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the shares it held in Xi&#146;an Haitian for a cash
consideration of Rmb&nbsp;2.17 million. The
value of the consideration was determined by the quoted closing stock price of Xi&#146;an Haitian
at HK$0.33 per share at the date of the agreement.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">55
</DIV>
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Due to its good relationship with leading investment banks and potential investment
opportunities to be gained from those relationships, the Company previously deposited funds
with Beijing Holdings Investment Management Center (&#147;BHIMC&#148;)
to invest on our behalf in China. Again, due to the poor performance of the China
Stock market, we withdrew the entire funds of Rmb&nbsp;3.39 million in December&nbsp;2005. There was no agreement signed with
BHIMC for the deposit.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>China Biotech Technology Inc. (&#147;China Biotech&#148;), is a
company incorporated in BVI in which Mr.&nbsp;Alan Li, the executive director and Co-Chief Executive
Officer of the Company, is also an executive director. China
Biotech has experience in the nutraceutical business in China, China
Biotech&#146;s experience includes making investments in companies and
technologies involved in this industry. In view of China Biotech&#146;s
experience, the Company deposited Rmb6.26 million with China Biotech for
purpose of making (with the assistance of China Biotech) a potential
acquisition of technology and
businesses in the nutraceutical industry in China. There was no agreement
 signed for the funds deposited with China Biotech and the Company
can withdraw the funds without any restrictions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented the advance of funds for the purchase on
behalf of the Company of trading securities in Hong Kong by Beijing Investments (BVI)&nbsp;Limited, a wholly
owned subsidiary of Beijing Holdings. This amount was wholly
withdrawn by the Company in March
2005.</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented the contract sums received on behalf
of BEDC by BHLHK in Hong Kong as the customer of BEDC paid in Hong
Kong dollars, whereas BEDC did not maintain a Hong Kong dollar bank account in Hong Kong.</TD>
</TR>
</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(j)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented administrative expenses paid on behalf
of CNT by China
Biotech in China.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(k)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other than information already disclosed elsewhere in this Form 20-F, no person who has been
an insider of the Company since January&nbsp;1, 2004 or any associate or affiliate of such insider
has had any material direct or indirect interest in any transaction with our Company since
January&nbsp;1, 2004 or in any proposed transaction of our company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><B><I>Interests of experts and counsel.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.

</DIV>

<P align="center" style="font-size: 10pt">56
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link2 "Item&nbsp;8 Financial Information" -->
<DIV align="left"><A NAME="009"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;8 Financial Information</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><B><I>Consolidated Statements and Other Financial Information.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our consolidated financial statements are included herein under Item&nbsp;18.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for an interim dividend paid in 1997, we have not paid any dividends on our common stock.
The payment of dividends in the future, if any, is within the discretion of our Board of Directors
and will depend upon our earnings, its capital requirements and financial condition and other
relevant factors. We do not anticipate declaring or paying any dividends in the foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have experienced a delay in collecting financial information from Anji Bio due to certain
disputes between Zhejiang Innoessen and the Anji Buyers as described in Item&nbsp;3(D) &#151;  &#147;Risk
Factors&#148;. As stated previously, the Anji Buyers refused to cooperate with the audit instructions
issued by the Company, such as provision of financial statements for the Company to prepare its
consolidated financial statements and access by staff sent from the Company at site of Anji Bio.
The Company finally terminated the employment of the general manager of Anji Bio. The general
manager of Anji Bio then sent a letter directly to our independent registered public accounting
firm containing certain allegations against the management of the Company. These allegations were
then investigated by the Company&#146;s audit committee and concluded to be invalid. Subsequent to the
investigation, the ex-general manager of Anji Bio sent another letter to our independent registered
public accounting firm withdrawing all of his allegations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the opinion of the senior management of the Company, the conflict with Anji Bio ended on July
26, 2006 and the audited financial statements could be completed. The impacts of this event,
included the late filing of this Annual Report, the possible delisting of our stock from Nasdaq and
the additional costs and capital expenditures which were incurred. Pursuant to the Anji Memorandum,
we have to complete the disposal transaction by September&nbsp;30, 2006. As of September&nbsp;11, 2006, the
verification on the assets and liabilities of Anji Bio is complete and management believes that it
is in a position to finalize the disposal prior to that deadline. The remaining items to be
determined are agreement on the final consideration and the drafting of final legal documents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the above matters, particularly the time the management and the audit committee taken to
perform investigations on the complaints sent by Mr.&nbsp;Hu. Our completed financial statements were
sent late to our auditors for commencement of their audit and the above matters had caused the
auditors and the audit committee to request for additional time to seek additional information with
respect to the financial statements and as a result this Annual Report was filed later than the
required statutory deadline.
</DIV>





<P align="center" style="font-size: 10pt">57

</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><B><I>Significant Changes.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>

<!-- link2 "Item&nbsp;9 The Offer and Listing" -->
<DIV align="left"><A NAME="010"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9 The Offer and Listing.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><B><I>Offer and listing details.</I></B>

</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We have authorized capital of US$25,000,000 divided into 2,500,000,000 shares of par value US$0.01
each. As of August&nbsp;31, 2006, 11,274,497 shares are issued and fully paid.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The annual high and low market prices of our common stock for the five most recent full financial
years are as set forth below:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">NASDAQ Capital Market</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Common Stock</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">(Year Ending)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.090</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The high and low market prices of our common stock for each financial quarter over the two most
recent full financial years are as set forth below:</DIV>


<P align="center" style="font-size: 10pt">58
</DIV>
</DIV>


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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">NASDAQ Capital Market</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Common Stock</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">(Quarter Ending)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.560</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.350</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">For
the most recent eight months, the high and low market prices of our common stock are as set
forth below:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">NASDAQ Capital Market</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Common Stock</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">(Month Ending)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.02</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">July&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.200</TD>
    <TD>&nbsp;</TD>
</TR>


<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.280</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">May&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">April&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;28, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.010</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>B. </I>Plan of Distribution.
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Not Applicable.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><B><I>Markets.</I></B>
</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our
common stock was included for quotation on the NASDAQ Global Market (formerly
known as NASDAQ National Market) on December&nbsp;13, 1996 under the symbol &#147;TRFDF&#148;. Pursuant to the implementation of the new listing requirements since February&nbsp;1998,
we moved the listing of our common stock to the NASDAQ Capital Market on October&nbsp;12,
1998 under the same symbol.</DIV>



<P align="center" style="font-size: 10pt">59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our common stock was listed for quotation on the NASDAQ Capital Market and
not on any other public trading market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;9, 2006, the name of the Company was changed to China Technology Development Group
Corporation and its common stock continued to trade on NASDAQ Capital Market under the new symbol
&#147;CTDC&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>D.&nbsp;</B><B><I>Selling Shareholders.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>E.&nbsp;</B><B><I>Dilution.</I></B>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company had authorized the issuance, pursuant to the 1996 Stock Option Plan, 2000 Stock
Option Plan and 2005 Stock Option Plan, of options to purchase respectively 200,000 shares,
400,000 shares and 1,000,000 shares of Common Stock to the Company&#146;s existing shareholders,
employees, officers, directors and consultants.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pursuant to a board resolution passed on December&nbsp;28, 1999, options to purchase 140,000
shares of Common Stock were granted, for an exercise period of ten years, to certain directors
and officers at an exercise price of US$1.15 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pursuant to a board resolution passed on September&nbsp;20, 2005, options to purchase the
remaining 60,000 shares of Common Stock under the 1996 Stock Option Plan were granted and
pursuant to the same board resolution, options to purchase 370,000 shares of Common Stock were
granted under the 2000 Stock Option Plan, for an exercise period of ten years, to a director
at an exercise price of US$1.85 per share and.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As at August&nbsp;31, 2006, no options granted under the 1996 Stock Option Plan and 2000 Stock
Option Plan were exercised.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company entered into an agreement dated July&nbsp;12,
2005 with Ivory Capital Asia Pte, Ltd (the &#147;Ivory
Capital&#148;)(filed as Exhibit&nbsp;10.1 hereto) on an non-exclusive
basis to raise at least US$20&nbsp;million in new capital for the
Company and its subsidiaries and to provide financial advisory
services to the Company concerning the strategic development of the
Company&#146;s business for a period of six months, unless the
extension was mutually agreed. Pursuant to the agreement, retainer
fee of US$ 40,000 per month was payable 50% in cash and 50% in the
Company&#146;s shares at average price of last 30 days prior to
date of the signing of the agreement. Besides, a success fee of 3% on
the initial US$20 million of capital commitments received from
investors and 4% on the amount of capital commitments in excess of
US$20 million received from investors was payable in cash if any.
Accordingly, an aggregate
of 34,488&nbsp;shares of our Common Stock shall be issued to Ivory
Capital as part of the retainer fee charged. Ivory Capital finally failed to raise any
funds for the Company during the six month contract term and the
services of Ivory Capital were terminated by
the Company. The 34,488&nbsp;shares of common stock were not issued to
Ivory Capital. The Company, however, is currently under negotiation with
Ivory Capital for the resumption of the contract at the same terms as
previously signed as substantial pre-funding work has been done even
though no
funds were finally raised. As of date, no agreement, memorandum
or letter of intent has been signed in respect of resuming the
contract but a provision of the unpaid retainer fee was made in the
financial statements for the fiscal year ended December 31, 2005.</TD>
</TR>


</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>F.&nbsp;</B><B><I>Expenses of the issue.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<!-- link2 "Item&nbsp;10 Additional Information" -->
<DIV align="left"><A NAME="011"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;10 Additional Information.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A.&nbsp;</B><B><I>Share capital.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>B</B><B><I>.&nbsp;Memorandum and articles of association.</I></B>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Memorandum and Articles of Association of our company as amended were included in the Proxy
Statement dated September&nbsp;21, 2005 filed at the Securities and Exchange Commission on September&nbsp;26,
2005 in relation to the Annual Meeting of Shareholders of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our corporate affairs are governed by our Memorandum and Articles of Association and by the
International Business Companies Act of the British Virgin Islands. Principles of law relating to
such matters as the validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders differ from those that
would apply if we were incorporated in a jurisdiction within the United States. Further, the rights
of shareholders under British Virgin Islands law are not as clearly established as the rights of
shareholders under legislation or judicial precedent in existence in most United States
jurisdictions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Thus, our public shareholders may have more difficulty in protecting their interests in the face of
actions by the management, directors or controlling shareholders than they might have as
shareholders of a corporation incorporated in a United States jurisdiction. Please refer to Item
3(D) for a detailed discussion of such risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>C.&nbsp;</B><B><I>Material contracts.</I></B>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On July&nbsp;12, 2005, an agreement was entered into between the Company and Ivory Capital whereas
the Company engaged Ivory Capital on an non-exclusive basis to provide financial advisory services
to the Company concerning the strategic development of the Company&#146;s business, including
assisting in the development of a business strategy to maximize international investor interest and
to raise at least US$20&nbsp;million in new capital for the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;13, 2005, the Company entered into a sale and purchase agreement with Beijing
Holdings, its then 47.18% shareholder, pursuant to which the Company
acquired 51% of the issued
and outstanding stock of CNT.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;13, 2005, the Company also entered into an option agreement with Beijing
Holdings to acquire the remaining issued and outstanding stock of CNT. At the Annual Meeting
of Stockholders of the Company held on October&nbsp;21, 2005, the special resolutions to approve
the acquisition by the Company of the 51% equity interest in CNT and the option to acquire the
remaining 49% equity interest in CNT, were passed.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;14, 2003, BBHL entered into a framework
purchase agreement with the Legend (Beijing) Limited for three years. Under which BBHL agreed to provide
the network security products and its maintenance works based on the actual quantities ordered
through purchase orders issued by the Legend Group.</TD>
</TR>

</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The
contract with the Legend (Beijing) Limited expired in March&nbsp;2006. We are currently
negotiating the renewal of the contract and sales with the Legend Group since the expiry of
the old contract are conducted on individual basis.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On February&nbsp;10, 2006, BBHL had entered into a supply contract for a term of two years with the
Legendsec Ltd. at exactly the same terms of that of the Legend Group. Legendsec was a new
company formed in 2004 by a group of experienced salesmen left the Legend Group after the
restructuring of the Legend Group in 2004.</TD>
</TR>

</TABLE>
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;20, 2004, Zhejiang Innoessen entered into a
contract with the China New Era Health Industry Group Limited for the purchase of EOB-f02 and
EOB-f04.</TD>
</TR>

</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On July&nbsp;27, 2006, Zhejiang Innoessen had entered into
the Anji Memorandum with the Anji
Buyers to, among other things, dispose of its entire 93.67% ownership interest in Anji Bio.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>D.&nbsp;Exchange controls.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China&#146;s government imposes control over the convertibility of Rmb into foreign currencies. Under
the current unified floating exchange rate system, the People&#146;s Bank of China publishes a daily
exchange rate for Rmb, or the PBOC Exchange Rate, based on the previous day&#146;s dealings in the
inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an authorized range above or
below the PBOC Exchange Rate according to market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the Foreign Exchange Control Regulations issued by the State Council on January&nbsp;29,
1996 and effective as of April&nbsp;1, 1996 (and amended on January&nbsp;14, 1997) and the Administration of
Settlement, Sale and Payment of Foreign Exchange Regulations which came into effect on July&nbsp;1, 1996
regarding foreign exchange control, or the Regulations, conversion of Renminbi into foreign
exchange by foreign investment enterprises for current account items, including the distribution of
dividends and profits to foreign investors of joint ventures, is permissible upon the proper
production of qualified commercial vouchers or legal documents as required by the Regulations.
Foreign investment enterprises are permitted to remit foreign exchange from their foreign exchange
bank account in China upon the proper production of, inter alia, the board resolutions declaring
the distribution of the dividend and payment of profits. Conversion of Rmb into foreign currencies
and remittance of foreign currencies for capital account items, including direct investment, loans,
security investment, is still subject to the approval of the State Administration of Foreign
Exchange, or SAFE, in each such transaction. On January&nbsp;14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important provision, as
Article&nbsp;5 provides that the State shall not impose restrictions on recurring international payments
and transfers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the Regulations, foreign investment enterprises are required to open and maintain separate
foreign exchange accounts for capital account items (but not for other items). In addition, foreign
investment enterprises may only buy, sell and/or remit foreign currencies at those banks authorized
to conduct foreign exchange business upon the production of valid commercial documents and, in the
case of capital account item transactions, document approval from SAFE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently, foreign investment enterprises are required to apply to SAFE for &#147;foreign exchange
registration certificates for foreign investment enterprises.&#148; With such foreign exchange
registration certificates (which are granted to foreign investment enterprises, upon fulfilling
specified conditions and which are subject to
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">review and renewal by SAFE on an annual basis) or with the foreign exchange sales notices from the
SAFE (which are obtained on a transaction-by-transaction basis), foreign-invested enterprises may
enter into foreign exchange transactions at banks authorized to conduct foreign exchange business
to obtain foreign exchange for their needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>E.&nbsp;</B><B><I>Taxation.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following discussion is a summary of certain anticipated, British Virgin Islands, Cayman
Islands, Hong Kong and PRC tax consequences of an investment in the Common Stock and warrants. The
discussion does not deal with all possible tax consequences relating to an investment in the Common
Stock and warrants and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance companies and
tax-exempt entities) may be subject to special rules. In particular, the discussion does not
address the tax consequences under state, local and other national (e.g., United States,
non-British Virgin Island and non-Hong Kong) tax laws. Accordingly, each prospective investor
should consult its own tax advisor regarding the particular tax consequences to it of an investment
in the Common Stock and warrants. The following discussion is based upon laws and relevant
interpretations there of in effect as of the date of this Annual Report, all of which are subject
to change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>British Virgin Islands Taxation</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the International Business Companies Act of the British Virgin Islands as currently in
effect, a holder of Common Stock who is not a resident of the British Virgin Islands is exempt from
British Virgin Islands income tax on dividends paid with respect to the Common Stock and all
holders of Common Stock are not liable to British Virgin Islands income tax on gains realized
during the year on sale or disposal of such shares; the British Virgin Islands does not impose a
withholding tax on dividends paid by the Company incorporated under the International Business
Companies Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on
companies incorporated under the International Business Companies Act. In addition, the Common
Stock is not subject to transfer taxes, stamp duties or similar charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There is no income tax treaty or convention currently in effect between the United States and the
British Virgin Islands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Hong Kong Taxation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the laws of Hong Kong, as currently in effect, a holder of Common Stock is not subject to
Hong Kong tax on dividends paid with respect to such shares and no holder of Common Stock is liable
for Hong Kong tax on gains realized on sale or other disposition of such Common Stock except that
those persons who are classified for Hong Kong purposes as dealers in securities in Hong Kong may
be subject to Hong Kong tax in respect of any gain resulting on the disposition of Common Stock.
Hong Kong does not impose a withholding tax on dividends paid by the Company or its subsidiaries.
In addition, the Company will not be subject to Hong Kong taxes as a result of its receipt of
dividends from any of its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>China Taxation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are
no material China tax consequences to holders of Common Stock solely as a result of the
purchase, ownership and disposition of such Common Stock. There is an income tax treaty in effect
between the United States and China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cayman Island Taxation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Cayman Islands currently have no exchange control restrictions and no income, corporate or
capital gains tax, estate duty, inheritance tax, gift tax or withholding tax applicable to the
Company or any holder of shares. Accordingly, payment of dividends on, and any transfer of, the
shares will not be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax
will be required on such payments to any holder of a share and gains derived from the sale of
shares will not be subject to Cayman Islands income or corporation tax. The Cayman Islands are not
party to any double taxation treaties.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. </B><B><I>Dividends and paying agents.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>G. </B><B><I>Statement by experts.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>H. </B><B><I>Documents on display.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have previously filed with the Commission our registration statement on Form F-1, as amended,
and our prospectus under the Securities Act of 1933, with respect to our ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are subject to the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the Securities and Exchange Commission. Specially, we are
required to file annually a Form 20-F no later than six month after the close of each fiscal year,
which is December&nbsp;31. Copies of reports and other information, when so filed, may be inspected
without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the Securities and Exchange Commission at Judiciary Plaza, 100 F. Street, N.E.,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public
Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a Web site at
www.sec.gov that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the
furnishing and content of quarterly reports and proxy statements, and officers, directors and
principal shareholders are exempt from the reporting requirements pursuant to Section&nbsp;16 of the
Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our financial statements have been prepared in accordance with U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We will furnish our shareholders with annual reports and all required interim reports, which will
include a review of operations and consolidated financial statements (unaudited for interm report
and audited for annual report) prepared in conformity with U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Documents concerning the Company that are referred to in this document may also be inspected at our
office, which is Room&nbsp;2413-18, Shui On Centre, 8 Harbour Road, Wanchai, Hong Kong.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Subsidiary Information.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>
<!-- link2 "Item&nbsp;11 Quantitative and Qualitative Disclosures About Market Risk" -->
<DIV align="left"><A NAME="012"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;11 Quantitative and Qualitative Disclosures About Market Risk.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Foreign exchange risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are exposed to the risk of foreign currency exchange rate fluctuation. We have never used
derivative instruments to hedge our exchange rate risks, do not plan to do so, and may not be
successful should we attempt to do so in the future. Nevertheless, we believe such risk is low as
no foreign currency liabilities are incurred and the principal operations are limited solely to the
China market.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
functional currency is the Renminbi. Transactions in other currencies
are recorded in Renminbi at the
rates of exchange prevailing when the transactions occur. Monetary assets and liabilities
denominated in other currencies are converted into Renminbi at rates of exchange in effect at the
balance sheet dates. Exchange gains and losses are recorded in our statements of operations as a
component of current period earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The China State Administration for Foreign Exchange, under the authority of the People&#146;s Bank of
China, controls the conversion of Renminbi into foreign currencies. The principal regulation
governing foreign
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under
the Rules, once various procedural requirements are met, Renminbi is convertible for current account
transactions, including trade and services, but not for capital account transactions, including
direct investment, loan or investment in securities outside China, unless the prior approval of the
State Administration of Foreign Exchange of China is obtained. Although
the Chinese government regulations now allow greater convertibility of Renminbi for current account
transactions, significant restrictions still remain. Currently, BBHL,
our Chinese subsidiary, is not
involved in foreign exchange transactions as all transactions are completed in Renminbi.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The value of the Renminbi is subject to changes in China&#146;s central government policies and to
international economic and political developments affecting supply and demand in the China Foreign
Exchange Trading System market. Since 1994, the conversion of Renminbi into foreign currencies,
including U.S. dollars, has been based on rates set by the People&#146;s Bank of China, which are set
daily based on the previous day&#146;s interbank foreign exchange market rates and current exchange
rates on the world financial markets. Since 1994, the official exchange rate generally has been
stable. However, recently there has been increased political pressure
on the Chinese government to
decouple the Renminbi from the U.S. dollar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conduct
substantially all of our operations through our Chinese operating companies, and their
financial performance and position are measured in terms of Renminbi. Any devaluation of the Rmb against
the United States dollar would consequently have an adverse effect on our financial performance and
asset values when measured in terms of United States dollar. Our solutions are primarily procured,
sold and delivered in China for Renminbi. The majority of our revenues are denominated in Renminbi. Should
the Renminbi devalue against United States dollar, such devaluation could have a material adverse effect
on our profits and the foreign currency equivalent of such profits
repatriated by the Chinese entities
to us. In addition, from time to time we may have United States dollar denominated borrowings, and
therefore a decoupling of the Renminbi may affect our financial performance in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest rate risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are exposed to interest rate risk arising from having short-term variable rate borrowings from
time to time. Our future interest expense would fluctuate in line with any change in our borrowing
rates. We do not have any derivative financial instruments and believe our exposure to interest
rate risk and other relevant market risks is not material.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inflation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In recent years, China has not experienced significant inflation, and thus inflation has not had a
material impact on our results of operations in recent years. According to the National Bureau of
Statistics of China, the change in Consumer Price Index in China was &#151; 1.2%, 3.9% and 1.8% in 2003,
2004 and 2005 respectively.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link2 "Item&nbsp;12 Description of Securities Other than Equity Securities" -->
<DIV align="left"><A NAME="013"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;12 Description of Securities Other than Equity Securities.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link1 "PART II" -->
<DIV align="left"><A NAME="014"></A></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<!-- link2 "Item&nbsp;13 Default, Dividend Arrearages and Delinquencies" -->
<DIV align="left"><A NAME="015"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;13 Default, Dividend Arrearages and Delinquencies.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None.
</DIV>
<!-- link2 "Item&nbsp;14 Material Modifications to the Rights of Security Holders and Use of Proceeds" -->
<DIV align="left"><A NAME="016"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;14 Material Modifications to the Rights of Security Holders and Use of Proceeds.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>
<!-- link2 "Item&nbsp;15 Controls and Procedures" -->
<DIV align="left"><A NAME="017"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;15 Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, our
company&#146;s management, including our chief executive officers and our chief financial officer, is
responsible for establishing and maintaining effective disclosure controls and procedures, as
defined under Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. As of
December&nbsp;31, 2005, an evaluation was performed under the supervision and with the participation of
management, including our chief executive officers and our chief financial officer, of the
effectiveness of our company&#146;s disclosure controls and procedures. Based on that evaluation, our chief executive officers and our chief
financial officer concluded that our company&#146;s disclosure controls and procedures as of December
31, 2005 were not effective because management has identified certain internal control deficiencies in our
internal control over financial reporting that they considered to constitute material weaknesses in
our internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The internal control deficiencies that were identified as material weaknesses include: (1)
inability to exercise sufficient operational and financial control over a newly acquired
subsidiary, which is particularly obvious after disagreement in corporate direction existed between
the Company and the management of the subsidiary since early 2006; (2)&nbsp;lack of adequate accounting
personnel with sufficient U.S. GAAP technical expertise, including insufficient complement of
financial reporting personnel commensurate with the Company&#146;s financial reporting requirements and
insufficient formalized and consistent finance and accounting policies and procedures to detect
instances of non-compliance with such existing policies and procedures; and (3)&nbsp;inadequate
enforcement in respect of segregation of duties in functional access to accounting system of our
subsidiaries.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management, including our chief executive officers and our chief financial officer,
acknowledged that our company&#146;s internal controls suffered from the internal control deficiencies
identified. Our management are committed to remedy these deficiencies to our company&#146;s internal
controls and has planned to implement a series of remedial measures, including, among other things:
(1)&nbsp;establishment of a dedicated team led by our audit committee to reassess the procedures dealing
with controls over subsidiaries, including the system of the appointment of management to
subsidiaries, financial reporting system of subsidiaries and the communication system with
subsidiaries; (2)&nbsp;provision of additional training to our accounting personnel on the requirements
of U.S. GAAP to increase their familiarity with those standards and expansion of our finance
function by recruiting additional qualified accountants as well as the reassessment of our existing
finance and accounting policies and procedures; and (3)&nbsp;establishment of the information technology
department for reinforcement of overall controls on our information technology environment, with
particular focuses on the segregation of duties in financial accounting system and implementation
of effective policies and procedures to ensure the existence of a regulated information technology
operation of the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management, however, believes that the lack of control over the newly acquired subsidiary is
mainly caused by our disputes over corporate direction between us and which is mainly caused by
lack of communication with the subsidiary, particularly when we are
keen to upgrade the
subsidiary&#146;s control standards to listed company standards after acquired. Nevertheless, we
believes that none of these internal control deficiencies have had a material effect on our
financial condition or results of operations or caused our financial statements as of and for the
year ended December&nbsp;31, 2005 to contain a material misstatement.
Management of us target to
complete the entire ratifications of the above weaknesses within the year ending December&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 will require us to include a management&#146;s internal
control report with our Annual Report on Form 20-F for the fiscal year ending December&nbsp;31, 2007.
The Company will start the exercise of evaluation, designing and implementing processes to improve
our internal controls to comply with the requirements of the Sarbanes-Oxley Act of 2002 soon. The
exercise will be supervised and with the participation of our management, including our chief
executive officers and our chief financial officer. We are currently still reviewing our efforts to
improve our internal controls and may in the future identify additional deficiencies to our
internal controls. Should we discover any additional deficiencies, we will take appropriate
measures to correct or improve of our internal controls. See the section headed &#147;Item&nbsp;3. Key
Information &#151; Risk Factors &#151; Compliance with requirements under Section&nbsp;404 of the Sarbanes-Oxley
Act of 2002&#148;.
</DIV>
<!-- link2 "Item&nbsp;16A Audit Committee Financial Expert" -->
<DIV align="left"><A NAME="018"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16A Audit Committee Financial Expert</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board has nominated Mr.&nbsp;Peter Fu, Mr.&nbsp;L C Wan and Mr.&nbsp;Yezhong Ni, independent directors, as
members of the Audit Committee, and Mr.&nbsp;L C Wan as the financial expert as defined under the
applicable rules of the SEC issued pursuant to Section&nbsp;407 of the Sarbanes-Oxley Act of 2002.
</DIV>
<!-- link2 "Item&nbsp;16B. Code of Ethics" -->
<DIV align="left"><A NAME="019"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16B. Code of Ethics</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Code of Ethics for the members of the Company&#146;s Board of Directors and Officers was approved by
the Board of Directors on April&nbsp;28, 2005 and is filed as Exhibit&nbsp;14.1 hereto.
</DIV>
<!-- link2 "Item&nbsp;16C. Principal Accountant Fees and Services" -->
<DIV align="left"><A NAME="020"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16C. Principal Accountant Fees and Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Audit Fees</B>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The audit fee of PricewaterhouseCoopers, our independent registered public accounting firm for the
fiscal years ended December&nbsp;31, 2005 and 2004, amounted to Rmb
1.77&nbsp;million and Rmb 0.61&nbsp;million
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit-Related Fees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Except as described above, no other audit-related fees were paid by us for the fiscal years ended
December&nbsp;31, 2005 and 2004 to PricewaterhouseCoopers and other professional accounting firms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Tax Fees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Taxation review services performed by PricewaterhouseCoopers were included as part of their audit
works for the fiscal years ended December&nbsp;31, 2005 and 2004 and thus no separate bills were issued
to us. For statutory tax filings of BHLHK requested by the applicable regulations in Hong Kong for
the fiscal years ended December&nbsp;31, 2005 and 2004, it was performed by S L Lee &#038; Lau. S L Lee &#038;
Lau charged a fee of Rmb 3,000 for the 2004 filing and fee of 2005
was not yet agreed up to the date
of this report<I>.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>All Other Fees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other than
audit fee, a fee of Rmb&nbsp;104,000 was charged by PricewaterhouseCoopers
for their advisory services provided to the Company in answering technical enquires
from the SEC in October&nbsp;2005. On August&nbsp;9,
2005, a fee of Rmb 20,800 was also charged by PricewaterhouseCoopers,
at the request of the Company, for
issuance of a letter of consent to
include its audit report dated June&nbsp;30, 2005 with the
Company&#146;s Registration Statement on Form S-8 filed on
August&nbsp;11, 2005. PricewaterhouseCoopers did not provide
any products or render any professional services, other than those disclosed above during either of
the fiscal years ended December&nbsp;31, 2005 or December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The policy of our directors who perform the functions customarily performed by an audit committee
is to pre-approve all audit and permissible non-audit services provided by the independent
auditors. These services may include audit services and other services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit of Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PricewaterhouseCoopers is our principal independent registered public accounting firm. S L Lee &#038;
Lau was engaged to file the Hong Kong tax returns of BHLHK.
</DIV>
<!-- link2 "Item&nbsp;16D. Exemptions from the Listing Standards for Audit Committee" -->
<DIV align="left"><A NAME="021"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16D. Exemptions from the Listing Standards for Audit Committee.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<!-- link2 "Item&nbsp;16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers" -->
<DIV align="left"><A NAME="022"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers.</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;31, 2005, the transaction to acquire from Beijing Holdings the 51% equity
interest of the issued and outstanding stock of CNT was closed and as a result of the closing
of the transaction, the Company , issued 2,233,800 shares of the Company&#146;s common stock of
US$0.01 each to Beijing Holdings. After the closing of the transaction, Beijing Holdings&#146;
ownership in the Company increased from 47.18% to 60.11% and the
Company had total outstanding shares of 9,128,297 shares.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On December&nbsp;22, 2005, the Company exercised the option to acquire from Beijing Holdings the
remaining 49% equity interest of CNT and closed the transaction on the same day. As a result
of the closing of the transaction, the Company became the shareholder of 100% equity interest
in CNT and, in return, issued 2,146,200 new shares of the Company&#146;s common stock of US$0.01
each to Beijing Holdings. Beijing Holdings&#146; ownership increased to 62.73% of the total issued
and outstanding shares of 11,274,497 shares.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On December&nbsp;22, 2005, Beijing Holdings entered into a Placing Agreement with Best Scene
Management Limited (&#147;Best Scene&#148;), a company in which Mr.&nbsp;Alan Li, our the executive director
and Co-Chief Executive Officer, had an equity interest. Pursuant to the Placing Agreement,
Best Scene was appointed the placing agent, on a fully underwritten
basis, to sell, on behalf of Beijing Holdings, up to
1,100,000 shares of the Company&#146;s common stock (the &#147;Placing Shares&#148;) to certain placees at a
fixed price of US$2.15 per Placing Share. As of January&nbsp;9, 2006, an aggregate of 560,000
Placing Shares had been successfully sold to certain placees who were not connected parties of
the Company.</TD>
</TR>

</TABLE>
</DIV>
<!-- link2 "Item&nbsp;17 Financial Statements" -->
<DIV align="left"><A NAME="023"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;17 Financial Statements.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has elected to provide Financial Statements pursuant to Item&nbsp;18 (see below).
</DIV>
<!-- link2 "Item&nbsp;18 Financial Statements" -->
<DIV align="left"><A NAME="024"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;18 Financial Statements.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following documents are filed as Attachment A hereto and are included as part of this Annual
report on Form 20-F.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Report of Independent Registered Public Accounting Firm.
</DIV>

<DIV align="left" style="margin-left: 2%; text-indent: -2%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Consolidated Statements of Operations and Comprehensive Income for each of the three years ended
December&nbsp;31, 2003, 2004 and 2005.</DIV>


<DIV align="left" style="margin-left: 2%; text-indent: -2%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005.</DIV>


<DIV align="left" style="margin-left: 2%; text-indent: -2%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Consolidated Statements of Cash Flows of the company and subsidiaries for each of the three years
ended December&nbsp;31, 2003, 2004 and 2005.</DIV>


<DIV align="left" style="margin-left: 2%; text-indent: -2%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Consolidated Statements of Changes in
Shareholders&#146; Equity for each of the three years
ended December&nbsp;31, 2003, 2004 and 2005.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements.
</DIV>
<!-- link2 "Item&nbsp;19 Exhibits" -->
<DIV align="left"><A NAME="025"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;19 Exhibits.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following exhibits are filed as part of this Annual Report:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amended Memorandum and Articles of Association of China Technology Development Group
Corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Agreement with Ivory Capital Asia Pte Ltd. dated July&nbsp;12, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Agreement with Beijing Holdings Limited to acquire 51% of CNT dated September&nbsp;13, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Option Agreement with Beijing Holdings Limited to acquire 49% of CNT dated September&nbsp;13, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Supply of Goods Agreement with New Era Health Industry Group
Limited dated March&nbsp;22, 2004 (translated version).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.5</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Framework Agreement with the Legend (Beijing) Limited dated
March&nbsp;14, 2003 (translated version).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.6</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Framework Agreement with Legendsec (Beijing) Limited dated
February 10, 2006 (translated version).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.7</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Memorandum Agreement with Mr.&nbsp;Hu Linfu and Madam Chen Shuizhen for termination of the
co-operation in Anji Bio dated July&nbsp;27, 2006 (translated version).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">14.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Code of Ethics for CEO and Senior Financial Officers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">21.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>List of the company&#146;s significant subsidiaries, their jurisdiction of incorporation and the
names under which they operate business, if different from their name.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer required by Section&nbsp;302 of the Sarbanes-Oxley Act of
2002 (by Xu Qian).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Co-Chief Executive Officer required by Section&nbsp;302 of the Sarbanes-Oxley Act of
2002 (by Alan Li).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Financial Officer required by Section&nbsp;302 of the Sarbanes-Oxley Act of
2002.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer, Co-Chief Executive Officer and Chief Financial Officer required by Section&nbsp;906
of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="026"></A></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The registrant hereby certifies that it meets all of the requirements for filing Form 20-F and has
duly caused and authorized the undersigned to sign this Annual Report on its behalf.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="3"><B>CHINA TECHNOLOGY DEVELOPMENT</B><BR><B>
GROUP CORPORATION<br><br></B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date<B>:
September</B>&nbsp;19<B>, </B>2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Michael Siu</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Michael Siu
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director, Chief Financial<br>
Officer and Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->73<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>INDEX TO FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" nowrap>F &#150; 2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Operations for
each of the three years ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">F &#150; 3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Cash Flows for each of the three years
ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Changes in Shareholders&#146; Equity for each
of the three years ended December&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-1<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Report of Independent Registered Public Accounting Firm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Shareholders and Board of Directors of<BR>
China Technology Development Group Corporation<BR>
(Formerly known Tramford International Limited)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of China Technology Development
Group Corporation and its subsidiaries (&#147;the Group&#148;) as of
December&nbsp;31, 2005 and 2004, and the
related consolidated statements of operations, cash flows and changes in shareholders&#146; equity for each of the three years in the period ended December&nbsp;31,
2005. These financial statements are the responsibility of the Group&#146;s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of China Technology Development Group Corporation and its
subsidiaries at December&nbsp;31, 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended
December&nbsp;31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PricewaterhouseCoopers</B><BR>
Hong Kong, September&nbsp;19, 2006.

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(Amounts in thousands, except per share data)<BR>
for the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 0px solid #000000">Note</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">US$</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">(Note 2(e))</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Continuing operations:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,421</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,290</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(408</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Selling, general and
administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,362</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,768</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,971</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,721</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Bad debt expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Operating loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,886</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,215</TD>
    <TD nowrap>)</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Finance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,628</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(326</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Loss before income tax provision</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,949</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,947</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,471</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(249</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD>)&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD>)&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Loss from continuing operations
before minority interests</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,198</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,956</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,472</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minority interests &#150; continuing
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Loss from continuing operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,244</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,384</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Discontinued operations:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income/(loss) from discontinued
operations including loss on
disposal of Rmb 509 on March
31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(288</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss for the year</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19,532</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,420</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.33</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share from continuing
operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.33</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) per share from
discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.00</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average ordinary shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED BALANCE SHEETS<BR>
(Amounts in thousands)<BR>
at December&nbsp;31, 2004 and 2005</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 0px solid #000000">Note</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">US$</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">(Note 2(e))</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term investments &#151; security trust account</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL CURRENT ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term prepayment for rental of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">811</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,615</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consideration payable on the acquisition of an
operating unit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Value added tax and business tax payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred government grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
<TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liabilities</DIV></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
    <TD align="right">&#151;</TD>
<TD></TD>
<TD></TD>
<TD></TD>
    <TD align="right">492</TD>
<TD></TD>
<TD></TD>
<TD></TD>
    <TD align="right">61</TD>
<TD></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other liabilities and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contingencies and commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">683</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock (US$0.01 par value; 2,500,000,000
shares authorized; shares issued and
outstanding 9,044,888 in 2004 and 11,274,497
in 2005)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(171,176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,211</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,232</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock, at cost (2,150,391 shares in
2004 and Nil shares in 2005)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(178</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,231</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(Amounts in thousands)<BR>
for the years ended December&nbsp;31, 2003, 2004 and 2005</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">US$<BR>(Note&nbsp;2(e))</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,420</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss to net cash
used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minority interests in loss of consolidated
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(712</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization/written off of intangible asset and
software development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of long-term prepayment for rental of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(295</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Profit on disposal of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Gain)/ loss on disposal of available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,005</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on disposal of discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Bad debt expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase)/ in trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(66</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">321</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in trading securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease/(increase) in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase)/decrease in due from related parties
and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(263</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(7.621</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(946</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Decrease)/increase in trade accounts payable,
amount due to a related party and other current
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,676</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:45px; text-indent:-15px">Increase/(decrease)
in income taxes payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in income tax recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>




<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"></TD>
    <TD align="right">(18,167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,251</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
Security trust account</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">838</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:30px; text-indent:-15px">(Increase)/decrease
in funds held by related parties
for security investment purposes (Note 18)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,578</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,249</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition
of subsidiaries, net of cash acquired (Note (a))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash and
cash equivalents disposed of upon disposal of discontinued operations
(Note (b))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(44</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of available-for-sales securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(109</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds
on disposal of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,495</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><I>(Continued)</I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->F-5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(Amounts in thousands)<BR>
for the years ended December&nbsp;31, 2003, 2004 and 2005</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Continued)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb<BR>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">US$<BR>(Note&nbsp;2(e))</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">434</TD>
    <TD>&nbsp;</TD>
</TR>





<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayments of borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
</TR>





<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>















<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash
equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(461</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(57</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net
(decrease)/increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,803</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">651</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental
disclosure of cash flow information</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes
paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest
paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental
disclosure non-financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issue of new
shares for business combination (Note&nbsp;3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,904</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock
options granted (Note&nbsp;16)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-6 <!-- /Folio -->
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note(a)
Purchase of China Nature Technology Inc. (Refer to Note 3 for details)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets acquired (excluding cash &#038; cash equivalents):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,638</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term prepayment for rental of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
</TR>




<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,891</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,457</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(271</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred government grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(273</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due to a related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(204</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(251</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other liabilities and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(913</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,804</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,975</TD>
    <TD>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discharged by:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of
shares at fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,523</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capitalized
expenses directly incurred in acquisition of CNT<SUP>*</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Cash
and cash equivalents acquired from CNT</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(484</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net consideration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 3pt">
* Out of the capitalized acquisition expenses, an aggregate of Rmb
417 was
still unpaid as of December 31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note(b)
Disposal of discontinued operations (Refer to Note 7 for details)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets disposed of (excluding cash &#038; cash equivalents):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(753</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other liabilities and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(161</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(509</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(350</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discharged by:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash
and cash equivalents disposed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(350</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<!-- End Table Body -->




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-7 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS&#146; EQUITY<BR>
(Amounts in thousands)<BR>
for the years ended December&nbsp;31, 2003, 2004 and 2005</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>shareholders&#146;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>No. of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Equity</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>equity</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December
31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(140,587</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(643</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gain
on
available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Reclassification
adjustment for loss
realized on sale (Note (a))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Translation
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(633</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December
31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(141,529</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized loss
on
available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,222</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,222</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive loss for
the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,222</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December
31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,232</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,854</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issue of shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,380,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,928</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options
granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,176</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized loss
on
available-for-sale
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(147</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(147</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Reclassification
adjustment for loss
realized on sale (Note (a))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,890</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Translation
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(461</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(461</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive loss for
the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,282</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December
31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,274,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(171,176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,708</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">US$</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">US$</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">US$</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>US$</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December
31, 2005<br>(Note 2(e))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,211</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,231</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt">Note (a): The
cost of securities sold on the amount reclassified out of accumulated
other comprehensive income into earnings was determined<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;based on a specific identification basis.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-8 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>1</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Nature of operations and basis of presentation</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China Technology Development Group Corporation (the &#147;Company&#148; or &#147;CTDC&#148;) (formerly known as
Tramford International Limited and was renamed to CTDC on January&nbsp;9, 2006) was incorporated under
the laws of the British Virgin Islands on September&nbsp;19, 1995 as a holding company. The
consolidated financial statements include the financial statements of the Company and its
subsidiaries (hereinafter collectively referred to as the &#147;Group&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;8, 2000, Jingle Technology Limited (&#147;JTL&#148;), a 100% subsidiary of CTDC, was formed to
act as an investment holding company within the Group. Effective July&nbsp;1, 2000, JTL purchased 100%
interests in BHL Networks Technology Co. Ltd. (&#147;BHLNet&#148;), which in turn holds 76% interest in
Beijing BHL Networks Technology Co. Ltd (&#147;BBHL&#148;), for a consideration of Rmb21,959. Pursuant to
agreements entered into among the Group and the vendors in September&nbsp;2002, the consideration was
reduced from Rmb21,959 to Rmb20,262. BBHL is a Sino-foreign equity joint venture and is
principally engaged in the provision of information technology and network security consultancy
services and sales of computer related products in the People&#146;s Republic of China (&#147;China&#148; or the
&#147;PRC&#148;). BHLNet and BBHL are hereinafter referred to
collectively as the &#147;IT Operations&#148;. The IT
Operations continue to engage in the provision of information technology and network security
consultancy services and the development of network security software for all years presented. The
other wholly owned subsidiary of CTDC, BHL Networks Technology Company Limited (&#147;BHLHK&#148;)(formerly Jing Tai
Industrial Investment Company Limited), acts as the treasury center for the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;13, 2005, CTDC entered into a sale and purchase agreement with Beijing Holdings
Limited (&#147;Beijing Holding&#148;), its then 47.18% shareholder, pursuant to which the Company acquired
51% of the issued and outstanding stock of Future Solutions Development Inc. (subsequently renamed
to China Natures Technology Inc. on November&nbsp;25, 2005, &#147;CNT&#148;). At the same day, the Company also
entered into an option agreement with Beijing Holdings to acquire the remaining issued and
outstanding stock of CNT. At the Annual Meeting of Stockholders of the Company held on October&nbsp;21,
2005, the special resolutions to approve the acquisition by the Company of the 51% equity interest
in CNT and the option to acquire the remaining 49% equity interest in CNT were passed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective October&nbsp;31, 2005, CTDC purchased 51% interests in CNT at a consideration of
2,233,800 shares of CTDC. Effective December&nbsp;22, 2005, CTDC exercised the option to acquire the
remaining 49% interests of CNT at a consideration of 2,146,200 shares of CTDC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CNT holds 71.43% interests in Zhejiang University (Hangzhou) Innoessen Bio-technology Inc.
(&#147;Zhejiang Innoessen&#148;). Zhejiang Innoessen then holds 93.67% interests in Anji Science Bio-Product
Inc. (&#147;Anji Bio&#148;). Shenzhen Innoessen Bio-tech Inc. (&#147;Shenzhen Innoessen&#146;) was a wholly owned
subsidiary of CNT and was formed as  CNT&#146;s sales and marketing center for South China. CNT, Zhejiang Innoessen, Anji Bio and Shenzhen Innoessen are hereinafter referred to
collectively as the &#147;Nutraceutical Operations&#148;. The Nutraceutical Operations are engaged in the
development, manufacturing and marketing of healthfood products utilizing bio-active components of bamboo.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (&#147;US GAAP&#148;), present the consolidated
results of the operations of the Group. All intercompany balances and transactions have been
eliminated in the consolidated financial statements of the Group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period.
Accounting estimates have been employed in these financial statements to determine reported
amounts, including realizability of receivables and other assets, useful lives of assets and income
taxes. Actual results could differ from those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial information has been prepared in Renminbi (Rmb), the national currency of the
PRC and also the functional currency of the Group (see also footnote 2(e)). Unless indicated
otherwise, amounts in Renminbi have been rounded to the nearest thousand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the list of subsidiaries, their jurisdiction of incorporation and
our respective effective shareholding in each of the subsidiaries were shown as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Effective percentage</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name of Company</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Jurisdiction</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shareholding</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BHLHK</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">JTL</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BVI</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BHLNet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BBHL</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">76</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CNT</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BVI</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhejiang Innoessen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.43</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anji Bio.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">66.91</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shenzhen Innoessen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->F-9 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of significant accounting policies followed by the Group in the
preparation of the financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(a)&nbsp;Consolidation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the financial statements of the Company and its
subsidiaries as of December&nbsp;31, 2004 and 2005, and the statements of operations, cash flows and
changes in shareholders&#146; equity for the years ended December&nbsp;31, 2003, 2004 and 2005. All
significant inter-company balances and transactions have been eliminated during consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsidiaries are those entities in which the company, directly or indirectly, controls the
composition of the board of directors, controls more than half the voting power or holds more than
half of the issued share capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of subsidiaries acquired or disposed of during the year are included in the
consolidated statements of operations from the effective date of acquisition or up to the effective
date of disposal, as appropriate. The gain or loss on disposal of a subsidiary represents the
difference between the proceeds of the sale and the Company&#146;s share of its net assets together with
any unamortized goodwill or goodwill/negative goodwill taken to reserves and which was not
previously charged or recognized in the consolidated statements of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interests represent the interest of outside shareholders in the operating results and
net assets of subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Financial
Interpretation (&#147;FIN&#148;) No.&nbsp;46 which requires certain variable interest entities (the &#147;VIEs&#148;) to be
consolidated by the primary beneficiary of the entity if the ownership interest held by the equity
investors in the entity does not have characteristics of a controlling financial interests or does
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 was effective for all new VIEs created or
acquired after December&nbsp;15, 2003, the FASB issued FIN 46 (revised), which provides for the deferral
of the implementation date to the end of the first reporting period after March&nbsp;15, 2004, unless
the Company has a special purpose entity, in which case the provisions must be applied for fiscal
years ending December&nbsp;31, 2003. There was no impact to the financial statements upon adoption of FIN 46R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(b)&nbsp;Revenues</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues arise from product sales and the rendering of services. Revenue is generally
recognized when all of the following criteria are met (i)&nbsp;persuasive evidence of an arrangement
exists; (ii)&nbsp;delivery has occurred or services have been rendered; (iii)&nbsp;the sellers&#146; price to the
buyer is fixed or determinable, and (iv)&nbsp;collectibility is reasonably assured. Specifically,
product sales represent the invoiced value of goods, net of discounts, supplied to customers.
Revenues of product sales are recognized upon delivery to customers and when title has passed. Rendering of
services represent fees charged on the provision of information technology and network security
consultancy services. Fees on such services are recognized upon the completion of the underlying
services and collectibility to the fees is reasonably assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(c)&nbsp;Taxation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes are provided using the liability method under Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.109, &#147;Accounting for Income Taxes&#148;. Under the liability method,
deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the carrying amounts of existing assets and liabilities in the
financial statements and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be recovered or settled. The tax
consequences of these differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely than not that
some portion of, or all of, the deferred tax assets will not be realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(d)&nbsp;Concentration of credit risk and major customers</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is engaged in the provision of information technology and network security services
and the development, manufacturing and marketing of nutraceutical products to a wide range of industries and end users
within the PRC. All the Group&#146;s revenue is derived from sales to customers located in the PRC.
Accordingly, the Group&#146;s trade accounts receivable are concentrated with respect to both geography
and customer. The Group performs ongoing credit evaluations of its customers and generally does
not require collateral. Approximately, 6.28%, 18.59% and 32.97% of the total revenues were
contributed by 3 major customers during the year ended December&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-10 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(e)&nbsp;Foreign currency transaction gains and losses and translation of foreign currencies</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All foreign currency transaction gains and losses are recognized as other non-operating
income/(expense) in the consolidated statements of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Renminbi is not freely convertible into foreign currencies. The PRC Government has
instituted a single regulated floating exchange rate system principally based on market supply and
demand. Under this system, a nationwide inter-bank foreign market has been established by
designating certain banks as authorised foreign exchange banks where Renminbi can be converted into
foreign currencies subject to prior approval from the PRC State Administration of Exchange Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
functional currency of the Group is Renminbi. The functional currency of BBHL, Zhejiang Innoessen, Anji Bio and Shenzhen Innoessen is
Renminbi. Its business is primarily conducted in China and denominated in Renminbi.
The functional currency of CTDC and its other subsidiaries is Hong Kong dollar. The financial
statements of CTDC and these subsidiaries are translated into Renminbi, using exchange rates in
effect at period end, wherever appropriate, for assets and liabilities and average exchange rates
during each reporting period for results of operations. Adjustments resulting from the translation
of financial statements are reflected as a separate component of shareholders&#146; equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the convenience of the reader, a translation of amounts from Renminbi (Rmb) into United
States Dollars (US$) has been made at the noon buying rate in New York City for cable transfer in
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on
December&nbsp;31, 2005 of Rmb 8.0702 = US$1.00. Such translations should not be construed as
representations that the Renminbi amounts represent or have been or could have been converted into
United States dollars at that or any other rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(f)&nbsp;Property, plant and equipment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment are stated at historical cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the
respective assets. Upon retirement or sale, the cost of disposed assets and the related accumulated
depreciation are deducted from the respective accounts and the resulting gain or loss is included
as other non-operating income/(expense) in the consolidated statement of operations. Maintenance
and repair costs are expensed as incurred. The estimated useful lives of property, plant and
equipment are as follows:
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Building</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">20 years</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plant and machineries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">10 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motor vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture, fixtures, office and computer equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3 years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(g)&nbsp;Prepayment for rental of land</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepayment
for rental of land represents up-front payments to acquire long-term
interests in lessee occupied properties. The premiums are stated at cost and are amortised over the period of the lease on a straight-line basis to the consolidation statements of operations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(h)&nbsp;Intangible assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible
assets represent the extraction of bamboo
flavonoids and its related application patents obtained through the acquisition of the
Nutraceutical Operations on October&nbsp;31, 2005. The extraction of
bamboo flavonoids (the core technology) is recognized at
fair value upon acquisition and is amortized on a straight-line basis over its estimated useful
life of eight years. The related application patents of the
extraction of bamboo flavonoids (the completed technologies) are
recognized at fair value upon acquisition and are amortized on a
straight-line basis over the
estimated useful life of five years. The acquired in-process research and
development technologies is immediately expensed off.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(i)&nbsp;Goodwill</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill represents cost in excess of the fair value of net assets acquired and was amortized
on a straight-line basis over a period of five years prior to January&nbsp;1, 2002. The Group adopted
Statement of Financial Accounting Standard (SFAS)&nbsp;No.&nbsp;142, <I>Goodwill and Other Intangible Assets,</I>
effective January&nbsp;1, 2002, and ceased the amortization of goodwill. Instead it is tested at least
annually for impairment.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-11 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(j)&nbsp;Impairment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Annual impairment test for goodwill is carried out in two steps. The first step of the
impairment test which is used to identify potential impairment, compares the fair value of the
reporting unit with its carrying amount, including goodwill. The fair value is determined by the
forecasted discounted net cash inflows of the reporting unit for a period of five years. If the
carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is
considered impaired. The second step of the impairment test quantifies the amount of the
impairment loss by comparing the carrying amount of goodwill to its implied fair value. An
impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair
value. Goodwill must be tested for impairment at least annually, or more frequently if warranted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying value of a long-lived asset is considered impaired by the Group when the
anticipated undiscounted cash flow from such asset is less than its carrying value. If an
impairment is identified, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk involved or based
on independent appraisals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets, including certain identifiable intangibles with finite-lives, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(k) Inventories</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are valued at the lower of cost and net realizable value. Cost includes the
purchase cost of products at invoiced value using a first-in first-out method. Net realizable
value is determined by reference to the sales proceeds of items sold in the ordinary course of
business or to a management estimate based on prevailing market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(l)&nbsp;Cash and cash equivalents</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents include cash on hand, demand deposits with banks and liquid
investments with an original maturity of three months or less. The carrying value of cash
equivalents approximates their fair value.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(m)&nbsp;Investment in securities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Investment in securities comprise of available-for-sale which
are carried at fair value, with unrealized gains and losses, if any,
reported, net of tax, in other comprehensive income.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(n)&nbsp;Earnings per share</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share represents income available to common shareholders divided by the
weighted-average number of common stocks outstanding during the period. Diluted earnings per share
reflects additional common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result from the assumed
issuance. Dilutive potential common stocks that may be issued by the Group relate solely to
outstanding stock options and are determined using the
treasury stock method. Effect of stock options is excluded from the computation if the effect would be antidilutive.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-12 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(o)&nbsp;Deferred government grants</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Grants from the government are recognized at their fair value where there is a reasonable
assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to research and development costs are deferred and recognized in the
consolidated statements of operations over the period necessary to match them with costs which the
government grants are intended to fund. Government grants relating to the purchase of
property, plant and equipment are included in deferred government grants and are recognized in the
consolidated statements of operations on a straight line basis over the expected lives of the
related assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(p)&nbsp;Stock-based compensation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group grants stock options to its employees and certain non-employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group applies Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25, &#147;Accounting for Stock
Issued to Employees&#148; and complies with the disclosure provisions of SFAS No.&nbsp;123 &#147;Accounting for
Stock-Based Compensation&#148; (&#147;SFAS No.&nbsp;123&#148;), as amended by SFAS No.&nbsp;148 &#147;Accounting for Stock-Based
Compensation &#150; Transition and Disclosure&#148; (&#147;SFAS
No.&nbsp;148&#148;) for options granted to employees. In
general, compensation cost is recognized based on the difference, if any, between the fair value of
the Company&#146;s shares and the exercise price as determined on the date the option is granted. Under
APB Opinion No.&nbsp;25, because the exercise price of all the options issued by the Company to
employees equals or is higher than the market price of the underlying stock on the date of grant,
no compensation expense is recognized. The Group applies SFAS No.&nbsp;123, as amended by SFAS No.&nbsp;148 for options granted to
non-employees. A charge for stock-based awards for the services rendered by non-employees using the
Black-Scholes option pricing model are recognized in the consolidated statements of operations by
the Group when incurred.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the fiscal year ended December 31, 2005, the stock compensation expenses of Rmb2,475
was charged to the selling, general and administrative expenses in the consolidated statements
of operations in respect of the options succeeded by the newly appointed chairman and chief
executive officer, being the difference between the market price of the share of common stock
of the Company and the exercise price of the options. For options granted to employees on September 20, 2005,
there was no impact on the consolidated statements of operations as the exercise of these options
was equal to the market price of the share of common stock of the Company at date of grant.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-13 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
&#151;
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>(p)       Stock-based
compensation (continued) </I></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stock-based compensation to employees</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had compensation cost for options granted to employees under the Company stock option plans
(the &#147;Plans&#148;) been determined based on the fair value at the grant date, as prescribed by SFAS 123
and SFAS 148, the Company&#146;s pro forma net loss would have been as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for the year, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add:
stock-based compensation as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD nowrap></TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Stock-based compensation
determined using the fair value method</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,791</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,848</TD>
    <TD nowrap>))</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic and diluted loss
per share (in Rmb)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.67</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.39</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was no option granted to employees in the fiscal years ended December&nbsp;31, 2003 and 2004.
The fair value of each option granted in the fiscal year ended December&nbsp;31, 2005 is estimated on
the date of grant using the Black-Scholes option pricing model with the following assumptions used
for grants during the applicable period.
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="59%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Options</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">granted
to</TD>
</TR>


<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">deemed</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Options
deemed</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">other</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">granted
to</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">granted
to the</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">employees</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">the
chairman</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">chief
executive</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">on</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">on
February</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">officer
on March</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">September</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">8,
2005</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">29,
2005</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">20,
2005</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average risk-free rate of return*</DIV></TD>

    <TD>&nbsp;</TD>
    <TD align="right">3.313%</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.861%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD nowrap align="right">4.050%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected option life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">2&nbsp;years</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2&nbsp;years</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD nowrap align="right">5&nbsp;years</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">197.2%</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">158.2%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">133.8%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD colspan="3"><I>* Risk-free rate represents the yields to maturity of respective US Government
STRIPS (Source: Bloomberg)</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
stock compensation expenses, if any, will be charged to the selling,
general and administrative expenses in the consolidated statements of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(q)&nbsp;Operating
leases</I></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases
where substantially all the risk and rewards of ownership of assets
remain with the leasing company are accounted for as operating
leases. Payments made under operating leases net of any incentives
received from the leasing company are charged to the consolidated
statements of operations on a straight-line basis over the lease
periods.</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(r)&nbsp;Recent accounting pronouncements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2004, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued Statement of Financial Accounting Standard
(&#147;SFAS&#148;) No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS
No.&nbsp;123R&#148;). This statement is a revision to SFAS No.&nbsp;123 and supersedes APB Opinion No.&nbsp;25. This
Statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, and addresses transactions in which an entity obtains
employee services in share-based payment transactions. Entities are required to measure the cost of
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite service period (usually the
vesting period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the original award
immediately before the modification. This statement is effective as of the beginning of the first
interim or annual reporting period that begins after June&nbsp;15, 2005. In accordance with the
standard, the Group is required to adopt SFAS No.&nbsp;123R effective January&nbsp;1, 2006.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-14 <!-- /Folio -->


</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>(r)&nbsp;Recent accounting pronouncements (continued)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon adoption, the Group has two application methods to choose from: the modified-prospective
transition approach or the modified-retrospective transition approach. Under the
modified-prospective transition method the Group would be required to recognize compensation cost
for share-based awards to employees based on their grant-date fair value from the beginning of the
fiscal period in which the recognition provision are first applied as well as compensation cost for
awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain
unchanged and pro forma disclosures previously required by SFAS No.&nbsp;123 continue to be required.
Under the modified-retrospective transition method, the Group would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No.&nbsp;123. Under this method, the Group is permitted to apply this presentation
to all periods presented or to the start of the fiscal year in which SFAS No.&nbsp;123R is adopted. The
Company plans to adopt SFAS No. 123R using the modified-prospective transition method. Although the
Group is currently evaluating the impact of this Standard, it is expected that the adoption will
not have a significant impact on the results of operations and financial position.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subsequently in August, October and November 2005, the FASB released
Staff Position (&#147;FSP&#148;) 123(R)-1, "Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FASB Statement No. 123(R)," FSP123(R)-2, "Practical Accommodation to the Application of Grant Date as Defined
in FASB Statement No. 123(R)" and FSP 123(R)-3, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards."
Additionally, on February 1, 2006, the FASB issued FSP 123(R)-4, "Classification of Options and Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent Event." The
FSPs clarify certain accounting provisions set forth in SFAS No. 123(R). The requirements
and guidance prescribed in SFAS No. 123(R), Staff Accounting Bulletin
No. 107 and the FSPs is effective in 2006. The Group considers that
the adoption of SFAS No. 123R will not have
significant impact on its financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, &#147;Accounting Changes and Error Corrections&#148; (SFAS
No. 154&#148;), which was a replacement of APB Opinion No.&nbsp;20 and FAS No.&nbsp;3 effective for accounting changes
made in fiscal years beginning after December&nbsp;15, 2005. SFAS No. 154 requires restrospective
application to prior periods&#146; financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. It also requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change. SFAS No. 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change
in accounting estimate effected by a change in accounting principle. The Company does not expect
the adoption of SFAS No.&nbsp;154 on January&nbsp;1, 2006 to have a material impact on its results of
operations and financial condition.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2005, the FASB issued FSP FAS115-1 and FAS 124-1, which nullifies certain provisions of EITF Issue 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments", and completely supersedes EITF Topic D-44, "Recognition of
Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value", addresses (1) determining when an investment should
be considered impaired, (2) determining whether an impairment should be deemed other than temporary, and (3) measuring impairment loss. FAS 115-1 and
FAS 124-1 are effective as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. The
Company does not expect the adoption of FAS115-1 and FAS124-1 on
January 1, 2006 will have a significant effect on its financial statements.

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets&#151;An Amendment of FASB Statement No.
140" (&#147;SFAS No. 156&#148;). SFAS No. 156 requires that all
separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits,
but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS No. 156 is effective as of the
beginning of an entity&#146;s first fiscal year that begins after September 15, 2006, which for the Group will be as of the beginning of fiscal
2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In July 2006, the FASB issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" (&#147;FIN48&#148;), which is an interpretation
of SFAS No. 109, "Accounting for Income Taxes" (&#147;SFAS No.
109&#148;). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attributable for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective as of the beginning of an
entity's first fiscal year that begins after December 15, 2006, which for the Group will be as of the beginning of fiscal 2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->F-15 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Business combination</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On September 13, 2005, the Company entered into agreements with
Beijing Holdings Limited, the then 47.18% shareholder of the Company,
to (i) acquire 51% equity interest in CNT in exchange for 2,233,800
shares of the Company (the &#147;51% Acquisition&#148;) and (ii) obtain an option to acquire the
remaining 49% equity interest in CNT in exchange for 2,146,200 shares
of the Company (the &#147;49% Acquisition&#148;). Effective October
31, 2005, the 51% Acquisition was completed and effective December
22, 2005, the option was
also exercised and the 49% Acquisition was completed.
The acquisition was accounted for using the purchase method
of accounting. Accordingly, the purchase consideration has been allocated to the assets
acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.
The excess of the purchase price over the fair value of net assets
acquired was Rmb 69,526 and has
been recorded as goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value of the shares issued for the 51% Acquisition was approximately US$2.41 per share which was
calculated based on the simple average of five days&#146; quoted closing price of the Company&#146;s stock,
including two days prior and after the announcement date of the transaction and the announcement
date on September&nbsp;26, 2005. The fair value of the shares issued
for the 49% Acquisition was approximately US$2.1&nbsp;per share which
was the quoted closing price of the Company&#146;s stock on
December&nbsp;22, 2005, the date we exercised the option. The
consideration paid, the net assets of the Nutraceutical Operations
acquired and the goodwill arising there from can be summarized as follows.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="left"></TD>
    <TD>&nbsp;</TD>

<TD style="border-bottom:1px solid #000000" nowrap align="center" colspan="6">Acquisition of</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="left"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">51%<BR>Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">49%<BR>Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consideration Paid:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Shares of
common stock issued at fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,405</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Direct cost
related to the acquisition capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less Net
assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">748</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
<TD>Due from related parties</TD>
<TD></TD>
<TD></TD>
<TD align="right">11</TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right">19</TD>
<TD></TD>
</TR>

<TR valign="bottom">
<TD>Income taxes recoverable</TD>
<TD></TD>
<TD></TD>
<TD align="right">18</TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right">&#151;</TD>
<TD></TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,487</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,205</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(148</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes
payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred government grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(139</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(113</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
<TD>Due to a related party</TD>
<TD></TD>
<TD></TD>
<TD align="right">(104</TD>
<TD>)</TD>
<TD></TD>
<TD></TD>
<TD align="right">(119</TD>
<TD>)</TD>
</TR>

<TR valign="bottom">
<TD>Short term borrowings</TD>
<TD></TD>
<TD></TD>
<TD align="right">(40</TD>
<TD>)</TD>
<TD></TD>
<TD></TD>
<TD align="right">(1,749</TD>
<TD>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(251</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241</TD>
    <TD nowrap>)</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other liabilities and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(466</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(909</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
<TD>Minority interests</TD>
<TD></TD>
<TD></TD>
<TD align="right">(2,957</TD>
<TD>)</TD>
<TD></TD>
<TD></TD>
<TD align="right">(2,702</TD>
<TD>)</TD>
</TR>



<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
<TD>Subtotal</TD>
<TD></TD>
<TD></TD>
<TD align="right">6,002</TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right">5,336</TD>
<TD></TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill
arising from acquisition of Nutraceutical Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,069
</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
December 2005, we had disagreements with management and the minority
shareholder of Anji&nbsp;Bio. The Company could not timely obtain the
Financial Statements and access to the site of Anji&nbsp;Bio. Through
negotiations, the disagreements were resolved and a memorandum was
signed on July&nbsp;27, 2005. Management of the Company has assessed
the situation of Anji&nbsp;Bio and determine that it shall be
considered as a consolidated subsidiary of the Company for the year
ended December&nbsp;31, 2005 in the view that we are the legally
effective owner of it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
detailed list of intangible assets acquired is included in
Note&nbsp;11 to the consolidated financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following unaudited pro forma information is based on the assumption that the acquisition took
places as of the beginning of the year (January&nbsp;1, 2005), with comparative information for the
immediately preceding year as though the acquisition had been completed at the beginning of that
year:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Unaudited<BR>Years ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,698</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for the year from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,623</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,064</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.69</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.74</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The pro forma results have been prepared for comparative purposes only. They do not purport to
be indicative of the results of operations which actually would have resulted had the contribution
been effect on January&nbsp;1, 2004 or future results of operations of the consolidated entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted average amortization period for the intangible assets
acquired was 5.19 years (Note 11). There was no goodwill that was
expected to be deductible for tax purposes.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-16 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>4</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Non-operating income</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-operating income consisted of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Realized gains on trading securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Realized gains on available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income from available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Subsidies
from government</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>5</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Non-operating expenses</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-operating expenses consisted of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Realized loss on available-for-sale
securities &#150; transferred from
comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>6</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income tax provision</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was incorporated under the laws of the British Virgin Islands (&#147;BVI&#148;), and under
current BVI law, is not subject to tax on income or capital gains as it does not carry out business
in the BVI. No provision for Hong Kong profits tax was provided for the company&#146;s subsidiary operating in
Hong Kong for year ended December 31, 2004 and 2005 as it had no
estimated assessable profits arising in Hong Kong. Except Auji Bio
which was subject to PRC income tax at rate of 33%. The
Company&#146;s other subsidiaries operating in the PRC incurred
losses and therefore no PRC income taxes
were provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Composition of income tax expense</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current and deferred portions of income tax expense included in the consolidated
statements of operations and comprehensive income for the years ended December&nbsp;31 are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Recognition of deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,943</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,531</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,927</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,943</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-17 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>6</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income tax provision (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Reconciliation of income tax expense by applying PRC statutory Enterprise Income Tax rate</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense differed from the amounts computed by applying PRC statutory Enterprise
Income Tax (&#147;EIT&#148;) rate of 33% as a result of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax credit at PRC statutory EIT rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(522</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,338</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,446</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of different taxation rate in Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(474</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">572</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income not subject to taxation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses not deductible for taxation purpose</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Utilization of previously unrecognized tax losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(192</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in previously recognized tax loss
resulting from an increase in tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,943</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Significant components of deferred tax assets</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,407</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,464</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,407</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax loss carryforwards from the Company&#146;s PRC subsidiary can be carried forward for five
years. As the realization of the current tax loss carryforwards credit is uncertain, a full
valuation allowance against the deferred tax assets as at December&nbsp;31, 2005 has been provided.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>7</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Discontinued operations</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2005, BBHL entered into an agreement with Beijing Enterprises Development
Corporation (&#147;BEDC&#148;), a related party (Note 18), to sell its branch in Zhuhai, China which
represented the entire service rendering business segment of BBHL, at zero consideration. In this connection, the service-rendering business segment was presented as discontinued
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
analysis of the results and the loss on disposal of discontinued operations is as follows:-
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Year ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Year ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Period ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">March 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">31, 2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,040</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,755</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(678</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">362</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(529</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(141</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(411</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Profit from discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(509</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Profit/(loss) from discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(288</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was no tax charge incurred for the discontinued operations for the years ended December
31, 2003, 2004 and 2005.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-18 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>8</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Other assets</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets consisted of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rental and utility deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advance to staff</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepayment for insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepayment for consultancy fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepayment for raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>







<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>9</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Long term prepayment for rental of land</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortisation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The prepayment for rental of land represented the amount paid for the land use right held on medium term lease of 50 years in the PRC. The land use term will be expired on August 1, 2052.
</DIV>





<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>10</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Property, plant and equipment, net</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Building</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plant and machineries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer equipments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,678</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture, fixtures and office equipments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,099</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motor vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,612</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,083</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation for the year ended
December&nbsp;31, 2003, 2004 and 2005 amounted to Rmb475, Rmb76 and
Rmb376 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11 Intangible assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
intangible assets represented the unamortized cost of the extraction of bamboo flavonoids and its related
application patents obtained through the acquisition of the Nutraceutical Operations on October&nbsp;31,
2005.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-19 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11 Intangible assets (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair values of intangible assets acquired in 2005 represented the
core technology, completed technology and in process research and
development (&#147;IPR&#38;D&#148;) which amounted to Rmb
624, Rmb 5,792 and Rmb 475 respectively. The fair value of the core
technology is determined by the relief from royalty approach. Under
this approach, an asset is valued based upon the incremental
after-tax cash flow accruing to the owner by virtue of the fact that
the owner does not have to pay a &#147;fair royalty&#148; to a third
party for the use of that asset. Accordingly, a portion of the
owner&#146;s earnings, equal to the after-tax royalty that would have
been paid for use of the asset can be attributed to that asset. The
value of the asset depends on the present worth of future after-tax
royalties derived from ownership. Thus, indications of value are
developed by discounting future after-tax royalties attributable to
the asset to their present worth at market-derived rates of return
appropriate for the risks of that particular asset. The
relevant royalty rate was determined by referring to the profit margin of
the CNT and actual market transaction in biotechnology industry whose
royalty rates ranged from 1% to 10% with median of approximately
4%. In
calculating the royalty saving attributable to the core technology,
the related R&#038;D expenses for maintaining the core technology
were deducted. The maintenance R&#038;D expense was estimated based
on 2% of the maintenance R&amp;D expense to sale. Net
cash flow was derived by deducting tax expense from net royalty
saving. In arriving at net present value, the projected cash flow to
the core technology was then discounted to present value at a
discount rate of 25% until the end of the economic life in 2012.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value of completed technology and IPR&#38;D is
determined by the estimation of its replacement cost because they
are not unique and highly reproduced. The replacement cost of the
completed technology and IPR&#38;D include staff costs,
equipment, sampling and testing costs, and overhead costs such as
utility expense and rents for R&#038;D center. We then multiplied the
average development cost per technology by total number of months
required to complete the existing technology.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value, accumulated amortization/write off for the fiscal year ended
December 31, 2005 and the remaining balance as of December 31, 2005
of the core technology, completed technology and IPR&#038;D
technology were summarized as follows:</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>Acquired</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>amortization/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>during</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>write off</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>Balance as of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>during the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>acquisition</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3" style="border-bottom: 1px solid #000000"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3" style="border-bottom: 1px solid #000000"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3" style="border-bottom: 1px solid #000000"><B>Rmb</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3" style="border-bottom: 1px solid #000000"><B>Rmb</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">611</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Completed technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bamboo leaf extract for prostate disease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">AoB antioxidant from bamboo leaf extract</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(58</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,668</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">ZoB from
bamboo leaf extract</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(65</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,899</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bamboo shoot
extractive for
dietary supplements and fertilizer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,829</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Zhukangning capsule from bamboo leaf extract</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">In-Process
Research and Development technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bamboo shoot
extractive for calories control</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(448</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bamboo shoot
extractive for hair loss prevention</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(475</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(692</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for the years ended December&nbsp;31, 2003, 2004 and 2005 amounted to
Rmb1,085, Rmb Nil and Rmb 217 respectively. The intangible asset of the network security and
server switch technology acquired in 2000 has been fully amortized during the year ended December
31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
estimated amortization expenses of the intangible assets in each of the five succeeding years
amounted to Rmb 1,305.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12 Goodwill</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Group recorded goodwill of Rmb 69,526 in connection with the acquisition of
its Nutraceutical Operations in 2005. The goodwill for the year ended December&nbsp;31, 2005 is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Network</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Information</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Nutraceutical</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">security</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Technology</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">operations</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Total</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Rmb</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss for 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(411</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,748</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill
arising from business combination (Note&nbsp;3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill
relating to discontinued operations disposed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(999</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(999</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2004, an assessment for impairment for the network security consultancy segment was carried
out after the annual forecasting process. In view of the underperformance of the unit, the earning
forecast was revised by management. Based on the revised forecast, the present value of future cash
flows of the unit is lower then the carrying value of goodwill and therefore, goodwill impairment
loss of Rmb4,337 was reported.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt"><!-- Folio -->F-20 <!-- /Folio -->
</DIV>

</div>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12 Goodwill (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, an assessment for impairment was also carried out in 2004 for the information
technology consultancy reporting unit. During the process, the estimated selling price of the
reporting unit subsequent to balance sheet date was compared against the carrying value of the
reporting unit with a shortfall of Rmb411. Therefore, an impairment loss of Rmb411 was recognized
in the information technology consultancy reporting unit. Following the disposal of the
information technology consultancy reporting unit on March&nbsp;31, 2005. The Rmb 999, which represented
the carrying amount of the goodwill of the reporting unit, was disposed of and was grouped into the
net assets of the discontinued operations as mentioned in Note 7.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13 Deferred government grants</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Addition upon acquisition of the Nutraceutical Operations on October&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts
utilized during the year:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- Research and development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The entire deferred government grants belong to the Nutraceutical Operations acquired on
October&nbsp;31, 2005. The Group is obliged to utilize the government
grants only for funding the
research and development costs and costs for purchase of plant and machinery incurred for the
research and development projects registered with the relevant authorities. Savings in deferred
government grants upon completion of the research and development projects, however, is not
required to return to the relevant authorities and is recognized as revenue. An aggregated amounts
of Rmb 1,862 was received by Zhejiang Innoessen as deferred
government grants in 2003. Of the same Rmb
1,060, Rmb 221 and Rmb 308 were utilized for research and
development costs, purchase of plant and machinery and recognized to
revenue respectively for the period from the date when the grants were received to October&nbsp;31, 2005, the date of
acquisition. The amounts utilized for research and development costs since October
31, 2005 to December&nbsp;31, 2005 was Rmb 43.
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
deferred government grants are included as current liabilities of the
Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14
Short term borrowings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s short term borrowings as of each balance sheet date,
denominated in Renminbi, were analyzed as follows:
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unsecured
bank loans repayable within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,069</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">A secured
revolving banking facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The
weighted
average interest rate of short term borrowings was 6.14% as of
December&nbsp;31, 2005. The secured revolving banking facility was
secured by the land use right of the Anji Bio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15 Other liabilities and accrued expenses</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deposits received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued salaries and staff benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">764</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,719</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-21 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16 Stock-based compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;10, 1996, the Company&#146;s shareholders approved a stock option plan to grant options
for a maximum of 200,000 shares (the &#147;1996 Plan&#148;). The 1996 Plan provides for a grant of options
to employees, officers, directors and consultants of the Group. The 1996 Plan is administered by
the Board of Directors or a committee appointed by the Board, which determines the terms of
option&#146;s grant, including the exercise price, the number of shares subject to the option and
option&#146;s exercisability. The exercise price of all options granted under the 1996 Plan must be at
least equal to the fair market value of such shares on the date of grant. The maximum term of
options granted under the stock option plan is 10&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;20, 2000, the Company&#146;s shareholders approved a stock option plan to grant
options for a maximum of 400,000 shares (the &#147;2000 Plan&#148;). The 2000 Plan provides for a grant of
options to employees, officers, directors and consultants of the Group. The 2000 Plan is
administered by the Board of Directors or a committee appointed by the Board, which determines the
terms of option&#146;s grant, including the exercise price, the number of shares subject to the option
and option&#146;s exercisability. The exercise price of all options granted under the 2000 Plan must be
at least equal to the fair market value of such shares on the date of grant. The maximum term of
options granted under the stock option plan is 10&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;21, 2005, the Company&#146;s shareholders approved another stock option plan to grant
options for a maximum of 1,000,000 shares (the &#147;2005 Plan&#148;). The 2005 Plan provides for a grant of
options to employees, officers, directors and consultants of the Group. The 2005 Plan is
administered by the Company&#146;s Compensation Committee, which determines the terms of option&#146;s grant,
including the exercise price, the number of shares subject to the option and option&#146;s
exercisability. The exercise price of all options granted under the 2005 Plan must be at least
equal to the fair market value of such shares on the date of grant. The maximum term of options
granted under the stock option is 10&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group grants stock options to its employees and certain non-employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group applies Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25, &#147;Accounting for Stock
Issued to Employees&#148; and complies with the disclosure provisions of SFAS No.&nbsp;123 &#147;Accounting for
Stock-Based Compensation&#148; (&#147;SFAS No.&nbsp;123&#148;), as amended by SFAS No.&nbsp;148 &#147;Accounting for Stock-Based
Compensation &#150; Transition and Disclosure&#148; (&#147;SFAS No.&nbsp;148&#146;) for options granted to employees. In
general, compensation cost is recognized based on the difference, if any, between the fair value of
the Company&#146;s shares and the exercise price as determined on the date the option is granted. Under
APB Opinion No.&nbsp;25, because the exercise price of all the options issued by the Company to
employees equals or is higher than the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group applies SFAS No.&nbsp;123, as amended by SFAS No.&nbsp;148 for options granted to
non-employees. A charge for stock-based awards for the services rendered by non-employees using the
Black-Scholes option pricing model are recognized by the Group once incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the stock option activity for both employees and non-employees is follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(US$ per</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(US$ per</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(US$ per</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">share)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">share)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">share)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-22 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16 Stock-based compensation (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information with respect to stock options outstanding at
December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Options outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Options exercisable</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">contractual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Date of grant</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">life</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercisable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(US$ per share)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(US$ per share)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;28, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;20, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>9.72 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The share options granted on December&nbsp;28, 1999 were made pursuant to the 1996 Plan and are
immediately exercisable. The share options granted on September&nbsp;20, 2005 included 60,000 share
options made pursuant to the 1996 Plan and 370,000 share options made under the 2000 Plan. All
share options granted on September&nbsp;20, 2005 are immediately exercisable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no options granted in the fiscal years ended December&nbsp;31,
2003 and 2004. The Company had granted three groups of options to employees during the year ended December 31, 2005.
The options of the chairman and the chief executive officer of the Company were deemed granted on February 8, 2005 and March  29, 2005 respectively upon their appointment to the positions.
These options were granted under the 1996 Plan of the Company
pursuant to a board resolution passed on December 28, 1999. The
resolution had passed 50,000 options were each granted to the
respective position. In case the person holding the position has not
exercised the options during his service with the Company, the person
who is appointed can succeed the options at the
same terms. Upon the new  appointment of the chairman and the chief executive officer in 2005, their predecessors had not exercised any of the options granted and therefore, the remaining
options were succeeded by the newly appointed persons. Pursuant to another resolution passed on September 20, 2005, another 430,000 options were granted to other employees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stock-based compensation to non-employees</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company granted 65,000 stock options under the 2000 Plan to certain consultants on September&nbsp;20,
2005 in respect of their advisory services provided to the Company.
The options were fully vested and non-forfeitable. Accordingly, the Company recorded a compensation expenses of approximately Rmb 701 for the
fiscal year ended December&nbsp;31, 2005, estimated using the Black Scholes option pricing model. All
options granted to consultants are immediately exercisable after
being granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following assumptions were used in the Black-Scholes option pricing model in assessing the
fair value of options granted to non-employees:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average risk-free rate of return*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.983</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected option life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">2.5 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">133.18</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD colspan="3"><I>* Risk-free rate represents the yields to maturity of respective US Government
STRIPS (Source: Bloomberg)</I></TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17 Loss per share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic loss per share represents income available to common stockholders divided by the
weighted-average number of common stocks outstanding during the period. Diluted earnings per share
reflects additional common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result from the assumed
issuance. Dilutive potential common stocks that may be issued by the Group relate solely to
outstanding stock options, and are determined using the treasury stock method. Effects of stock
options are excluded from the computation if the effect would be antidilutive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted loss per share have been calculated in accordance with SFAS No.&nbsp;128 for the
years ended December&nbsp;31, 2003, 2004 and 2005 as follows:
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-23 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17  (continued)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,532</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss from continuing operations attributable to
holders of common stock, basic and diluted shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,244</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income/(loss) from discontinued operations
attributable to holders of common stock, basic and
dilutive shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(288</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average shares used in computing basic and
diluted loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Incremental shares from assumed conversions of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average shares used in computing diluted
loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,601</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per
share (in Rmb)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.67</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per
share from continuing operations (in Rmb)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.63</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) per share from discontinued operations (in Rmb)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- Basic and dilutive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income/(loss) per share are calculated based on the weighted average number of shares of
common stock issued and, as appropriate, diluted shares of common stock equivalent outstanding for
each of the relevant years and the related loss amount. The number of incremental shares from
assumed exercise of share options has been determined using treasury stock method. Under the
treasury stock method, the proceeds from the assumed conversion of options are used to repurchase
shares of common stock using the average fair value for the years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For all the three years ended December&nbsp;31, 2003, 2004 and 2005, the number of shares used in
the calculation of diluted loss per share is equal to the number of shares used to calculate basic
loss per share as the incremental effect of share options would be antidilutive in these
loss-making years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18 Related party transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transactions and balances with related parties are analyzed as follows:-
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Transactions with related parties</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposal of Zhuhai
branch of BBHL to BEDC
(Note a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net
operating cash outflows of Zhuhai branch reimbursed (Note&nbsp;a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition
of CNT from Beijing Holdings by
issuance of 2,233,800
new shares at US$2.41
per share and 2,146,200 new shares at US$2.1 per share respectively (Note b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,928</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disposal of
available-for-sale
securities to Beijing
Holdings (Note c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,167</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-24 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18
Related party transactions (continued)</B>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;31, 2005 BBHL entered into an agreement with BEDC, the sole shareholder of China Internet Technology Company
Limited (&#147;China Internet&#148;), the then 17.21% shareholder of the Company, to sell its Zhuhai branch for a consideration of Rmb&nbsp;1.3&nbsp;million.
The consideration was determined based on the operating cashflow generated by Zhuhai branch from May&nbsp;1, 2002 to March&nbsp;31, 2005, the period of which
Zhuhai branch was managed and controlled by the Company. Upon disposal, the Company agreed to reimburse the same aggregated net operating cash outflows of
Rmb&nbsp;1.3&nbsp;million to the Zhuhai branch as part of the conditions of disposal. The consideration of the transaction is zero as the Company received Rmb1.3&nbsp;million
from BEDC and at the same time the Company transferred Rmb1.3&nbsp;million to Zhuhai branch. The transaction was closed on March&nbsp;31, 2005 and resulted in a disposal loss of Rmb0.51&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;13, 2005, the Company entered into agreements with Beijing
Holdings, the then 47.18% shareholder of the Company, to (i) acquire a 51% equity interest in
CNT in exchange for 2,233,800 shares of the Company and (ii) obtain an option to acquire the remaining
49% equity interest in CNT in exchange for 2,146,200 shares of the Company. Effective October 31, 2005,
the acquisition of 51% of CNT was completed and effective December 22, 2005, the option was also exercised
to acquire the remaining 49% equity interest in CNT.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;17, 2005, the Company entered into a sale and purchase
agreement with Beijing Holding to dispose of all of the 6,312,000 shares invested in Xi&#146;an Haitian Antenna Company Limited
(&#147;Xi&#146;an Haitian&#148;) then held by the Company for  a cash consideration of Rmb 2.17&nbsp;million.
These shares were previously held as available-for-sale securities by the
Company and it represented less than one percent of the outstanding shares of Xi&#146;an Haitian (approximately
0.975%). The sale consideration was determined by the quoted closing stock price of Xi&#146;an Haitian at HK$0.33
per share at the date of the agreement. Xi&#146;an Haitian is a company engaged in research, development,
production, sales, installation, services and wireless communication network optimization of base station
antennas and is also listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. The shares were
acquired upon the initial public offering (&#147;IPO&#148;) of Xi&#146;an Haitian. Its stock price dropped
continuously after the IPO due to poorer operating results as a result of the keen competition in the market.
Beijing Holdings is also a passive investor of Xi&#146;an Haitian who owns approximately 8% equity interest of Xi&#146;an Haitian after
its IPO. Beijing Holdings currently nominates one non-executive
director to the board of Xi&#146;an Haitian. The Company
dose not currently participate in the management or operations
of Xi&#146;an Haitian.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2004 and 2005, the balances with related parties were as follows:-</TD>
</TR>

</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balances with related parties</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held
by Beijing Holdings, the ultimate holding company, for security
investment purposes (Note&nbsp;d)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds
receivable from Beijing Holdings, the ultimate holding company, in respect of sale
of shares of Xi&#146;an Haitian Antenna (Note&nbsp;e)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held
by Beijing Holdings Investment Management Center, a fellow subsidiary
for security investment purposes (Note&nbsp;f)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funds held
by China Biotech Holdings Limited, a related company with common
director, for potential
acquisition of technology and business in China (Note&nbsp;g)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due from
Beijing Investments (BVI)&nbsp;Limited, a fellow subsidiary, for
security investment purposes (Note&nbsp;h)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due from
Great Legend Internet Technology and Service Co. Ltd., a shareholder, for expenses paid on behalf</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Due to BEDC,
the holding company of a shareholder (Note&nbsp;i)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px; background: #cceeff">Due to China Biotech
Holdings Limited, a related company with common director,
 (Note&nbsp;j)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-25 <!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18 Related party transactions (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Note
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Due to Beijing Holding&#146;s  good relationship with leading
investment banks and the Company&#146;s desire to access potential investment
opportunities as a result of these relationships, the Company previously deposited funds
with Beijing Holdings (since 2002) to invest on its  behalf  in Hong Kong. Nevertheless, due
to the poor performance of the Hong Kong Stock market in the last two
years, the Company withdrew its
entire funds of Rmb 6.53&nbsp;million in May&nbsp;2005. There was no agreement signed with Beijing
Holdings for the deposit.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;17, 2005 the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the shares it held in Xi&#146;an Haitian for
cash consideration of Rmb2.17&nbsp;million.
The value of the consideration was determined by the quoted closing
stock price of Xi&#146;an Haitian at HK$0.33
per share at the date of the agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Due to its good relationship with leading investment banks and potential investment
opportunities to be gained from those relationships, the Company previously deposited funds with Beijing
Holdings Investment Management Center (&#147;BHIMC&#148;) to invest
our behalf in China. Again, due to the poor
performance of the China Stock market, we withdrew the entire funds of Rmb 3.39&nbsp;million in December
2005. There was no agreement signed with BHIMC for the deposit.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>China Biotech Holdings Limited (&#147;China Biotech&#148;),
is a company incorporated in BVI in  which Mr.&nbsp;Alan
Li, the executive director and Co-Chief Executive Officer of the Company, is also an executive
director. China Biotech has experience in nutraceutical business in China. China Biotech&#146;s experience
includes making investments in companies and technologies involved in this industry. In view of China
Biotech&#146;s experience, the Company deposited  Rmb 6.26 million  with China Biotech for the purpose of making
(with the assistance of China Biotech) potential acquisitions of technology and businesses in the
nutraceutical industry in China. There was no agreement signed for the funds deposited with China Biotech
and the Company can withdraw the funds without any restrictions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented the advance of funds for the purchase on behalf of the Company of
trading securities in Hong Kong by Beijing Investments (BVI)&nbsp;Limited, a wholly owned
subsidiary of Beijing Holdings. This amount was wholly withdrawn by the Company in March
2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented the contract sums received on behalf of BEDC by BHLHK in Hong Kong
as the customer of BEDC paid in Hong Kong dollars whereas BEDC did not maintain a Hong Kong
dollar bank account in Hong Kong.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(j)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount represented administrative expenses paid on behalf
of CNT by
China Biotech in China.</TD>
</TR>
</TABLE>
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19
Retirement benefits</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As stipulated by the regulations of PRC, the PRC subsidiary is required to make contributions
to the retirement fund organized by the PRC government at the rate of 19% of the base salaries of their staff. Contributions made
in connection with the mandatory fund, which are expensed as incurred, were Rmb293, Rmb363 and Rmb401 for the
years 2003, 2004 and 2005 respectively. The PRC subsidiary has no obligation for the payment of
pension benefits beyond the annual contributions described above.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-26 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>20
Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common Stock of the Company as of December&nbsp;31, 2004 and 2005 was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Ordinary shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Common</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Treasury</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">with par value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional paid-in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">stock</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">stock</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">US$0.01 each</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,894,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issues of shares for
acquisition during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,380,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,928</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock
options granted to certain consultants (Note (a))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock
options granted to officers (Note (b))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancellation of treasury stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,150,391</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,274,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270,834</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000; border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000; border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>This represented the fair value of the stock options granted
to certain consultants.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>This represented the expenses of the stock options granted to
the Company&#146;s chairman and chief executive officer. Details of
which is discussed in Note&nbsp;2(p)</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>The entire treasury stocks of 2,150,391 shares of the Company had been cancelled during the
year ended December&nbsp;31, 2005.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>21 Contingencies and commitments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Operating lease commitments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had future aggregate minimum lease payments under
non-cancelable operating leases as follows:
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">In respect of land and buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Not later than one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">615</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Later than one year and not later than five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Later than five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">947</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is a party to form lease agreements for office premises and
staff quarters. The lease agreements are described below:
</div>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-27 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>21 Contingencies and commitments (continued)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Operating lease commitments (continued)</B></TD>
</TR>




<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of our Corporate Office (situated in Hong
Kong) commenced on May&nbsp;27, 2005, and shall continue for a period of two
years, at a monthly rent of Rmb 33. As of December&nbsp;31, 2005, the future minimum lease payments
under this non-cancelable operating lease amounted to Rmb 358 and Rmb 158 for years ended
December&nbsp;31, 2006 and 2007 respectively.</TD>
</TR>



<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of staff quarters (situated in Hong Kong)
for managers of our Corporate Office commenced on
December&nbsp;11, 2005, and shall continue for a period of two years, at a monthly rent of Rmb 7. As of December&nbsp;31,
2005, the future minimum lease payments under this non-cancelable operating lease amounted to
Rmb 86 and Rmb 81 for years ended December&nbsp;31, 2006 and 2007 respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement of staff quarters (situated in Hong Kong) for Alan Li, the executive director and Co-Chief
Executive Officer of the Company, commenced on December&nbsp;8, 2005,
and shall continue for a period of two years,
at a monthly rent of Rmb 8. As of December&nbsp;31, 2005, the future minimum lease payments under
this non-cancelable operating lease amounted to Rmb 100 and Rmb 93 for years ended December
31, 2006 and 2007 respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The lease agreement for the office of Shenzhen Innoessen
(situated in Shenghen, PRC)
commenced on March&nbsp;23, 2005, and shall continue for
a period of one year, at a monthly rent of Rmb 24. As of December&nbsp;31, 2005, the future minimum
lease payments under this non-cancelable operating lease amounted to Rmb 71 for year ended
December&nbsp;31, 2006.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease rental costs incurred by the Group for the year ended December&nbsp;31, 2003, 2004 and 2005
amounted to Rmb596, Rmb519 and Rmb1,052 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Contingencies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;20, 2006, the ex-general manager and the minority
shareholder of Anji Bio (the &#147;Anji Buyers&#148;) filed claims
against Anji Bio and Zhejiang Innoessen in the People&#146;s Court of
the Anji County (the &#147;Anji Court&#148;) with respect to the
unlawful termination of service of the ex-general manager of Anji
Bio. The Anji Buyers have requested that the Anji Court order the
termination was unlawful and pay Rmb 50 as economic compensation to
the ex-general manager. The case has been scheduled to take place on
July&nbsp;31, 2006, Pursuant to the memorandum entered into
between Zhejiang innoessen and the Anji Buyers dated July&nbsp;27,
2006, it was mutually agreed to defer the litigation. As also stipulated
in the same memorandum, the litigation would be cancelled upon the
completion of the memorandum. The Group has not provided for the claim
as the management of the Company has confidence in completing the
memorandum.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-28 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>22 Segment information</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For management reporting purposes, the Group&#146;s business segment results are reported to the
management in two business segments: IT Operations and Nutraceutical Operations. These business
segments are determined based on the nature of the business engaged by each segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management evaluates each segment&#146;s performance based upon earnings before interest expense,
depreciation and amortization charges and other income/ expenses. Such measure is then adjusted to
exclude items that are of a non-recurring or unusual nature. Management believes such discussions
are the most informative representation of how management evaluates performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized financial information by business segment of our continuing operations for 2005,
2004 and 2003 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Net identifiable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Depreciation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Operating</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">assets/</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">and</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Capital</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">loss</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">(liabilities)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">amortization</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">expenditures</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Rmb</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IT Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,269</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nutraceutical Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,584</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,612</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,805</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,274</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,886</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,259</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year 2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IT Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,981</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IT Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,102</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,102</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,276</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is engaged in the provision of information technology and network security services
and the sale and marketing of nutraceutical products to a wide range of industries and end users
within the PRC. All the Group&#146;s revenue is derived from sales to customers located in the PRC.
Approximately, 6.28%, 18.59% and 32.97% of the total revenues were contributed by 3 major customers
of our IT operation during the year ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group operates mainly in the PRC and accordingly no geographical segment information is
presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no sales or other transactions between the segments. Segment assets consist
primarily of cash and cash equivalents, inventories, trade receivables, other assets and fixed
assets. Segment liabilities comprise operating liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2004, operating profit/ (loss)&nbsp;of segments include goodwill impairment loss of Rmb4,337 for
IT operations.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-29 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES<BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Amounts expressed in thousands, unless otherwise stated)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>23 Subsequent events</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Investment In Fujian Jian&#146;ou Yingshi Food Technology Limited (&#147;Fujian Jian&#146;ou&#148;)</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;12, 2006 Zhejiang Innoessen entered into a joint venture agreement with Fujian
Jian&#146;ou Food Production Limited (the &#147;Agreement&#148;) to form the Fujian Jian&#146;ou. Pursuant to the
Agreement, Zhejiang Innoessen will invest Rmb5.1&nbsp;million (the &#147;Capital Injection&#148;) to own 51%
interest of Fujian Jian&#146;ou. Rmb3.0&nbsp;million and Rmb2.1&nbsp;million of the Capital Injection
will be invested in the form of technology owned by Zhejiang Innoessen and a mix of plant and machinery (after
valuation) and cash respectively. Pursuant to the Agreement, the deadline of Capital Injection is December&nbsp;31,
2006. As of date, an aggregated sum of Rmb600 in the form of cash had been invested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
early June of 2006, the Fujian Province of China had been subject to
the heaviest rainstorms and floods in the past fifty years, Jian&#146;ou, one of the cities in the FujianProvince,
suffered the most damage. As a result of this flooding, the production facilities held by Fujian
Jian&#146;ou (having started its trial run in May&nbsp;2006) were damaged. It was noted that the
factory was flooded under 2.50-meters water for over thirty hours.
All operations of Fujian Jian&#146;ou are currently stopped and management is in the process of
quantifying losses. A preliminary assessment indicates that it will take at least two months to cleanup
the site and restore the factory&#146;s capability. As of date,
management is in process of quantifying the impacts of which to our
operating results for the year ending December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Disposal
of Anji Bio</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;27, 2006, Zhejiang Innoessen entered into a memorandum with the ex-general manager and minority shareholders of
Anji Bio (the &#147;Anji Buyers&#148;) pursuant to which the entire interest in Anji Bio held by Zhejiang Innoessen was disposed to Anji Buyers. The final consideration, however, is not yet determined, subject to the finalization of the value determined for the fixed assets of Anji Bio and which will be used as a basis for the total consideration for the whole transaction.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-30 <!-- /Folio -->
</DIV>

</BODY>
</HTML>
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{"company-data": {"conformed-name": "CHINA TECHNOLOGY DEVELOPMENT GROUP CORP", "cik": "0001027454", "assigned-sic": "7372", "irs-number": "000000000", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "000-29008", "film-number": "061098000"}, "business-address": {"street1": "34TH FLOOR, WEST TOWER, SHUNTAK CENTRE", "city": "HONG KONG", "state": "K3", "zip": "00000", "phone": "852-2105-6253"}, "mail-address": {"street1": "C/O JING TAI INDUSTRIAL LTD RM 2504", "street2": "WEST TOWER SHUNTAK CTR 200 CONNOUGHT", "city": "HONG KONG", "state": "K3", "zip": "00000"}, "former-company": {"former-conformed-name": "TRAMFORD INTERNATIONAL LTD", "date-changed": "19961122"}}
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
SMALL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ............
For the transition period from
to
Commission file number 000-29008
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
British Virgin Islands
(Jurisdiction of incorporation or organization)
Room 2413, 24
th
Floor, Shui On Centre, 8 Harbour Road, Wanchai, Hong Kong
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
None
Not Applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock, Par Value US$0.01 each
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
As of August 31, 2006, there were 11,274,497 shares of Common Stock outstanding, with par value of
US$0.01 each.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
o
Yes
þ
No
If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o
Yes
þ
No
Note – Checking the box will not relieve any registrant required to file reports pursuant to
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.
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.
þ
Yes
o
No
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
o
Accelerated filer
o
Non-accelerated filer
þ
Indicate by check mark which financial statement item the registrant has elected to follow
o
Item 17
þ
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
Table of Contents
Introduction
This annual report on Form 20-F includes our audited consolidated financial statements as of
December 31, 2004 and 2005, and for each of the three years in the period ended December 31, 2003,
2004 and 2005.
We list our common stock, par value of US$0.01 on the Nasdaq Capital Market, or Nasdaq, under the
symbol "CTDC" (formerly known as "TRFDF").
Except as otherwise required and for purposes of this Annual Report only:
•
"CTDC", "Company", "us" or "we" refer to China Technology Development Group Corporation.
The term "you" refers to holders of our common stock.
•
"Hong Kong" and the "Government" refer to the Hong Kong Special Administrative Region of
the People's Republic of China and its government, respectively.
•
"China" and the "Chinese government" refer to the People's Republic of China and its government.
•
All references to "Renminbi," or "Rmb"
are to the legal currency of China, all references to
"U.S. dollars," "dollars," "$" or "US" are to the legal currency of the United States and
all references to "Hong Kong dollars" or "HK$" are to the legal currency of Hong Kong.
Any discrepancies in any table between totals and sums of the amounts listed are due to
rounding.
Description of Business
China Technology Development Group Corporation (formerly known as "Tramford International Limited")
was incorporated as an International Business Company under the laws of the British Virgin Islands
in September 1995. The Company is a dynamic growth company with its main portfolio business based
in China. Headquartered in Hong Kong, the Company operates the business in Hong Kong, Beijing,
Shenzhen, and the Zhejiang Province. The Company became a NASDAQ listed company in 1996, one of the
very first China-based technology companies listed on the NASDAQ Capital Market. The Company
capitalizes its unique techniques of developing ingredients for health food products and food
supplements utilizing bio-active components of bamboo to enter the fast growing Chinese
nutraceutical market. Besides that, it is also one of the leading network security solution
providers in China.
Recent major events
On September 13, 2005, the Company entered into a sale and purchase agreement with Beijing Holdings
Limited ("Beijing Holdings"), its then 47.18% shareholder, pursuant to which the Company acquired
51% of the issued and outstanding stock of a nutraceutical corporation in China, named Future
Solutions Development Inc. (now known as "China Natures
Technology Inc.", "CNT"). On the same day,
the Company also entered into an option agreement with Beijing Holdings to acquire the remaining
issued and outstanding stock of CNT. At the Annual Meeting of Stockholders of the Company held on
October 21, 2005, special resolution to approve the acquisition by the Company of the 51% equity
interest in CNT and the option to acquire the remaining 49% equity
interest in CNT were passed.
On October 31, 2005, the transaction to acquire from Beijing Holdings the 51% equity interest of
the issued and outstanding stock of CNT closed and as a result, the Company issued 2,233,800
shares of the Company's common stock of US$0.01 each to Beijing Holdings. After the closing,
Beijing Holdings' ownership of shares of the Company's common stock increased from 47.18% to 60.11%
and the Company had total outstanding shares of 9,128,297 shares.
On December 22, 2005, the Company exercised its option to acquire, from Beijing Holdings, the
remaining 49% equity interest of CNT in exchange for 2,146,200 shares of the Company's common
stock. As a result of the closing of the transaction, CNT became a wholly owned subsidiary of the
Company and Beijing Holdings' aggregate ownership in the Company increased from 60.11% to 67.70% and the Company had total outstanding shares of 11,274,497 shares.
On January 9, 2006, the name of the Company was changed to China Technology Development Group
Corporation and its common stock continued to trade on NASDAQ Capital Market under the new symbol
"CTDC". Along with the corporate name change, the Company also moved its corporate website to a
new domain at www.chinactdc.com and the CUSIP number of the Company's common stock was also changed
to G84384 10 9.
1
TABLE OF CONTENTS
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unsolved Staff Comments
Item 5 Operating and Financial Review and Prospects
Item 6 Directors, Senior Management and Employees
Item 7 Major Shareholders and Related Party Transactions
Item 8 Financial Information
Item 9 The Offer and Listing
Item 10 Additional Information
Item 11 Quantitative and Qualitative Disclosures About Market Risk
Item 12 Description of Securities Other than Equity Securities
PART II
Item 13 Default, Dividend Arrearages and Delinquencies
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15 Controls and Procedures
Item 16A Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committee
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
Item 17 Financial Statements
Item 18 Financial Statements
Item 19 Exhibits
SIGNATURES
EX-3.1 AMENDED MEMORANDUM AND ARTICLES OF ASSOCIATION
EX-10.1 AGREEMENT WITH IVORY CAPITAL ASIA LTD.
EX-10.2 AGREEMENT WITH BEIJING HOLDINGS LTD.
EX-10.3 OPTION AGREEMENT
EX-10.4 SUPPLY OF GOODS AGREEMENT WITH CHINA NEW ERA
EX-10.5 FRAMEWORK AGREEMENT WITH LEGEND
EX-10.6 FRAMEWORK AGREEMENT WITH LEGENDSEC
EX-10.7 FRAMEWORK AGREEMENT WITH MR. HU LINFU
EX-14.1 CODE OF ETHICS
EX-21.1 LIST OF THE COMPANY'S SIGNIFICANT SUBSIDIARIES
EX-31.1 CERTIFICATION OF CEO REQUIRED BY SEC. 302
EX-31.2 CERTIFICATION OF CEO REQUIRED BY SEC. 302
EX-31.3 CERTIFICATION OF CFO REQUIRED BY SEC. 302
EX-32.1 CERTIFICATION OF CEO AND CFO REQUIRED BY SEC. 906
Table of Contents
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A.
Selected financial data.
The following selected financial data should be read in conjunction with Item 5 — the
"Management's Discussion and Analysis of Financial Condition and Results of Operations", and the
Financial Statements and Notes thereto included elsewhere in this Annual Report.
The selected financial data at December 31, 2004 and 2005 and years ended December 31, 2003,
2004 and 2005 have been derived from and should be read with our audited consolidated financial
statements, including notes to the consolidated financial statements, included in this Annual
Report beginning on page F-1. We derived the selected financial data at December 31, 2003, 2002
and 2001 and for the years ended December 31, 2002 and 2001 from our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP, but have not been included in
this Annual Report.
All financial data included elsewhere in this Annual Report are expressed, unless otherwise
stated, in the nearest thousand of Renminbi. This Annual Report contains
translations of Renminbi amounts into U.S. dollar amounts, solely for your convenience. Unless
otherwise indicated, the translations have been made at Rmb8.0702 = US$1.00, which was the noon
buying rate in The City of New York for cable transfers in Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York on December 30, 2005. See Item 3 "Key Information
— Selected Financial Data — Exchange Rate Information" for historical information regarding this
noon buying rate. You should not construe these translations as representations that the Renminbi
actually represents such U.S. dollar amounts or could have been or could be converted into U.S.
dollars at the rate indicated or at any other rates.
2
Table of Contents
(Amounts in thousands, except per share data)
Year
Year
Year
Year
Year
Year
Ended
Ended
Ended
Ended
Ended
Ended
December
December
December
December
December
December
31,
31,
31,
31,
31,
31,
2001
2002
2003
2004
2005
2005
Rmb(1)
Rmb(1)
Rmb(1)
Rmb(1)
Rmb(1)
US$(2)
Consolidated Statement
of Operations Data:
Operating
Loss
(12,751
)
(15,105
)
(4,378
)
(10,779
)
(17,886
)
(2,215
)
Non-operating income
2,555
2,456
2,310
167
276
34
Non-operating expenses
—
—
—
—
(2,628
)
(325
)
Loss from continuing
operations before
minority interests
(10,196
)
(12,790
)
(2,198
)
(10,369
)
(19,956
)
(2,472
)
Discontinued operations
Income/(loss) from
discontinued
operations before
income tax
(610
)
(4,805
)
366
254
(288
)
(36
)
Net loss for the year
(9,141
)
(15,446
)
(942
)
(10,115
)
(19,532
)
(2,420
)
Loss per share
(1.32
)
(2.24
)
(0.14
)
(1.47
)
(2.67
)
(0.32
)
Loss per share from
continuing operations
(1.23
)
(1.54
)
(0.19
)
(1.51
)
(2.63
)
(0.31
)
(Loss)/earnings per
share from
discontinued
operations
(0.09
)
(0.70
)
0.05
0.04
(0.04
)
(0.01
)
3
Table of Contents
(Amounts in thousands, except per share data)
Year
Year
Year
Year
Year
Year
Ended
Ended
Ended
Ended
Ended
Ended
December
December
December
December
December
December
31,
31,
31,
31,
31,
31,
2001
2002
2003
2004
2005
2005
Rmb
Rmb
Rmb
Rmb
Rmb
US$(2)
Supplemental data
to Consolidated
Statements of
Operations
Revenues
707
5,658
8,405
2,720
7,503
930
Cost of sales
508
2,986
4,421
1,394
3,290
408
Gross Profit
199
2,672
3,984
1,326
4,213
522
Consolidated
Balance Sheet Data:
Total assets
93,407
55,208
51,582
39,355
117,849
15,273
Total liabilities
27,846
7,818
5,391
6,501
13,626
1,689
Shareholders' equity
62,522
46,500
46,191
32,854
98,708
12,902
(1)
During the fiscal year ended December 31, 2005, we disposed
the service rendering operating segment. The operating result up to
the date of this disposal and the loss resulted from the disposal
were reported as discontinued operations. To conform with the
presentation of this year, the comparative operating results of the
disposed segment for the years ended December 31, 2001, 2002, 2003
and 2004 were consistently summarized into discontinued operations.
(2)
For the convenience of the reader, translation of amounts from Renminbi into United States
Dollars has been made at the noon buying rate in New York City for cable transfer in
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York
on December 31, 2005 of Rmb 8.0702 = US$1.00.
Exchange Rate Information
On July 21, 2005 the Chinese government changed its policy of pegging the value of the Renminbi to
the U.S. dollar. This revaluation of the Renminbi was based on a conversion of Renminbi  into
United States dollars at an exchange rate of US$1.00=Rmb8.11. Under the new policy, the
Renminbi will be permitted to fluctuate within a band against a basket of certain foreign
currencies. This change in policy resulted initially in an approximately 2.0% appreciation in the
value of the Renminbi against the U.S. dollar and could result in further and more significant
appreciations. Although the Company generates substantially all of its revenue in Renminbi which
has become more valuable in U.S. dollars, the Company's U.S. dollars cash deposits are subject to
foreign currency translations which will impact net income.
We have calculated and presented
our financial statements in Renminbi. Our business is
primarily conducted in China and denominated in Renminbi. Reports will be made to shareholders and
will be expressed in Renminbi. The conversion of
Renminbi into U.S. dollars in this Annual Reports is based on the noon buying rate in The city of
New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve
Bank of New York. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this
annual report were made at US$1.00 to Rmb8.0702, which was the prevailing rate on December 31, 2005.
The prevailing rate on August 31, 2006 was US$1.00 to Rmb7.9538. We make no representation that any
Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or
Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The
Chinese government imposes controls over its foreign currency reserves in part through direct
regulation of the conversion of Renminbi into foreign exchange and though restrictions on foreign
trade.
The following table sets forth various information concerning exchange rates between the Renminbi
and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the
preparation of our periodic reports or any other information to be provided to you. The source of
these rates is the Federal Reserve Bank of New York.
4
Table of Contents
Average
High
Low
Period-end
(Rmb per U.S. $1.00)
2001 (1)
8.2770
8.2786
8.2676
8.2766
2002 (1)
8.2770
8.2800
8.2669
8.2800
2003 (1)
8.2770
8.2800
8.2765
8.2769
2004 (1)
8.2768
8.2774
8.2764
8.2765
2005 (1)
8.1472
8.2765
8.0702
8.0702
November 2005
8.0839
8.0877
8.0796
8.0796
December 2005
8.0764
8.0808
8.0709
8.0709
January 2006 (2)
8.0668
8.0705
8.0608
8.0608
February 2006 (2)
8.0500
8.0608
8.0420
8.0420
March 2006 (2)
8.0345
8.0503
8.0170
8.0170
April 2006 (2)
8.0155
8.0248
8.0040
8.0165
May 2006 (2)
8.0131
8.0300
8.0005
8.0215
June 30, 2006 (2)
8.0042
8.0225
7.9943
7.9943
July 2006 (2)
7.9897
8.0018
7.9690
7.9690
August 2006 (2)
7.9722
7.9538
8.0000
7.9538
(1)
Annual averages are calculated by averaging the rates on the last business day of each month
during the relevant period.
(2)
Monthly average are calculated by averaging the daily rates during the relevant period.
B.
Capitalization and indebtedness.
Not Applicable.
C.
Reasons for the offer and use of proceeds.
Not Applicable.
D.
Risk factors.
The following matters and other additional risks not presently known to us or that we deem
immaterial, may have a material adverse effect on our business, financial condition, liquidity,
results of operations or prospects, financial or otherwise. Reference to this cautionary statement
in the context of a forward-looking statement or statements shall be deemed to be a statement that
any one or more of the following factors may cause actual results to differ materially from those
in such forward-looking statement or statements.
You should carefully consider the risks described below and other information in this annual report
before deciding to invest in the Company.
5
Table of Contents
Forward Looking Statements
Some of the statements contained in this Annual Report contain forward-looking information within
the meaning of the
Private Securities Litigation Reform Act of 1995
. These statements are found in
this Item 3, Item 4, Item 5 and other sections in which the future prospects of the Company are
discussed. These statements include information concerning:
•
our ability to achieve or sustain profitability in the rapidly changing Internet and nutraceutical market in which we
operate;
•
our ability to successfully integrate acquired businesses, products and technologies;
•
our ability to keep pace with the rapidly changing technology and products in the market we operate;
•
our ability to achieve our future pricing strategies or policies;
•
our ability to achieve our plans to expand our sales;
•
our ability to achieve our plans to diversify our sources of revenues industry;
•
our ability to respond to competition in the China market;
•
our ability to maintain and protect our intellectual property.
You can identify these statements by forward-looking terminology such as "anticipate", "expect",
"believe", "goal", "plan", "intend", "estimate", "may", "can", "could", "will" and "would" or
similar words. These forward-looking statements involve known and unknown risks, uncertainties and
other factors, including those described in this Item 3 and elsewhere in this annual report that
could cause our actual results to differ materially from those anticipated. "CTDC", "Company", "us"
or "we" refer to China Technology Development Group Corporation. The term "you" refers to holders
of our common stock.
(a) Risks Associated with Our Business
(1) We have limited operating history and evolving business model and strategy.
We have limited experience in the businesses that we are currently involved, including the network
security and nutraceutical products.
We were originally engaged in the sanitary wares and ceramic tiles manufacturing business, which
was changed to the Internet related business in June 2000 and then the addition of nutraceutical
related business in October 2005.
For Internet related business, we started with a focus on system integration services ("SI"). In
2001, SI was terminated due to very keen competition and a low profit margin. We then positioned
ourselves as a network security services provider and started developing our own products. Major
development of our existing products were completed in 2002 and certificates for these products
were obtained from the Police Bureau, Security Bureau, etc in subsequent months.
Our
nutraceutical related business is operated by the CNT and its
subsidiaries which was newly acquired by us in October 2005. The
business comprised commercializing the unique techniques of various types of
bamboo extracts. As of August 28, 2006, there have been ten
(10) patents filed in China, three (3)
of them have been approved.
Both network security market and nutraceutical product market of China are rapidly evolving. We
lack experience in managing these new markets. We are planning to strengthen the sales and marketing
function to minimize this risk, such as, active participation in exhibitions, recruitments of
qualified sales team and interview of senior management of customers. However, we cannot assure you
that we will finally succeed
6
Table of Contents
in meeting customers' needs in these markets. If we fail to modify our business model or strategy
to adapt to these market changes, our business financial condition and results of operations may
suffer.
(2) We
have continued to incur operating losses and we cannot provide assurance that we can achieve or
sustain profitability.
We have incurred operating losses in the preceding five years as follows:
Year
Operating loss
(in thousands of Rmb)
2001
(12,751
)
2002
(15,105
)
2003
(4,378
)
2004
(10,779
)
2005
(17,886
)
The rapidly evolving Internet market and the newly acquired nutraceutical business in which we
operate have made it difficult for us to estimate our future performance and profitability. We
cannot give any assurances that operating losses will not increase in the future because our
revenues, gross margins and operating results may fluctuate significantly due to, among other
things:
-
our ability to obtain timely and accurate user sales information;
-
the effectiveness of our distribution channel;
-
product upgrading or updating progress by us or our competitors;
-
the mix of products sold;
-
our competitors' price changes;
-
our research and development and marketing abilities;
-
our acquisition costs of new technology or businesses;
-
employee wage pressure arising from increased competition for skilled employees and increased
governmental staff welfare regulations;
-
extraordinary costs incurred for acquisitions or any reductions in work force, if any;
The above factors make predicting revenues more difficult and may adversely affect our performance
and profitability. Although we believe new or additional sales contracts may be entered into in the
future, there is no assurance that these contracts can be successfully executed, or even if
successfully executed, we may not be able to control our costs effectively. The operating results
would be materially adversely affected in case the contracts are not successfully obtained and
costs are not effectively controlled.
(3) We may not be competitive and increased competition could seriously harm our business.
Many of our competitors in the fast growing network and nutraceutical market in China have one or
more of the following advantages over us:
•
Longer operating history;
•
Greater financial, technical, marketing, sales and other resources;
•
Greater profitability in their operations;
•
Superior product functionality in certain areas;
7
Table of Contents
•
Greater name recognition;
•
A broader range of products to offer; and
•
A larger base of customers.
Current and potential competitors have established, or may establish, cooperative relationships
among themselves or with third parties to enhance their products, which may result in increased
competition. As a result of these and other factors, we may be unable to compete successfully with
our existing or new competitors. With China entering into World Trade Organization (WTO), more and
more foreign companies are entering into network and nutraceutical market in China. They also
impose great potential competition to our business.
(4) We may not successfully integrate acquired businesses, products and technologies.
As a component of our business and growth strategy, we intend to acquire companies, products and
technologies that we feel will enhance our business model, revenue base, operations and
profitability. The acquisitions may result in use of significant amounts of cash, dilutive
issuances of common stock, amortization expenses related to certain intangible assets and annual
impairment of goodwill on acquisition, each of these could materially adversely affect our results.
We may also encounter problems in implementing effective controls over acquired businesses,
including:
•
the difficulties of integrating, assimilating and managing the operations, technologies, intellectual property,
products and personnel of the acquired business; including the implementation of controls, procedures, and policies
appropriate for a listed company at the acquired business that prior to acquisition had lacked such controls, policies
and procedures, particularly if the acquired business will exist as a separate line of business of us or as a
subsidiary not wholly owned by us.
•
the diversion of management attention to business concerns of the acquired business from that of our existing operation.
•
declining employee morale and retention issues for employees in the acquired business.
•
the risk of litigation by terminated employees and contractors.
•
our lack of familiarly with other conditions and business practices of the acquired business.
The acquisition implementation process may last longer than one financial reporting period. Any
failure in such implementation may have an adverse effect on our business, results of operations
and financial condition.
(5) We
have experienced deficiencies in our ability to integrate a newly
acquired business.
In
December 2005, after the acquisition of the remaining 49% of
CNT, we proposed to strengthen internal controls at Anji Bio, a 93.67% subsidiary
of Zhejiang Innoessen, the 71.43% subsidiary of the newly acquired CNT. However, we
faced resistance  from Mr. Hu Linfu("Mr. Hu"), the then
general manager of Anji Bio, and Mdm. Chen Shuizhen ("Mdm.
Chan"), the wife of Mr. Hu and
the minority shareholder of Anji Bio (collectively, the "Anji
Buyers"). Consequently, the Anji Buyers refused to provide financial statements and prohibited the
access by staff sent by the Company at the site of Anji Bio. Having reviewed the
situation and expected that the future smooth control of Anji Bio
would potentially cause the Company to incur significant costs, management decided to dispose of our entire interest in Anji Bio and started the
negotiation of disposal with the Anji Buyers. At such time, we also
terminated Mr. Hu as the general manager of Anji Bio. Following the termination
of Mr. Hu, the Anji Buyers filed litigation against Zhejiang Innoessen to the People's
Court of Anji County (the "Anji Court"). In the litigation, the Anji Buyers requested the Anji
Court to rule that the termination of the service of Mr. Hu was
unlawful and further requested the Anji Court to order the Company to
pay Mr. Hu, an economic compensation of Rmb 50,000 for such
unlawful termination. The Company restarted its negotiation with the Anji Buyers in
July 2006 and entered into a memorandum with the Anji
Buyers on July 27, 2006 in relation to the potential disposal of
Anji Bio. (the "Anji
Memorandum") (filed as Exhibit 10.6 hereto). Upon the execution of the Anji Memorandum, Zhejiang
Innoessen and the Anji Buyers mutually applied to the Anji County to delay the litigation.
Our
disputes with the Anji Buyers has had significant effects on our
operations,
including the late submission of financial information to
PricewaterhouseCoopers,
our independent registered public accounting firm which finally
lead to late commencement of our audit and thus the late filing of
this Annual Report. Because of the late filing of this Annual Report, we face the risk of delisting from Nasdaq. We
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may also
face resuming litigation with the Anji Buyers.
We believe that our proposed disposal of Anji Bio will cause us to incur additional capital expenditures because we will need to invest in a new
plant facility to replace the Anji Bio facility in order to enable us
to maintain the Company's productivity. Substantial
legal costs may also be incurred as a result of the litigation with the Anji Buyers in case the final settlement with
the Anji Buyers is not successful.
Currently
the Anji Bio is the main production  base of the Group. In case the
proposed disposal is completed and new plant facility to replace the
Anji Bio facility is not successfully found, we may face the risk
of having no production facility. Our results of operations and financial
conditions may be adversely mutually affected.
(6) We may face risks in retaining current employees.
Many of
our key employees are located in areas and have skills in fields where there is high worker
mobility and work force turnover. The departure of a large number of
our key employees can be disruptive and could
materially adversely impact our business, including our ability of new product development,
existing products upgrading and products sales and marketing.
Currently we do not have employment contracts with our key employees. We expect to rely, and will continue to rely, on a number of key technical and
management employees. We can make no assurance that we will be able
to hire, motivate and retain highly effective key employees. If any of our key employees leave, our business, results of operations and
financial condition could suffer. Besides, we currently do not use our own employees or members of our management team to operate certain of
our operating subsidiaries. Key management at these companies has been in place for several years
and has established solid relationships with their customers. Competition in our industry for
executive-level personnel is strong and we can make no assurance that we will be able to retain the
highly effective executive employees. Although we plan to provide incentives to management to stay
with the acquired business, we have not entered into agreements with them. If such key persons were
to resign we might face impairment of relationships with remaining employees or customers, which
might result in further resignation by employees, and might cause long-term clients to terminate
their relationship with us. Furthermore, we have not entered into any non-competition and
confidentiality agreements with these employees and management. Due to the limited enforceability
of these types of agreements in China, we face the risk that employees of the operating subsidiary
might divulge our protected intellectual property or trade secrets to competitors.
(7) We are subject to risks of excessive reliance on certain significant customers and risks of
non-recurring contracts and cost controls.
For our
network security business, the two largest customers in 2005
accounted for over 38.3% of our
total sales, compared to 79.9 % of its 2004 total sales of the segment. For our nutraceutical
business, the two largest customers in 2005 accounted for over 59.8% of our total sales. Although we
believe that we have maintained good relationships with these customers, we cannot assure you that
we will continue to maintain good relationships with these customers. A loss of one or both of
these customers could have a material adverse effect on our business, results of operation and
financial condition.
Prior to 2004, a substantial portion of our contracts signed by our subsidiary — BBHL were
short-term, individual and non-recurring.  In 2004, we
attempted to improve this situation by seeking longer term
contracts:
(a) On
March 14, 2003, we had
entered into a three years long term contract
with the Legend Group (subsequently renamed the Lenovo Group).
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The sales
to Legend Group amounted to Rmb1.3 million in 2003, Rmb
0.68 million in 2004 and Rmb 2.47 million in 2005, representing
respectively, 15.2%, 58.6% and 38.3% of the revenues of BBHL of the year. The contract with the
Legend Group had expired in March 2006. We are currently negotiating the renewal of the contract
and sales with the Legend Group since the expiry of the old contract are conducted on individual
basis.
(b)
On February 10, 2005, we had entered into a two years'
contract with the Legendsec (Beijing) Limited ("Legendsec")
at exactly the same terms of the Legend Group;
(c)
We acquired Zhejiang Innoessen,
a 71.43% subsidiary of CNT in October 2005 which had an existing long term contract with the
China New Era Health Industry Group Limited ("New Era").
The sales made by our Nutraceutical Operations to New Era in the
2004 and 2005 Period amounted to Rmb1.32 million and Rmb2.86 million,
representing respectively 42.1% and 54.7% of the total revenues of our
Nutraceutical Operations.
We cannot
assure you that these contracts can be maintained successfully or what
level of sales will be generated under these contracts. Any failure in
maintaining the contract could materially and adversely affect the
Company's revenues, Besides, any additional changes in the
contract terms could have material adverse effect on our business,
results of operations and financial conditions.
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(8) We may not be able to keep pace with the rapid technological changes in the market, new
competition, and new product developments.
The markets in which our business are involved are highly fragmented and characterized by ongoing
technological developments, evolving industry standards and rapid changes in customer requirements.
Our success will depend on our ability to:
-
provide a broad range of network security, network management software products and
nutraceutical products;
-
timely develop and introduce new products with technological advances;
-
respond promptly to new customer requirements;
-
comply promptly with evolving industry standards;
-
provide upgrades and updates to users frequently at the lowest costs; and
-
maintain compatibility of our products with popular operating systems and develop products
that are compatible with new or otherwise emerging operating systems.
Our product enhancements or new products may not adequately address the changing needs of the
marketplace. New products with new technological capabilities could replace or shorten the life
cycle of our products or cause our customers to defer or cancel
purchases of our existing products. Our Technology is subject to the
risk of obsolence.
Our product development efforts are impacted by the adoption or evolution of forthcoming industry
standards. As industry standards are adopted or evolve, we may have to modify existing products or
develop and support new versions of existing products. In addition, if an industry standard does
not develop, our products and our competitors' products could be incompatible, which could prevent
or delay overall development of the market for a particular product. If our products fail to comply
with existing or evolving industry standards in a timely fashion, if any in the future, our
business, results of operation and financial condition could be materially and adversely affected.
Our long-term success depends on our ability to upgrade and update existing product offerings,
modify and enhance acquired products and introduce new products, which meet our customers' needs.
Future upgrades and updates may include additional functionality, response to user problems or
address compatibility problems with changing environments. We believe that our ability to provide
these upgrades and updates frequently and at low costs is key to our success. Failure to release
upgrades and updates could have a material adverse effect on our business, results of operations
and financial condition. Our failure to introduce in a timely manner new products that are
compatible with requirements preferred by users would materially and adversely affect our business,
results of operations and financial condition.
(9) We do not intend to pay dividends.
Payment of dividends is within the discretion of our Board of Directors. Our Board of Directors
does not intend to declare any dividends in the foreseeable future, but instead intends to retain
all future earnings, if any, for use in our business operations.
(10) We are subject to risk of computer hackers' attacks.
Following the increase in computer crimes in China, computer hackers may create viruses to sabotage
or otherwise attack our products. Although no such event has occurred or been discovered to date,
the adverse impact arising from any virus sabotage or attacks cannot be ignored. If sabotage or
attacks on our products
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do happen, our customers' computer systems could be seriously damaged. Consequently, our business
will be adversely impacted as a result of our impaired professional image.
(11) Our
subsidiaries are subject to termination.
Our
agreements for our 76% held, 71.43% held and 93.67% held subsidiaries,
respectively BBHL, Zhejiang Innoessen and Anji Bio, provides for an initial term of 50 years, 20
years and 10 years respectively. Following the Anji Memorandum,
upon the completion, Anji Bio may be disposed and thus its term may be
less than the  initial term. In the event the term of agreements is not
extended, the subsidiaries will be dissolved and liquidated pursuant to the provisions of the
applicable law and the applicable  agreements. In
addition, subsidiaries may be
terminated prior to the expiration of the agreements upon the occurrence of certain
events, including without limitation, the inability of the enterprise to conduct its business due
to financial losses or a breach of the agreements by one of the parties.
(12) We
may not be able to adequately control the business of our
subsidiaries. We have experienced integration issues with one of our
subsidiaries.
We may not be as effective in providing and maintaining control over our operating subsidiaries and
their business operations as direct or indirect owners of these businesses. We may not be able to
take control of the operating subsidiary upon the occurrence of certain events, such as the
imposition of statutory liens, judgments, court orders, death or capacity. Furthermore, if the
operating subsidiary fails to perform as required, we will have to rely on the Chinese legal system to
enforce our rights and due to the uncertainties that exist under Chinese Law about the structure of our
organization, there is no guarantee that we will be successful in an enforcement action. In
addition, the Chinese government may propose new laws or amend current laws that may be detrimental to
our current relationships with our operating subsidiaries, which may in turn have a material
adverse effect on our business operations.
We experienced problems
while attempting to integrate Anji Bio as mentioned in the fourth and
fifth paragraphs of the fourth risk factor under the subheading
"Risks-Associated with Our Business". The
delayed preparation of our financial statements and the delayed
filing of our Annual Report and the possible delisting of our common
stock from Nasdaq have resulted from our integration problems with
Anji Bio. The potential disposal of Anji Bio to the Anji Buyers in
accordance with the terms of the Anji Memorandum will likely result
in the incurrence by the Company of additional capital expenditures
in order to
restore its production capacity. In addition, substantial legal costs may result from
litigations with Anji Buyers. As of date we do not have similar
problems with any of our other subsidiaries, however we cannot be
certain that such an incident may not recur.
(13) We
may fail to consummate the settlement with the Anji Buyers.
Pursuant
to the Anji Memorandum dated July 27, 2006, we have to complete the
disposal of the Anji Bio before September 30, 2006. We cannot assure
you that settlement can be completed on time. We may face the
resuming of
litigation and further diversion of our resources in dealing with
the litigations
which eventually may cause material adverse effect on our results of
operations and financial conditions.
(14) We may not be able to successfully implement our growth strategies.
We are pursuing a number of growth strategies, which will require us to introduce more
technological products through partnerships, joint ventures and acquisitions. Some of these
strategies relate to new technological products for which there are no established markets in
China, or relate to technological
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products in which we lack experience and expertise. We cannot assure you that we will be able to
deliver new technological products on a commercially viable basis or in a timely manner, or at all.
Any failure in implementation of our strategies could materially adversely affect our business,
financial condition and results of operations.
(15) We may face difficulties in implementing our acquisition strategy, including identifying
suitable opportunities and integrating them with our existing operations.
As part of our business strategy, we intend to use partnerships and acquisitions to facilitate the
introduction of new service offerings as well as to add capabilities that we do not currently have.
For example, we may consider acquiring or entering into partnerships with firms that specialize in
unique technology where expertise is not easily obtained.
However, our ability to implement this strategy will depend on the availability of suitable
acquisition candidates at an acceptable cost, our ability to compete effectively to attract and
reach agreement with acquisition candidates or joint venture partners on commercially reasonable
terms, the availability of financing to complete larger acquisitions or joint ventures, as well as
our ability to obtain any required governmental approvals. In addition, the benefits of a
partnership, acquisition or joint venture transaction may take considerable time to develop, and
there is no assurance that any particular partnership, acquisition or joint venture will produce
the intended benefits. For example, we may experience difficulties in integrating acquisitions with
our existing operations and personnel. The identification and completion of these transactions may
require us to expend significant management time and resources. Moreover, the partnership,
acquisition and joint venture strategies we pursue could also cause earnings or ownership dilution
to our shareholders' interests, which could result in losses to investors.
(16) Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
We rely on applicable trademark and copyright laws and
confidentiality agreements with our employees, customers, business partners and others to protect
our intellectual property rights in China. We own and
have exclusive licenses to a number of China and foreign patents and patent applications, and
intend to seek additional patents as we deem appropriate. Whether patents will be issued for any
of our pending applications or even if patents are issued, it is uncertain that any claims allowed will
be sufficiently broad to cover our products or to effectively limit competition against us.
Furthermore, any patents that may be issued to us may be challenged, invalidated or circumvented.
Litigation may result from our use of registered trademarks or common law marks and, if litigation
against us were successful, a resulting loss of the right to use a trademark could reduce sales of
our products and could result in a significant damage award. Although we intend to defend the
proprietary rights, policing unauthorized use of proprietary technology and products is difficult.
International operations may be affected by changes in intellectual property legal protections and
remedies in foreign countries in which we do business.
Besides, despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in technological industries are
uncertain and still evolving. In particular, the laws and enforcement procedures in China do not
protect intellectual property rights to the same extent as do the laws and enforcement procedures
in the United States. Moreover, litigation may be necessary in the future to enforce our
intellectual property rights. Future litigation could result in substantial costs and diversion of
our resources, and could disrupt our business, as well as have a material adverse effect on our
financial condition and results of operations.
(17) Because there is limited business insurance coverage in China, any business disruption or
litigation we experience might result in our incurring substantial costs and the diversion of
resources.
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The insurance industry in China is still at an early stage of development. Insurance companies in
China offer limited business insurance products and do not, to our knowledge, offer business
liability insurance. While business disruption insurance is available to a limited extent in China,
we have determined that the risks of disruption, cost of such insurance and the difficulties
associated with acquiring such insurance make having such insurance impractical for us. As a
result, except for directors and officers insurance, employees' compensation insurance and fire
insurance we do not have any other business liability, disruption or litigation insurance coverage
for our operations in China. Any business disruption or litigation might result in our incurring
substantial costs and the diversion of resources.
(18) We are subject to risks of acquisition of new business, products and technologies.
Our
Internet Security and nutraceutical industries are highly competitive.
They have experienced, and are expected to continue to experience, a significant amount of
consolidation. It is one of our growth strategies to acquire or make investments in complementary
companies, products and technologies in future. However, a number of
companies, many of which have greater financial resources, marketing
capabilities and research and development capacities than ours, are
actively engaged in the development of products similar to the
products we produce. These industries are characterized by extensive
and ongoing research efforts. Other competitors may succeed in developing
products superior to those we market. It may be difficult for us to
maintain or increase sales volume and market share due to keep
competiton and
may have a material adverse effect on our financial conditions and
results of operations.
Beside, our acquisitions and strategic investments involve a number of risks and we may not realize the
expected benefits of these transactions. We may lose all or a portion of our investment. Our available cash and
securities may be used to buy or invest in companies or products, which could result in significant
acquisition-related charges to earnings and dilution to our shareholders. Moreover, we may have to
incur or assume the acquiree's liabilities, including liabilities that are unknown at the time of
acquisition, which may result in a material adverse effect on us.
In the
event that the acquiree does not perform as anticipated, we would be required to
incur a significant impairment of goodwill. Any impairment of goodwill may adversely and materially
affect our results of operations and financial conditions.
(19) We may need additional financing.
Our
business currently has limited amounts of capital. The existing
capital is only sufficient for maintaining our current level of
business. As we increase our sales and expand our business or follow
our intended growth strategy
through continuous acquisitions of new businesses, we may need
additional funding sooner than anticipated. We cannot assure
you that such financing would be available on terms satisfactory to us, if at all. If we need to
pay higher than anticipated costs for additional financing, our results of operations or financial
conditions may be materially and adversely affected. Besides, upon new shares issued for financing
or acquisition purposes, interests of existing shareholders will also be diluted.
(b) Risks Associated with China
A substantial majority of our assets are located in China and a substantial majority of our revenue
is derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
(1) We are subject to risks relating to operating a business in China.
We may face foreign competition as a result of China's entry into the WTO.
China formally became a
member of the WTO in 2002. China is required to reduce tariffs and to eliminate other trade
restrictions, which may lead to increased foreign investment and foreign competition in China's
markets from international companies and the impact of which on China's economy and our business
would remain uncertain. The foreign competitors are usually characterized by better research and
development and financial backup who can bear a longer period of net operating loss and have larger
scaled marketing campaign. Even with locally developed products occupying the majority of the
existing market share, we cannot assure you that this strength will be maintained, particularly
when foreign competitors form joint ventures with certain local competitors. Any success in
increasing market share by foreign competitors will materially and adversely affect our business,
results of operations and financial condition.
We may experience foreign currency losses due to fluctuations in exchange rates.
The Chinese
government controls the conversion of the Chinese currency, the Renminbi. We must rely on the
Chinese government's foreign currency conversion policies, which may change at any time, in regard
to our currency exchange needs. In 2005 and 2004, respectively 100% and 40.8% of our total revenue
was received in Renminbi, which is not freely convertible into other foreign currencies. In China,
the government has control over Renminbi reserves through, among other things, direct regulation of
the conversion of Renminbi into other foreign currencies and restrictions on foreign imports.
Although foreign currencies which are required for current account transactions, such as the
payment of dividends to shareholders to foreign invested enterprises such as ourselves, 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. This type of heavy
regulation by the Chinese government of foreign currency exchange restricts certain of our business
operations and a change in any of these government policies, or any other, could further negatively
impact our operations.
In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving effect to any
underlying change in our business or results of operations. For example, due to the recent
devaluation of the U.S. dollar against other reserve currencies, as well as pressure from a number of other governments (including the United States), the Chinese government has indicated
that it may adjust the current rate at which Renminbi-U.S. dollar exchanges are fixed, as well as
reevaluate its decades-old policy of using a fixed-rate regime to govern foreign currency
transactions, although the Chinese government has not committed itself to take any such action
currently. Fluctuations in the exchange rate will also affect the relative value of any dividend we
issue which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar
denominated investments we make in the future.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate
fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our
exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedges may be limited and we may not be
able to successfully hedge our exposure at all. In addition, our currency exchange losses may be
magnified by Chinese exchange control regulations that restrict our ability to convert Renminbi
into foreign currency.
Because a significant portion of our revenue and cash operations are denominated in Renminbi,
fluctuations in exchange rates between U.S. dollars and Renminbi will affect our balance sheet and
earnings per share in U.S. dollars.
Our operations and assets in China are subject to significant political and economic uncertainties.
Changes in laws and regulations, or their interpretation, or the imposition of confiscatory
taxation, restrictions on currency conversion, imports and sources of supply, devaluations of
currency or the nationalization or other expropriation of private enterprises could have a material
adverse effect on our business, results of operations and financial condition. Under its current
leadership, the Chinese government has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no assurance, however,
that the Chinese government will continue to pursue these policies, or that it will not
significantly alter these policies from time to time without notice.
We may have limited legal recourse under Chinese law if disputes arise under our contracts with
third parties.
The Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which decided legal cases have little precedential value. In
1979, the Chinese government began to promulgate a comprehensive system of laws and regulations
governing economic matters in general. The overall effect of legislation over the past 25 years has
significantly enhanced the protections afforded to various forms of foreign investment in China.
However, the laws, regulations and legal requirements are constantly changing, and their
interpretation and enforcement involve uncertainties. These uncertainties could limit the legal
protections available to us and other foreign investors, including you. In addition, we cannot predict the effect of future developments in the Chinese
legal system, particularly with regard to the Internet, including the promulgation of new laws,
changes to existing laws or the interpretation or enforcement thereof, or the preemption of local
regulations by national laws. The Chinese government has enacted some laws and regulations dealing
with matters such as corporate organization and governance, foreign investment, commerce, taxation
and trade. However, their experience in implementing, interpreting and enforcing these laws and
regulations is limited, and our ability to enforce commercial claims or to resolve commercial
disputes is unpredictable. Due to our current business operations, we may be subject to the
implementations, interpretations and enforcement of China's laws by its courts or governmental
agencies in connection with our contracts with third parties. The resolution of any such matters
may be subject to the exercise of considerable discretion by agencies of the Chinese government,
and forces unrelated to the legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an injunction under
Chinese law, in either of these cases, are severely limited, and without a means of recourse by
virtue of the Chinese legal system, we may be unable to prevent these situations from occurring.
The occurrence of any such events could have a material adverse effect on our business, financial
condition and results of operations.
The recurrence of Severe Acute Respiratory Syndrome ("SARS') in China, or similar adverse public
health developments, such as Bird Flu (Avian Influenza), may materially and adversely affect our
business and operating results.
From December 2002 to June 2003, China and certain other countries
experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared
that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new
cases of SARS have been reported, most recently in central China in April 2004. During May and June
of 2003, many businesses in China were closed by the Chinese government to prevent transmission of
SARS. Any recurrence of the SARS outbreak, or a development of a similar health hazard in China,
may adversely affect our business and operating results. For instance, a recurrence of SARS or the
spread out of Bird Flu or any other epidemic in China may reduce the level of economic activity in
affected areas and negatively impact China's economy. In addition, health or other government
regulations may require temporary closure of our offices, which will severely disrupt our business
operations and have a material adverse effect on our financial condition and results of operations.
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(2) Our business may be adversely affected by Chinese government regulations.
Internet Security
China is regulating its Internet sector through new pronouncements and regulations regarding the
legality of foreign investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities offerings by companies
operating in the Chinese Internet sector. There are substantial uncertainties regarding the proper
interpretation of current and future Chinese Internet laws and regulations. Although we believe and
have been advised that many current regulations will not apply to us, we cannot assure that
existing or future regulations will be interpreted differently.
A majority of Chinese laws, regulations and legal requirements governing the Internet are
relatively new and untested, their interpretation and enforcement of what is deemed to be socially
destabilizing by Chinese authorities may involve significant uncertainty. In addition, the Chinese
legal system is a civil law system in which decided legal cases have little precedential value. As
a result, we cannot predict the actions of Chinese legal authorities, particularly with regard to
the Internet and software, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement of local regulations by national laws.
Besides, the interpretation and application of existing Chinese laws and regulations, the stated
positions of the Ministry of Information Industry and the possible new laws or regulations have
created substantial uncertainties regarding the legality of existing and future foreign investments
in, and the businesses and activities of, Chinese Internet businesses. Accordingly, it is possible
that the relevant Chinese authorities could, at any time, assert that any portion or all of our
existing or future ownership structure and businesses violate Chinese laws and regulations. It is
also possible that the new laws or regulations governing the Chinese Internet sector that may be
adopted in the future will prohibit or restrict foreign investment in, or other aspects of, any of
our current or proposed businesses and operations.
Nutraceutical Business
Several government agencies in China regulate the manufacturing, packaging, labeling, advertising,
promotion, distribution, and the sale of nutrition, health, beauty, and weight management
products.
According to the Food and Health Hygiene Law of China, and health dietary supplement is subject to
the inspection by the Center of Inspection of Health Dietary Supplement. The maker of the medicine
needs to obtain approval from the Bureau of Health Dietary Supplement of Department of Drug
Registration.
There is also regulation governing the production and distribution of food ingredients and
additives issued by the Ministry of Public Health of China. The test including intoxication and
safety reports of the health dietary supplement. Manufacturing of health and dietary supplement
must be done by facilities that have passed the inspection of GMP for Health Dietary Supplement.
If we are found to be in violation of any existing or future Chinese laws or regulations, the
relevant Chinese authorities would have broad discretion in dealing with such a violation,
including, without limitation, the following:
-
levying fines;
-
revoking our business license;
-
requiring us to restructure our ownership structure or operations; and
-
requiring us to discontinue any portion or all of our business.
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(c) Risks Related to Our Technology and Product Research and Development
(1) Inspection of Manufacturing Facilities
The China regulatory agencies may periodically inspect our manufacturing facilities and certain
facilities of our suppliers of our nutraceutical business. Such inspections resulted in the
identification of certain minor
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deficiencies. We developed and implemented action plans to remedy the deficiencies. Should these
deficiencies not be remedied to the satisfaction of the regulatory body, product supply could be
affected and our operating results could be adversely affected.
(2) Possible Claims Relating to Products
We could be exposed to possible claims for personal injury resulting from allegedly defective
products manufactured by third parties with whom we have entered into manufacturing agreements or
by us. We do not maintain product liability insurance coverage for claims arising from the use of
our products. Therefore, we could be subject to product liability claims in excess of our financial
ability. Any significant product liability claims not within the scope of our insurance coverage
could have a material adverse effect on us.
(3) We must respond quickly and effectively to new research and developments.
Our businesses are highly dependent on new products. Our failure to maintain the superiority of
our research capabilities or to respond effectively to technological changes could adversely affect
our business, results of operations or financial condition. Our future success also depends on our
ability to enhance products and introduce new products to respond to changing market trends. If we
are unable to successfully develop and bring to market new products in a timely manner, our
competitors' products may render ours noncompetitive or obsolete. Any such event would have a
material adverse effect on our operating results.
(d) Risks Associated with Investing in our common stock.
Stock prices of technological-related companies, particularly companies with business operations
primarily in China, have fluctuated widely in recent years, which could result in substantial
losses to investors.
(1) Our stock price has been and may continue to be volatile.
Our stock price was volatile and ranged from a per-share high of US$14.5 to low of US$1.20 during
the period from January 1, 2005 to August 31, 2006. On August 31, 2006, the closing price of
our common stock was US$3.46 per share. Many factors affect our stock price which we cannot
control. Our ability to meet the expectations of investors with respect to our operating and
financial results may contribute to current and future stock price volatility.
On February 3, 2006, the Nasdaq Stock Market, Inc. halted trading of our common stock at a trading
price of $9.64 requesting "additional information" . The Company provided the additional
information on February 6, 2006 and trading resumed at 2:15 p.m. New York Time on that date. Our
stock price may be adversely affected by the performance and fluctuation of the stock prices of
other technology companies with business operations mainly in China that have listed their
securities in the U.S.
The price and trading volume of our common stock may be highly volatile for business specific
reasons. Factors such as variations in our revenue, earnings and cash flow, announcements of new
investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our
services and technological products could cause the market price for our common stock to change
substantially. Any of these factors may result in large and sudden changes in the volume and price
at which our common stock shall trade. There is no assurance that these factors will not occur in
the future.
(2) Our stock may be delisted from trading on the NASDAQ Stock Market
On July 19, 2006, we received correspondence from the Nasdaq Stock Market indicating that as a
result of our failure to timely file with the Securities and Exchange Commission this Annual Report
on Form 20-F for the fiscal year ended December 31, 2005, we are not in compliance with the Nasdaq
requirements for continued listing set forth in Nasdaq Marketplace Rule 4320(e)(12). Nasdaq
Marketplace Rule 4320(e)(12) requires us to make on a timely
basis all filings with the Securities
and Exchange Commission, as required by the Securities Exchange Act 1934, as amended.
Our securities were subject to delisting from the Nasdaq Stock Market beginning at the opening of
business on July 28, 2006. We have appealled the Nasdaq Staff's determination by requesting a
hearing before the Nasdaq Listing Qualifications Panel, which has delayed the delisting of our
common stock pending the
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Panel's
review and determination. The hearing was
 held on September 7, 2006.  We are awaiting the Panel's
determination.
 There
can be no assurance that the Panel will grant our request for continued listing.
(3) The sale or availability for sale of substantial amounts of our common stock could adversely
affect their market price.
Sales of substantial amounts of our common stock in the public market in future, or the perception
that these sales could occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our common stock.
(4) Rights of Shareholders under British Virgin Islands Law May Be Less Than Those of Shareholders
in U.S. Jurisdictions.
Our corporate affairs are governed by our Memorandum and Articles of Association and by the
International Business Companies Act of the British Virgin Islands. Principles of law relating to
such matters as the validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders differ from those that
would apply if we were incorporated in a jurisdiction within the United States. Further, the rights
of shareholders under British Virgin Islands law are not as clearly established as the rights of
shareholders under legislation or judicial precedent in existence in most United States
jurisdictions. Thus, our public shareholders may have more difficulty in protecting their interests
in the face of actions by the management, directors or controlling shareholders than they might
have as shareholders of a corporation incorporated in the United States jurisdiction.
Under the laws of most jurisdictions in the United States, majority and controlling shareholders
generally have certain "fiduciary" responsibilities to the minority shareholders. Shareholder
action must be taken in good faith and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. British Virgin Islands law protecting the interests of
minority shareholders may not be as protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. In addition, in most United States jurisdictions,
directors owe a fiduciary duty to the corporation and its shareholders, including a duty of care,
pursuant to which directors must properly apprise themselves of all reasonably available
information, and a duty of loyalty, pursuant to which they must protect the interests of the
corporation and refrain from conduct that injures the corporation or its shareholders or that
deprives the corporation or its shareholders of any profit or advantage. Many United States
jurisdictions have enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited. Under British Virgin Islands law, liability of a corporate
director to the corporation is basically limited to cases of willful malfeasance in the performance
of his duties or to cases where the director has not acted honestly and in good faith and with a
view to the best interests of the corporation.
It is unknown whether the courts of the British Virgin Islands would enforce, either in an original
action or in an action for enforcement of judgments of United States courts, liabilities which are
predicated upon the securities laws of the United States.
(5) Compliance with requirements under Section 404 of the Sarbanes-Oxley Act of 2002
Our company will become subject to Section 404 of the Sarbanes-Oxley Act of 2002 in the fiscal year
ending December 31, 2007, and will need to evaluate and test our abilities to comply with the
statute as well as take such remedial actions that may be necessary to ensure our compliance. We
cannot be certain that evaluations, tests and remedial actions will all be timely completed. We
also do not know how compliance with Section 404 of the Sarbanes-Oxley Act of 2002 will affect our
operations.
Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 may present us with
significant challenges. In connection with their audit of our consolidated financial statements as
of and for the year ended December 31, 2005, our independent registered public accounting firm, identified to our management and audit committee certain internal control
deficiencies in our internal control over financial reporting that they considered to constitute
material weakness in our internal control over financial reporting. See the section headed "Item 15
— Controls and Procedures". If up to the fiscal year ending December 31, 2007, we are unable to
effectively implement the measures necessary for our compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, including any remedial actions that are required to address any
internal control weakness already detected by our independent registered public accounting firm,
our auditors may not be able to provide us with an attestation regarding the effectiveness of our
internal control over financial reporting. Even if our management believes that our internal control
over financial reporting is effective, our independent registered public accounting firm may
disagree. In addition, if they are not satisfied with our internal control over financial reporting
or the level at which our controls are documented, designed, operated, reviewed or evaluated, or if
they interpret the relevant requirements, rules or regulations differently from us, then they may
decline to attest to our management's assessment or may issue an adverse opinion.
Any of these possible outcomes may result in an adverse reaction in the financial marketplace
and/or a loss of investor confidence in the reliability of our consolidated financial statements.
We could also become subject to regulatory investigations and sanctions by regulators such as the
Securities and Exchange Commission. We may also be required to incur greater than expected costs to
improve our internal control processes. All of these factors could materially and adversely affect
our business.
Item 4. Information on the Company
A. History and development of the Company.
Our company was incorporated as an International Business Company under the laws of the British
Virgin Islands in September 1995. We previously owned, through our wholly owned subsidiaries, Jing
Tai Industrial Investment Company Limited which was subsequently renamed to BHL Networks Technology
Company Limited ("BHLHK"), and Jolly Mind Company Limited ("Jolly Mind"), both Hong Kong companies,
95% equity interests in each of Linyi Baoquan Bathtub Company Limited ("Baoquan") and Linyi Xinhua
Building Ceramics Company Limited ("Xinhua", and together with Baoquan, the "Disposed Operations").
The Disposed Operations are Sino-foreign equity joint ventures incorporated under the laws of
China. A wholly owned subsidiary of BHLHK, Beijing Taigong Sanitary Wares Company Limited
("Taigong"), was also incorporated in Beijing in 1997 under the laws of China as our administrative
and sales support office of our Disposed Operations.
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Pursuant to certain sales and purchases agreements entered into among BHLHK, Shandong Linyi
Industrial Enamel Joint Stock Company ("Linyi Industrial"), Jolly Mind and Shandong Luozhang Group
Company ("Shandong Luozhang"), on July 2, 1999, BHLHK sold its 60% interests in each of the
Disposed Operations to Shandong Luozhang for cash consideration of Rmb28 million. Pursuant to a
Share Purchase Agreement dated July 2, 1999 entered into between our company and Linyi Industrial,
we sold all of our interest in Jolly Mind, which owned a 35% interest in each of the Disposed
Operations, to Linyi Industrial in consideration of 1,952,291 shares (the "Consideration Shares")
of Common Stock of the Company. Taigong was voluntarily dissolved in March, 2000.
On June 30, 2000, Jingle Technology Co., Ltd., our wholly owned subsidiary incorporated in the
British Virgin Islands, entered into an agreement with China Internet Technology Co., Ltd. ("China
Internet") and Great Legend Internet Technology and Service Co., Ltd. ("Great Legend") to acquire
the entire outstanding shares of BHL Networks Technology Co. Ltd. ("BHLNet"), a company
incorporated under the laws of the Cayman Islands, which owns a 76% interest in Beijing BHL
Networks Technology Co. Ltd. ("BBHL"), a company incorporated under the laws of China.
On October 31, 2005, the Company acquired from Beijing Holdings of the 51% equity interest of the
issued and outstanding stock of CNT and on December 22, 2005, the Company exercised the option to
acquire from Beijing Holdings the remaining 49% equity interest of CNT and close the transaction on
the same day. As a result of closing the transactions, the Company became the shareholder of 100%
equity interest in CNT. CNT currently owns 71.43% interest in Zhejiang University (Hangzhou)
Innoessen Bio-technology Inc. ("Zhejiang Innoessen"), which then owns 93.67% interest in Anji
Science Bio-Product Inc. ("Anji Bio") and 51% in Jian'ou Yingshi Food Technology Ltd ("Jian'ou").
Zhejiang Innoessen is the head office of CNT's research and development and sale and marketing
functions. Anji Bio is currently the manufacturing center and Jian'ou is the newly established
manufacturing base in Fujian, China. CNT also owns 100% of Shenzhen Innoessen Bio-Tech Inc. which
is engaged in sales and marketing of nutraceutical products in South China. CNT was incorporated
in the British Virgin Islands on January 28, 2003.
The following diagram illustrates our corporate and share ownership structure as at August 31, 2006:
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Our registered office is located at P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, BVI.
Only corporate administrative matters are conducted at this office, through our registered agent,
HWR Services Limited. Our principal executive office is located at Room 2413-18, Shui On Centre, 8
Harbour Road, Wanchai, Hong Kong.
B. Business overview.
The Company used to be engaged primarily
in  providing information network security solutions in People's
Republic of China. The Company's certified hardware and software products are used by numerous
Chinese business enterprises, financial institutions and government agencies and have been rewarded
as the leading network security solutions in China. With the acquisition of CNT in 2005, which
develops nutraceutical products utilizing bio-active components of bamboo, the Company has entered the
Chinese nutraceutical market. All sales of the Company are conducted in China . The Company's major
shareholder is Beijing Holdings. As of August 15, 2006, Beijing Holdings was the beneficial holder
of 62.73% of the Company's outstanding shares of Common Stock.
Market Overview
Network Security Business:
The Chinese network security market has grown during the last three years. According to IDC's
recently released China IT Security Product Market Size and Forecast, 2006 – 2010 (2005 Second
Half) (File No.: CN324100N), the 2005 total sales of the IT security market in China amounted to
approximately US$378 million, which was US$15 million higher than that estimated by the IDC in
early 2005. It is also expected that the performance of the China
security market will maintain  a
steady growth rate, with an annual CAGR of approximately 20.9% in the coming five years. It is
estimated that the 2010 total sales will reach US$976 million.
Nutraceutical Business:
According to the statistics from the Market Research Committee of the Association of Health Care of
China, the health dietary supplement market in China is RMB 60 billion with a growth rate of
approximately 20% per annum. There are approximately 2,025 dietary supplement
companies in China. Most of them are small in size. Most of the products are based on traditional
Chinese medicinal and manufacturing processes. Approximately 50% of the market is located in
Beijing, Shanghai, Guangdong, and Zhejiang province.
We believe that the market will continue to grow as more people become concerned with health and
have more disposable income. Following increased urbanization, an estimated 300 million people in
the next 10 years will add constant growth element to the market in cities.
The products are likely to become more scientifically based, have higher potency, and higher value
added to human health. New technology results in new products and result in a change from
traditional methods of production. The functional food market in China is still in its early stage
and is expected to experience high growth with a focus on food ingredients and health dietary
supplement.
Company Overview
The Company was originally engaged in the sanitary wares and ceramic tiles manufacturing business
and transitioned to Internet related business in June 2000, with a specific focus on system
integration services ("SI"). In 2001, the Company phased out the SI business due to strong
competition and low profit margins. As a result, we transformed to a network security service
provider after our acquisition of BHLNet in 2002. Our current business focuses on the network
security and related software development. We stress innovation, reliability, flexibility and
efficiency to ensure a high degree of advancement in technology and commercialization of research
results. We believe the existing market preference of local products and
20
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services, the governmental regulations and our technological advancement will create good market
opportunities for our business.
Upon the acquisition of BHLNet, we
positioned ourselves as a provider of system integration
services, network security and network management solutions. As a
result of our limited investment in research
and development at the initial stage, due to  our difficulties in recruiting qualified
staff and our reliance on a shift of mature technologies from the Institute of Computing Technology
("ICT"), our products were generally similar to those provided by our competitors. In order to be
pioneers in our key markets, we switched our business focus to self-developed security software in
2001 and had established a research and development team formed by experienced research staff
recruited from universities and competitors. This change was proved
to be successful, in particular in
the development of the Intranet / Internet Physical Separation Security Solution (the "IPSSS"), a
unique product which was generally recognized and certified by the relevant government agencies and
had accounted for the majority of the 2002 sales. In 2003, based on the technology backbone of the
IPSSS, we further developed the BHL Information Security Gate System (the "Security Gate"). The
Security Gate enhanced the safe exchange of information between two networks which were completely
physically separated.
The management believed that along with China's tremendous economic growth, there are emerging
industries positioned to become the future growth engine for the new economy. The Company needs to
seize the opportunity of entering into these emerging industries in China. The acquisition of CNT
opened the door for the Company to venture into the nutraceutical industry, which is one of the most
promising industries of the new economy. This industry is expected to have high growth opportunity
as well as above average return on investment. The Company completed the acquisition of the entire
issued share capital of CNT in December 2005 and the Company's management expected the newly
acquired business will contribute to the revenue and profitability of the Company's operation in
the coming years.
The nutraceutical industry in China is still at its early stage of development. China has over 2000
years of history of herbal medicine. Herbal medicine in recent years has become increasing popular
and is playing more important role in healing and enhancing overall wellbeing of human body and
mind. China's 1.3 billion of population with increasing purchasing power presents the largest
growth market for nutraceutical products in the world. The intended acquisition brings cutting edge
technology knowledge, unique products and applications, market experience, industry expertise and
talents, and seasoned management team to the Company, giving the Company a very strong head start
in this industry. The management believes that the Company can leverage its capital market strength
to invest, consolidate and develop nutraceutical related industries in China and to achieve
significant returns.
In 2005
,
the Company began to carry out its investment and acquisition strategy in these two
industries by seeking companies with ownership of leading intellectual properties, proven products,
unique value proposition in the marketplace, profitable, strong management team, and growing
customer base.
Capital Expenditures
For our network security business, there were no significant amounts of capital expenditures
incurred during the past three years. For our nutraceutical business, except for an aggregate
amount of Rmb 2.4 million valued production line, located at the factory site controlled by Anji
Bio, which was purchased but not used, all production lines purchased were assembled and utilized
in our production before CNT was acquired by us in October 2005. The capital expenditures of CNT
incurred for the fiscal years 2003, 2004 and 2005 were, respectively,
approximately Rmb 0.23 million,
Rmb 4.18 million and Rmb 3.08 million. As of December 31, 2005, except as disclosed above, we had no
other capital commitments incurred.
Seasonal sales
The Company is not subject to seasonal fluctuations in its sales.
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Source of raw materials
The major raw materials used in our network security business are computer components such as
integrated circuits and circuits boards. All of these raw materials could be easily purchased from
the open market at competitive price. Besides, we are not subject to shortage of raw materials as
there existed a huge number of suppliers.
For our nutraceutical business, the primary raw material used in our product is bamboo leaf. Bamboo
leaf is purchased annually in the winter of each year from local farmers. There are no recurring
contracts with the farmers.
Description of Products and Services
Network Security Business:
We focus on network security solutions and related products
. They mainly include the Security Gate,
IPSSS, Secure Channel and Secure Server. Our major target customers include large enterprises and
government bureaus, who are less price sensitive and are financially capable to pay. We have
obtained ten certificates as related to our security products from all related government bureaus
in the past three years, which represent their recognition of the validity of our products.
Our most outstanding products in the network security sector include Security Gate and IPSSS. Due
to complicated technical requirements, we believe these products face the lowest competition in the
market and provide us the highest gross profit margin compared to other products in the market.
Security Gate is a newly developed technology. We believe its acceptance by users will expand,
particularly by government agencies. In 2005, we successfully developed the Security Gate
application for the Power Supply Industry. We plan to further focus on the development of a series
of Security Gate applications in future in order to fit the specific requirements of different
industries.
Another service of ours is network management. Network management primarily includes the BHL LDAP
Catalogue Server, BHL Search Engine V2.0, BHL Charging Proxy of Network Expenses and BHL
Re-broadcasting system V2.0. These products are highly efficient, intelligent and provide high
performance in assisting enterprises in increasing the automatic abstraction and classification of
information influx and control of network expenses.
Nutraceutical Business:
The newly acquired subsidiary, CNT, is a leading nutraceutical company in China. CNT has developed
a series of nutraceutical products based on bamboo extracts and other botanical plants.
Scientists at CNT discovered that various parts of bamboo (leaf, bark and shoot) are rich in
bio-active components such as flavonoids, lactones, terpenoids, sterols, and polysaccharides, that
are known to have medical and health benefits. Extractives of bamboo (EOB) made with CNT's
state-of-art biotechnology have multiple applications, as pharmaceutical ingredients, nutraceutical
dietary supplements, and an organic anti-oxidant food additive.
The research and development team of CNT has developed 10 patented applications of bamboo
extractives in nutraceutical and pharmaceutical fields. There are four major product lines based
on the patents: 1) Zhukangning Capsule as a dietary supplement; 2) EOB product series as
pharmaceutical ingredients and functional food additives; 3) AOB antioxidant as a natural food
preservative; 4) EOBS and EOBB product pipeline for applications in medicine and food industries.
Business Strategy
We intend to achieve our business goals primarily through the following strategies:
Expanding distribution channels by cooperating with market leaders
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Since it is costly to establish owned distribution channels, we will cooperate with enterprises
having wide and mature distribution channels in China to enhance easier penetration of our products
into more industrial sectors, through OEM (producing under their brand name) production of their
products. Through the established distribution networks of these large enterprises, we believe we
can penetrate into the market at minimum cost.
In addition, in connection with our nutraceutical business, we plan to target manufacturers of food
and beverages in China. We are working with industry organizations in meat processing, seafood,
canned and preserved food, and fast food to provide research results, product information and their
applications within each industry. We also work with the Ministry of Health and State Food and Drug
Agency to create industry standards which would adopt our product specifications. By making our
products an example of approved industry standards, we may create an entry barrier for competition
and ensure our leading position in the industry.
Strengthen the management team
We plan to invite capable candidates to join our management team, and we have in the last year
appointed new directors and officers. We currently have as advisers financial, operational,
investment and public relation experts, and will in the foreseeable future, focus on the
recruitment of investor relations, marketing and research and development experts. We believe a
strong management team can significantly contribute to the strategic planning and its
implementation to our company.
Acquiring
companies with potential and expansion of product applicability
Following the appointment of our new Chief Investment Officer in May 2005, we have achieved growth
through merger and acquisitions.
In connection with our Internet Security business, we plan to expand our product lines to cover
additional industries. We have successfully developed Security Gate for Power Supply Industry and
plan in the current year to focus on upgrading Security Gate for the Transportation Industry. In
connection with our nutraceutical business, we plan to acquire other
nutraceutical businesses in
China to expand our product lines from bamboo based to other herbal extracts, including tea,
gingko, and soy
.
C. Organizational structure.
We conduct substantially all of our business through BBHL and Zhejiang Innoessen, our respective
76% and 71.43% indirect subsidiaries.
The following table set forth the details of our subsidiaries as at the date of this Annual Report:
Country of
Ownerships
Name
Incorporation
Interests
Direct Parent
BHL Networks
Technology Co Ltd
("BHLHK")
Hong Kong
100
%
China Technology
Development Group
Corporation
Jingle Technology
Co Ltd ("Jingle")
BVI
100
%
China Technology
Development Group
Corporation
BHL Networks
Technology Co Ltd
("BHLNet")
Cayman Islands
100
%
Jingle
Beijing BHL
Networks Technology
Co Ltd ("BBHL")
China
76
%
BHLNet
China Natures
Technology Inc.
("CNT")
BVI
100
%
China Technology
Development Group
Corporation
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Country of
Ownerships
Name
Incorporation
Interests
Direct Parent
Zhejiang University
(Hangzhou)
Innoessen
Bio-technology Inc.
("Zhejiang
Innoessen")
China
71.43
%
CNT
Shenzhen Innoessen
Bio-Tech Inc.
("Shenzhen
Innoessen")
China
100
%
CNT
Anji Science
Bio-Product Inc.
("Anji Bio")
China
93.67
%
Zhejiang Innoessen
Jian'ou Yingshi
Food Technology Ltd
("Jian'ou")
China
51
%
Zhejiang Innoessen
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BHLHK is the cash management vehicle of the Company. BHLNet
and Jingle are investment-holding
vehicles. BBHL specializes in network technology. With network security and information security
technology and support software as its main business, the company has established its brand image
with specialized technology, system products and comprehensive service. The principal technology of
the company include: accreditation and encryption, coding, information protection and testing,
network security technical standard and related technology as well as products and solutions in the
aspect of network information processing.
CNT is currently an investment holding company for our
nutraceutical business. It owns 71.43%
interest in Zhejiang Innoessen, which then owns 93.67% interest in Anji Bio. Zhejiang Innoessen is
the head office of CNT's research and development and sale and marketing functions. Anji Bio is
currently the manufacturing center. Shenzhen Innoessen was established in Shenzhen and was wholly
owned by the CNT. It acted as the sale and marketing office of our nutraceutical business in the
South China.
In January 2006, Zhejiang Innoessen entered into a
joint venture agreement with Fujian Jian'ou Food
Production Limited, pursuant to which, Jian'ou, the 51% subsidiary of Zhejiang Innoessen, was
established as our  additional production center  in Fujian Province, another bamboo rich area
in China. Since early June of 2006, however, the Fujian Province of China had been subject to the worst heavy
rainstorms and floods in the past fifty years, Jian'ou, one of the
cities in the Fujian Province, suffered the most damage. As
a result of this flooding, the production facilities held by Fujian
Jian'ou, having started their trial run in May 2006,
were damaged  and all
operations of Fujian Jian'ou were stopped. Management is in the
process of quantifying the  losses suffered by the Company as a
result of this flood. Management's
preliminary assessment is that the cleanup of the site and restoration of the factory's capability will not be completed
 before the middle of September 2006.
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D. Property, plant and equipment.
Our principal executive office is located at Room 2413-18, Shui On Centre, 8 Harbour Road, Wanchai,
Hong Kong. We signed a month-to-month lease on May 20, 2005, for a period of two years, with
monthly rent of Rmb 33,000.
BBHL leases its office at Room 214-216, Tai Li Min Yuan Office Building, No. 1, Wai Guan Xie
Street, Chaoyang District, Beijing, 100011, China ("Tai Li Min Yuan") at a monthly rent of Rmb
53,000 for a period of two years commencing September 20, 2002. Upon the expiry of the lease
agreement on September 20, 2004, BBHL exercised the option granted by the lease agreement to extend
the lease for an additional one year at the same terms. Due to an increase in number of staff, BBHL
also leased another office at Room 316 of Tai Li Min Yuan, at a monthly rent of Rmb 11,000, for the
period from June 1, 2005 to October 31, 2005. BBHL has
subsequently obtained oral extensions of each of these
 two leases of office space on the   same terms as those contained in the expired leases.
CNT's manufacture facility, Anji Bio, is located at Anji City, Zhejiang Province, one of the top
ten cities in China with the richest bamboo resources. The facility of Anji Bio was approved to
manufacture bamboo flavonoids in March, 1998, by the Department of Health, Zhejiang Province.
There are two production lines controlled by Anji Bio. The older line has an annual production
capacity of ten tons of flavonoids and its current utilization is approximately 50%. The new line
was purchased in 2004. It has an annual production capacity of 50 tons of flavonoids, however, it
has not been used since acquired because our sales growth is lower than expected.
Since their acquisition, we have not to our knowledge violated any environmental laws, ordinances
or regulations, and believe that all of our operations comply fully with applicable environmental
laws.
On July 27, 2006, we entered into the Anji Memorandum with
the Anji Buyers pursuant to which, among
other things, we agreed to dispose Zhejiang Innoessen's equity interest in Anji Bio, the sole
production base of our nutraceutical business. Pursuant to the Anji Memorandum, part of the
consideration for the disposal of Anji Bio's shares will be
settled by the transfer to Zhejiang Innoessen of unused new production
line as mentioned above. In anticipation of the sale, we are in the process of making arrangements
with other producers to service our nutraceutical business. We are in the process of selecting such
potential producers and have identified at least one such producer, subject to final cooperative
agreements pending finalization.
We intend that our flooded production line located in Jian'ou will be used for production
of a new product. Since time is required to repair the line and cleanup the factory site, the launch of this new product
 will be delayed. We have been informed by our engineers, following
their Completion of an  assessment, that the flooded production line can be
 restored to its full function again.
Assuming that the above arrangements are finalized with
 potential producers and the production line is restored to its full function, we believe that physical
facilities are adequate to conduct our business for the next twelve months.
Item 4A. Unsolved Staff Comments
Not applicable.
Item 5 Operating and Financial Review and Prospects
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the financial condition and results of operations should be read in
conjunction with the consolidated financial statements and related notes thereto. The following
discussion contains certain forward-looking statements that involve risk and uncertainties.
Our actual results could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, risks and uncertainties related to
the need for additional funds, the rapid growth of the operations and our ability to operate
profitably in future.
All financial data referred to in the following management's discussion has been prepared in
accordance with U.S. GAAP. Results of operations for the years ended December 31, 2003, 2004 and
2005 refer to our audited consolidated results. U.S. GAAP requires that we adopt the accounting
policies and make estimates that management believe are most appropriate in the circumstances for
the purposes of giving a true and fair view of our results and financial condition. Our principal
accounting policies are set forth in Note 2 to our consolidated financial statements. However,
different policies, estimates and assumptions in critical areas
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could lead to materially different results. Critical accounting policies are defined as those
that are reflective of significant judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. We believe the following critical
accounting policies may affect our judgments and estimates used in the preparation of this
consolidated financial statements: -
Revenue
recognition.
Our revenue includes product sales and the rendering of services. Revenue is generally recognized when all of the following criteria are met (i) persuasive evidence
of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the
sellers' price to the buyer is fixed or determinable, and (iv) collectibility is reasonably
assured. Specially, product sales represent the invoiced value of
goods, net of discounts, supplied to customers. Revenues of product sales are recognized upon delivery to customers and when title has
passed. Rendering of services represent fees charged on the provision of information
technology and network security consultancy services. Fees on such
services are recognized upon the completion of
the underlying services and when collectibility to the fees is reasonably assured.
Impairment.
Annual impairment test for goodwill is carried out in two steps. The first step of the
impairment test which is used to identify potential impairment, compares the fair value of the
reporting unit with its carrying amount, including goodwill. The fair value is determined by the
forecasted discounted net cash inflows of the reporting unit for a period of five years. If the
carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is
considered impaired. The second step of the impairment test quantifies the amount of the
impairment loss by comparing the carrying amount of goodwill to its implied fair value. An
impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair
value. Goodwill must be tested for impairment at least annually, or more frequently if warranted.
The Group has performed the required impairment test for 2005 and no impairment loss was
identified.
The carrying value of a long-lived asset is considered impaired by the Group when the
anticipated undiscounted cash flow from such asset is less than its carrying value. If an
impairment is identified, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk involved or based
on independent appraisals.
Long-lived assets, including certain identifiable intangibles with finite-lives, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable.
27
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Recent accounting pronouncements.
In
December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS No.
123R"). This statement is a revision to SFAS No. 123 and supersedes APB Opinion No. 25. This
Statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, and addresses transactions in which an entity obtains
employee services in share-based payment transactions. Entities are required to measure the cost of
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite service period (usually the
vesting period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the original award
immediately before the modification. This statement is effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. In accordance with the
standard, the Group is required to adopt SFAS No. 123R effective January 1, 2006.
Upon adoption, the Group has two application methods to choose from: the modified-prospective
transition approach or the modified-retrospective transition approach. Under the
modified-prospective transition method the Group would be required to recognize compensation cost
for share-based awards to employees based on their grant-date fair value from the beginning of the
fiscal period in which the recognition provision are first applied as well as compensation cost for
awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain
unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required.
Under the modified-retrospective transition method, the Group would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No. 123. Under this method, the Group is permitted to apply this presentation
to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The
Company plans to adopt SFAS No. 123R using the modified-prospective transition method. Although the
Group is currently evaluating the impact of this Standard, it is
expected that the adoption may
not have a significant impact on the results of operations and financial position.
Subsequently
in August, October and November 2005, the FASB released  Staff
Position ("FSP") 123(R)-1, "Classification and Measurement of Freestanding
Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R)," FSP123(R)-2,
"Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)" and
FSP 123(R)-3, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards."
Additionally, on February 1, 2006, the FASB issued FSP 123(R)-4, "Classification of Options and Similar Instruments Issued as Employee Compensation
That Allow for Cash Settlement upon the Occurrence of a Contingent Event." The FSPs clarify certain accounting provisions
set forth in SFAS No. 123(R). The requirements and guidance prescribed in
SFAS No. 123(R), Staff Accounting Bulletin No. 107 and the FSPs is
effective in 2006. The Group considers that the adoption of SFAS No. 123R will not have significant impact on its financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" (SFAS
No. 154"), which was a replacement of APB Opinion No. 20 and FAS No. 3 effective for accounting changes
made in fiscal years beginning after December 15, 2005. SFAS No. 154 requires restrospective
application to prior periods' financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. It also requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change.
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SFAS
No. 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting estimate effected by a change in
accounting principle. The Company does not expect the adoption of SFAS No. 154 on January 1, 2006
to have a material impact on its results of operations and financial condition.
In November 2005, the FASB issued FSP FAS115-1 and FAS 124-1, which nullifies certain provisions of EITF Issue 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments", and completely supersedes EITF Topic D-44,
"Recognition of Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value", addresses (1)
determining when an investment should be considered impaired, (2) determining whether an impairment should be deemed other than temporary,
and (3) measuring impairment loss. FAS 115-1 and FAS 124-1 are
effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company
does not expect the adoption of FAS 115-1 and FAS 124-1 on January,
2006 will have a significant effect on its financial statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets—An Amendment of FASB Statement No. 140" ("SFAS") No. 156. SFAS No. 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006, which for the Group will be as of the beginning of fiscal 2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes" ("FIN 48"), which is an interpretation of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS No. 109 and prescribes a
recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective
as of the beginning of an entity's first fiscal year that begins after December 15, 2006, which for the Group will be as of the
beginning of fiscal 2007. The Company does not believe that the
adoption of FIN48 will have a significant effect on its financial statements.
A.
Results of Operations
The following table presents selected statement of operations data and such data expressed as a
percentage of net sales for the years ended December 31, 2003, 2004 and 2005.
(Amounts in thousands, Rmb)
2003
2004
2005(Note 1)
Percentage
Percentage
Percentage
of Net
of Net
of Net
Amount
sales
Amount
sales
Amount
sales
Net sales
8,405
100
%
2,720
100
%
7,503
100
%
Cost of sales
4,421
52.6
%
1,394
51.3
%
3,290
43.8
%
Gross profit
3,984
47.4
%
1,326
48.7
%
4,213
56.2
%
Selling, general and
administrative
expenses
8,362
99.5
%
7,768
285.6
%
21,971
292.8
%
Impairment of
goodwill
—
—
4,337
159.4
%
—
—
Bad debt expense
—
—
—
—
(128
)
1.8
%
Operating loss
(4,378
)
(10,779
)
(17,886
)
Interest income
119
243
302
Finance cost
—
—
(11
)
Non-operating income
2,310
167
276
Non-operating
expenses
—
—
—
—
Income tax provision
(249
)
—
(9
)
Minority interests –
continuing
operations
890
—
712
Loss from continuing
operations
(1,308
)
—
(10,369
)
—
(19,244
)
Discontinued
operations
Income/(loss) from
discontinued
operations
366
254
(288
)
Net loss for the year
(942
)
(10,115
)
(19,532
)
Note
1:
The results for the fiscal year ended December 31, 2005 included:
(1) the results for the period from November 1 to December 31, 2005 of our newly acquired CNT and
its subsidiaries including Zhejiang Innoessen Anji Bio and Shenijhen
Innoessen;
(2) the results for the period from January 1 to March 31, 2005 of the Zhuhai branch of BBHL which
was disposed on March 31,2005; and
(3) the results for the period from January 1 to December 31, 2005 of the remaining operating units
of BBHL and the Company and our other subsidiaries including Jingle, BHLHK and BHLNet.
The operating results for the years ended December 31, 2003 and 2004, together with the operating
results from January 1 to March 31, 2005 of the Zhuhai branch
disposed off (which represented the entire service rendering business
segment of the Company) were grouped into the line of
"Income/(loss) from discontinued operations". A description of the disposal is also included in
this Management Discussion and Analysis section (the "MD&A") and this is referred to as "Disposed
Section" in this MD&A.
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Table of Contents
The newly acquired CNT and its subsidiaries will be referred to as the CNT group in this MD&A.
The remaining operating units of BBHL, excluding the disposed Zhuhai branch, will be referred to as
the "IT Operation" in this MD&A.
The
Company, Jingle, BHLHK and  BHLNet  will be collectively referred to as "Corporate Office" in
this MD&A.
Year ended December 31, 2005 compared to year ended December 31,
2004.
Revenues.
Revenues increased by Rmb4.78 million, or 175.8%, from Rmb2.72 million of the year ended
December 31, 2004 (the "2004 Period") to Rmb7.5 million of the year ended December 31, 2005 (the
"2005 Period"). The CNT group contributed a total revenues
of Rmb 1.03 million for the 2005 Period
after it was acquired by the Company. Excluding this, the revenues of the IT Operations increased
by Rmb3.75 million, or 137.8%, from Rmb2.72 million, which of the 2004 Period to Rmb6.47 million of the
2005 Period. The increase was primarily due to: (1) the resumed
contract with the Legend Group, which increased the revenues earned from this customer by Rmb1.79 million,
 or 260.6%, from Rmb0.68 million of the 2004 Period to
Rmb2.47 million of the 2005 Period;. (2) the addition of one large
 customer in the 2005 Period, namely Wuxi Jiangnan Computing Research
Center ("Wuxi Jiangnan"), which contributed Rmb1.39 million to
our revenues; and (3) an increase in smaller sales contracts with
other customers as a result of the increased acceptance of our products in the market.
Cost
of sales.
Cost of sales increased by Rmb1.90 million, or
136.0%, from Rmb1.39 million of the
2004 Period to Rmb3.29 million of the 2005 Period. The cost of sales
of the CNT group amounted to Rmb0.80
million after it was acquired by the Company. Excluding this, the cost of sales of the IT
Operations amounted to Rmb2.49 million, which was increased by
Rmb1.10 million, or 78.6%, from
Rmb1.39 million of the 2004 Period. The increase in cost of
sales of the IT Operations was in line with the increase in net sales, however, the percentage
increase was less than that of the net sales, as the majority of sales of the 2005 Period
represented sales of self-developed products for which we had more effective control on material costs.
Gross
profit.
Gross profit increased by Rmb2.88 million, or 217.7%, from Rmb1.33 million of the
2004 Period to Rmb4.21 million of the 2005 Period. The gross profit of the CNT group amounted to
Rmb0.23 million. Excluding this, the gross profit for IT
Operations amounted to Rmb3.98 million,
which was increased by Rmb2.65 million, or 200%, from
Rmb1.33 million of the 2004 Period. As a percentage of sales,
the gross profit margin of the IT Operations increased by 12.7% from
48.8% of the 2004 Period to 61.5% of the 2005 Period. The significant
increase was mainly due to an increase in the  proportion to 60% of revenues
generated in the 2005 Period from large customers such as the Legend
Group and Wuxi Jiangnan whose gross profit margin is between 68% and
72%, as compared to the proportion of 30% of the Company's revenues generated from the
 Legend Group in the 2004 Period whose gross profit margin was 74%.
Excluding these large customers, the gross profit margin of the
Company's remaining revenues during the 2005 Period was
approximately 49%, which represented an increase of approximately 9%,
from the Company's gross profit margin of 40% of the 2004 Period.
Selling, general and administrative expenses.
Selling, general and administrative expenses
increased by Rmb14.2 million, or 182.8%, from
Rmb7.77 million of the 2004 Period to Rmb21.97
million of the 2005 Period.
The increase in selling, general and administrative expenses was as a result of the following:
(1)
salaries and benefits increased by Rmb6.75 million, or
215.1%, from Rmb3.14 million of the
2004 Period to Rmb9.89 million of the 2005 Period. The salaries
and benefits of the CNT group incurred since acquired amounted to
Rmb0.19 million. Excluding this, the salaries
and benefits of our IT operations and Corporate Office were increased
by Rmb6.56 million, or
208.9%, from Rmb3.14 million of the 2004 Period to Rmb9.70 million of the 2005 Period. The
increase was due primarily to significant increase in headcounts during the 2005 Period.
The increase could be further segmented as follows:
(i) salaries
and benefits of IT Operations increased by Rmb1.77 million, or
67.6%, from
Rmb2.62 million of the 2004 Period to Rmb4.39 million of the 2005 Period, the increase was in
line with our increase in headcounts from 37 employees during the 2004 Period to 63
employees during the 2005 Period;
(ii) salaries
and benefits of our Corporate Office increased by Rmb
4.79 million, or 921.2%,
from Rmb 0.52 million of the 2004 Period to Rmb
5.31 million of the 2005 Period. The significant increase was
primarily due to: (a) an amount of Rmb2.48 million, being the
difference between the exercise price and market price of options
granted to the newly appointed chairman and CEO in the 2005 Period,
was recognized as staff costs; and (b) the size of our Corporate
Office team was expanded in the 2005 Period which included newly created
co-Chief Executive Officer positions. An aggregate of eight employees were newly recruited,
including two Co-CEOs and a Chief Scientist.
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(2)
Rental charges increased by Rmb0.65 million, or 160.4%,
from Rmb0.40 million of the 2004
Period to Rmb1.05 million of the 2005 Period. The rental charges incurred by the CNT group in
the 2005 Period amounted to Rmb0.10 million. Excluding this, the rental charge was increased
by Rmb0.55 million, or 136.4%, from Rmb0.41 million of the
2004 Period to Rmb0.95 million of
the 2005 Period. The increase was mainly caused by:
(a)
a new office was rented in May 2005 in Hong Kong to accommodate the increase in
headcount of our Corporate Office, thus leading to additional rental charges equal to Rmb0.3 million
during the 2005 Period, compared to free use of office of the Beijing Holdings by
the Company in the 2004 Period.; and
(b)
additional office space was rented for our IT Operations in June 2006,
leading to increased rental expenses of Rmb0.25 million in the 2005 Period.
(3)
Audit fees increased by Rmb1.16 million, or 190.0%, from Rmb0.61 million of the 2004
Period to Rmb1.77 million of the 2005 Period, due primarily to increased audit work caused
by increased activities of the Company.
(4)
Legal and professional fees increased by
Rmb3.58 million, or 334.6%, from Rmb1.07
million of the 2004 Period to Rmb4.65 million of the 2005 Period. The significant increase
was mainly due to:
(a)
Fees of Rmb0.84 million were incurred in the 2005
Period in connection with the Company's pre-acquisition
assessment of the CNT group. These fees included Rmb0.52 million for valuation,
Rmb0.5 million for legal issues and Rmb0.34 million for independent audit;
(b)
A retainer fee of Rmb1.94 million was incurred in the
2005 Period in consideration for the non-exclusive advisory services performed by Ivory Capital Asia
Pte. Ltd. to assist the Company in raising up to US$20 million;
(c)
A fee of Rmb0.69 million was accounted for in the 2005
Period as the fair value of the
options granted to certain consultants recruited by the Company to provide
capital market advisory services to the Company;
(d)
A consultants fee of Rmb0.60 million was incurred by BBHL relating
to various sub-contractors for testing and post-sale maintenance services of the
Security Gate.
(5)
Traveling and entertainment expenses increased by
Rmb0.40 million, or 95.3%, from Rmb
0.43 million of the 2004 Period to Rmb0.83 million of the 2005 Period. The CNT group
contributed Rmb0.11 million of the traveling and entertainment expenses of the 2005 Period.
Excluding this, traveling expenses of our IT Operations and Corporate
Office were increased
by Rmb0.29 million, or 68.5%, from Rmb 0.43 million of the
2004 Period to Rmb0.72 million of
the 2005 Period, due primarily to more frequent travel for acquisition of the CNT group and
promotion of our business;
(6)
Amortization charge of intangible assets of Rmb0.22 million was incurred in the 2005
Period, being the amortization of the extraction of bamboo flavonoids and its application
patents of the CNT group incurred for the period from November 1 to December 31, 2005.
(7)
Depreciation charge was increased by Rmb0.3 million, or
375.0%, from Rmb0.08 million of the
2004 Period to Rmb0.38 million of the 2005 Period, due primarily to increased fixed assets as
a result of the acquisition of the CNT group.
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Table of Contents
Bad
debt.
Due to its long outstanding nature, bad debt of Rmb0.13 million had been accounted for
in the 2005 Period, which mainly represented unrecovered advances to ex-staff and trade receivables
of BBHL.
Non-operating
income.
Non-operating income increased by Rmb0.11 million,
or 65.3% from Rmb0.17
million of the 2004 Period to Rmb0.28 million of the 2005 Period. The non-operating income mainly
represented Rmb 0.11 million of dividend
income received by  Corporate Office in Hong Kong and
Rmb0.16 million of subsidies from government in respect of a
research project.
Non-operating
expense.
Non-operating expense of Rmb 2.63 million mainly
represented the realization of Rmb2.60 million of the
accumulated unrealized losses of our available-for-sale securities
upon our disposal of such securities in the 2005 Period. These
unrealized losses were reflected in previous years' comprehensive
income/loss.
Loss from discontinued operations.
On March 31, 2005, BBHL had entered into agreement with Beijing
Enterprise Development Corporation ("BEDC"), the shareholder of China Internet Technology Company
Limited, the then 17.21% shareholder of the Company, to dispose its Zhuhai branch, at a cash consideration
of Rmb1.3 million. The loss from discontinued operation
represented: (1) net income of Rmb0.22 million, being
the operating income of the Disposed Section up to the effective date of disposal, which
represented the net effect of the revenues of Rmb1.04 million
less the cost of sales and selling,
general and administrative expenses of Rmb0.68 million
and
Rmb0.14 million respectively, and (2) loss of Rmb0.51
million, being the net loss of net assets of the Disposed Section disposed by the Company.
Net
loss.
Net loss for the 2005 Period was Rmb 19.53 million, an
increase of Rmb 9.42 million, or
93.1%, from Rmb 10.11 million of the 2004 Period.
Year ended December 31, 2004 compared to year ended December 31, 2003.
Revenues.
Revenues decreased by Rmb5.69 million, or 67.6%, from Rmb8.41 million of the year ended
December 31, 2003 (the "2003 Period") to Rmb2.72 million of the year ended December 31, 2004 (the
"2004 Period"). The decrease was mainly attributable to the restructuring exercise undertaken by
the Legend Group, the largest customer of the IT Operations, during the year, which led to
cessation of revenue from it in the second and third quarters of the 2004 Period.
Cost of sales.
Cost of sales primarily represented the direct material costs of our self-developed
products sold to customers. Cost of sales of decreased by Rmb 3.03 million, or 68.5%, from Rmb 4.42
million of the 2003 Period to Rmb 1.39 million of the 2004 Period. The decrease in cost of sales
was mainly due to the decrease in net sales.
Gross
profit.
Gross profit decreased by Rmb2.66 million, or 66.7%, from Rmb3.99 million of the 2003
Period to Rmb1.33 million of the 2004 Period. As a percentage of sales, gross profit of IT
Operations increased by 1.4%, from 47.4% of the 2003 Period to 48.8% of the 2004 Period. The gross
profit remained stable for the 2003 and 2004 Period.
Selling, general and administrative expenses.
Selling, general and administrative expenses
decreased by Rmb0.59 million, or 7.1%, from Rmb8.36 million of the 2003 Period to Rmb7.77 million
of the 2004 Period.
The decrease in selling and general and administrative expenses was mainly due to the following
factors:
(1)
Amortization of intangible assets and software development costs of our IT Operations
decreased by Rmb1.09 million, or 100%. No amortization of intangible assets and capitalized
software development cost were made for the 2004 Period as it had been fully amortized in the
2003 Period.
(2)
Depreciation charge decreased by Rmb0.4 million, or 84.2% from Rmb0.48 million of the 2003
Period to Rmb 0.08 million of the 2004 Period because most of the fixed assets had been fully
depreciated in prior year.
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(3)
Legal and professional fee increased by Rmb0.3 million, or 38.2%, from Rmb0.77 million of the
2003 Period to Rmb1.07 million of the 2004 Period, which was mainly due to increase in legal
services incurred by our Corporate Office for our proposed registration of the Company's 2000
stock option plan with the SEC and providing advice in respect of restrictions applicable to
exercise of options.
(4)
Insurance expenses of our Corporate Office increased by Rmb 0.42 million, or 165.7, from Rmb
0.25 million of the 2003 Period to Rmb0.67 million of the 2004 Period. The increase was mainly
due to the increased amount of our directors and officers insurance.
(5)
Audit fee increased by Rmb0.13 million, or 27.9%, from Rmb0.48 million of the 2003 Period to
Rmb0.61 million of the 2004 Period, due primarily to the increased workloads of our
independent registered public accounting firm.
Impairment
of goodwill.
The goodwill recognized before the 2005 Period was attributable to the
purchase of BHLNet in 2000, and which was subject to an annual impairment test. The annual
impairment test was performed based on a comparison between the fair value, which was determined by
the forecasted discounted net cash inflow and our carrying amount of
each of the reporting units. In the 2004 Period, an assessment for impairment was carried out after the annual forecasting
process. In view of the underperformance of the IT Operations, the earning forecast was revised to
a lower level. Based on the revised forecast, the present value of future cash flow of the IT
Operations was lower than the carrying value of goodwill and therefore, a goodwill impairment loss
of Rmb4.34 million was reported.
Non-operating income.
Non-operating income decreased by Rmb 2.14 million, or 92.8% from Rmb2.31
million of the 2003 Period to Rmb0.17 million of the 2004 Period. The decrease was mainly due to
the net combined effect of the following:
(1)
decrease of Rmb1.9 million, or 95%, from Rmb2 million of the 2003 Period to Rmb0.1 million of
the 2004 Period, of realized gain on available-for-sale securities;
(2)
decrease of Rmb0.23 million, or 77.3%, from Rmb0.30 million of the 2003 Period to Rmb 0.07
million of the 2004 Period, of dividend income from marketable securities.
Income from
discontinued operations
. This represented the net operating gain
of the Disposed Section in the 2004 Period, which comprised revenues of Rmb3.95 million, less cost of sales,
selling, general and administrative expenses and impairment of goodwill of, respectively, Rmb2.76
million, Rmb0.53 million and Rmb0.41 million, resulting in a net operating gain of Rmb0.25 million.
The revenue of the 2004 Period was Rmb3.95 million, which was increased by Rmb0.61 million, or
18.3%, from Rmb3.34 million of the 2003 Period, due primarily to increase in number of professional
technicians requested by customers. The cost of sales of the 2004
Period was Rmb2.76 million, which
was increased by Rmb0.55 million, or 25%, from Rmb2.21 million of the 2003 Period, due primarily to
increase in discount given to the customers of the discontinued operations, as a term of the
customer's promising headcount increase in the 2004 Period.
Net loss. Net loss for the 2004 Period was Rmb10.11 million, an increase of Rmb9.17 million, or
973.8%, from Rmb0.94 million of the 2003 Period.
Taxation
Our Company, CNT and Jingle were incorporated under the laws of the British Virgin Islands (BVI),
and under current BVI law, are not subject to tax on income or capital gains as we did not carry
out business in BVI.
BBHL, Zhejiang Innoessen and Shenzhen Innoessen are all Sino-foreign joint ventures
established in China. Pursuant to the applicable PRC income tax laws, they are fully exempt from
the PRC state income tax for two years, starting from the first profit-making year followed by a
50% reduction over the ensuing three years ("tax holidays"). BBHL and Zhejiang Innoessen and Anji Bio
incurred losses since their incorporation, and therefore, the tax holidays were not started.
33
Table of Contents
BHLHK is subject to taxation in Hong Kong. Since no estimated net assessable profit is recognized
for the 2005 Period , no tax provision is made for BHLHK. There was also no tax provision made for
the 2004 Period because no net assessable profit was recognized. For the fiscal year ended December
31, 2003, a tax provision of Rmb0.25 million was incurred for net assessable profit estimated for the
year.
In the Cayman Islands, there are no taxes other than import duties and stamp duty (at certain
occasions). Therefore, BHLNet is not subject to taxes in the Cayman Island.
B.
Liquidity and capital resources
Cash flows and working capital
We have neither engaged in any form of off-balance sheet arrangement/ relationships with
unconsolidated entities or other persons that are reasonably likely to affect materially liquidity
and the availability of or requirements for capital resources, nor any trading activities that
include non-exchange traded contracts accounted for at fair value. Except for the operating lease
commitment, as fully disclosed in the financial statements, we are not involved in any kind of
other commitments, both expressed or contingent, which may cause us to make future payments under
contracts.
Our
cash and cash equivalents on hand as of December 31, 2005 was
Rmb18.32 million, which increased
by Rmb13.07 million from Rmb5.26 million at the beginning of the year.
The
net cash outflow of the operating activities of the 2005 Period was
Rmb18.16 million, which
increased by Rmb15.15 million, or 503%, from an outflow of Rmb3.01 million of the 2004 Period. The
increase in net cash outflow of the 2005 Period was mainly due to increase in the selling, general
and administrative expenses.
The
net cash inflow of the investing activities of the 2005 Period was
Rmb28.20 million, which
increased by Rmb27.34 million, or 3,160.6%, from the net cash inflow of Rmb0.86 million of the 2004
Period. The significant increase in net cash inflow of the 2005
Period, was mainly due to the combined effects of: (1)
withdrawal of Rmb6.76 million of funds previously kept in securities house; (2) withdrawal of
Rmb10.08 million of funds previously held by Beijing Holdings and Beijing Holdings Investment
Management Center ("BIMC"), a 100% subsidiary of Beijing Holdings incorporated in China, for
security investment purpose; (3) proceeds of Rmb12.51 million received from disposal of
available-for-sale securities; (4) cash of Rmb0.35 million
disposed of upon disposal of our discontinued operations; and
(5) outflows of Rmb0.88 million arising from purchases of
property, plant and equipments.
As of December 31, 2005, after deducting the total liabilities from the cash and cash equivalents
("net cash balance"), we had a net cash balance of
Rmb4.70 million, which increased by Rmb5.95
million from a cash deficit of Rmb1.25 million of the 2004 Period. We believe that we have enough
cash resources to sustain our operation for the next twelve months.
Capital resources
There was no significant capital expenditures incurred for the years ended December 31, 2003, 2004
and 2005.
We do not have a fixed plan of capital expenditure for the year
ending December 31, 2006. The Capital expenditures increased up
to the date of this Annual Report, however, amounted to
Rmb0.60 million as part of our share capital injected into Fujian
Jian'ou. Capital expenditures in the 2004 and 2005 Periods have been funded through our retained cash.
We believes our current cash and cash equivalents will be sufficient to meet our anticipated cash
needs, including for our working capital needs, for the foreseeable future. We may, however,
require additional cash resources due to changes in business conditions or other future
developments. If these sources are insufficient to satisfy our cash requirements, we may seek to
sell debt securities or additional equity securities or obtain a credit facility. The sale of
convertible debt securities obligations or additional equity securities could result in additional
dilution to our shareholders. The incurrence of indebtedness would result in debt service
obligations and could result in operating and financial covenants that would restrict our
operations. We cannot assure you that financing will be available in amounts or on terms acceptable
to us, if at all.
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From
time to time, we also evaluate potential investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or
conduct a investment. As a result
of the above possible actions, we may need to obtain additional funds through issuance of new
equity or debt. Again, we may have to seek additional financing sooner than currently anticipated
and there can be no assurance that we would be able to obtain additional financing on terms
acceptable to us.
C.
Research and development, patents and licenses, etc.
Network Security Business:
We acquired, through BBHL, a technological platform for the development of Internet security
devices from ICT of the CAS at a cash consideration of Rmb 4 million in 2000. This intangible asset
had been fully amortized in 2003. Subsequent to that, we did not incur significant expenses in
acquiring techniques but had maintained a research and development team to upgrade the existing
products and all costs of which had been recorded as expenses in the consolidated statement of
operations when incurred.
Nutraceutical Business:
Our major research and development section for bamboo-related products is in Zhejinag Innoessen,
which is affiliated to Zhejiang University, China's third largest university. Professor Ying Zhang
is the section leader and, also, our Chief Scientist, with a team consisting of experienced
scientists and graduate students. The research facility of Zhejiang Innoessen includes one
analytical laboratory and a medium scale production facility for plant leaf extraction. The R&D
team has been utilizing the extensive research resources within Zhejiang University, including one
analytical laboratory and one pilot plant, and the outside research institutes such as Zhejiang
Disease Control Center, Zhejiang Academy of Pharmaceutical, etc, to perform the world-class
research and experiments. Their study on bamboo extractives has been
published in numerous Chinese
and international research journals, which has established Dr. Zhang as one of the international
authorities in the field of biochemical utilization of bamboo.
Over the past eight years, Dr. Zhang and the R&D team had filed in China ten patents on the
chemical components, preparation techniques, and the nutraceutical applications of bamboo
extractives. As of December 31, 2005, three out of the ten filed patents had been approved by the
State Department of Health in China and had been applied in manufacturing Bamboo Flavonoid Powder,
Zhukangning Capsule and Bamboo Health Beer.
The R&D team works closely with Anji Bio for technical trouble shooting and the scale-up
manufacturing of each new product and its procedure. The team has developed analytical testing
methods for the Quality Control Laboratory of Anji Bio, and provided technical support for the
manufacture.
The ten patents filed in China are:
Preparation method of flavonoid concentrate and powder from bamboo leaves.
This patent was filed on March 17, 1998 and was granted in year 2001. This invention claims a
manufacturing procedure of extracting flavonoids from plants, particularly from bamboo leaves, to
prepare flavonoids concentrate or powder. Using bamboo leaves as raw material, after going through
extraction, separation, concentration, refining, or drying process, a product is obtained that
contains highly concentrated bamboo leaf flavonoid glycosides, phytophenolic
acidsanthraquinones-tertene lactones, etc. This preparation has excellent properties of
antioxidation, free radical scavenging ability, and can lower blood lipids. It carries an original
bamboo fragrance which can be used widely in various anti-ageing health food and as pharmaceutical
ingredients.
A health beer fortified with bamboo leaf flavonoids.
This patent was filed on March 17, 1998 and was granted in year 2000. This patent claims a food
technology, is about a health beer fortified with bamboo leaf flavonoids. This health beer is made
by adding a certain amount of bamboo leaf flavonoids into regular beer. The health beer, besides
its nutrition and flavor of a beer, has many health functionalities including scavenging free
radicals and liposome peroxidation residues, improving brain metabolism, lowering blood lipid, etc.
In addition, the beer has an original refreshing fragrance of bamboo.
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The composition, preparation and application of total triterpenoid sapogenins isolated from bamboo.
This patent was filed on December 12, 2002 and was granted in June 2006. PCT international patent
(PCT/CN03/00309) and patent applications for Japan, USA and Europe were also filed. The invention
provides compositions, preparation methods and applications of total triterpenoid sapogenins
isolated from bamboo. The extract in this invention has many kinds of excellent physiological and
pharmacological activities such as anti free radical, anti-oxidation, anti-tumor and
anti-hypertension. It has a great potential for the preparation of cardiovascular disease prevention
and the development of drugs and health food. Meanwhile, it can be applied in the field of daily
cosmetics.
Application of total flavonoids of bamboo leaf as an anti-aging and skin-care factor in cosmetics.
This patent was filed on March 3, 2003 and PCT international patent (PCT/CN2004/000136) was also
filed. This invention provides an application of bamboo leaf flavonoid in cosmetics, the purpose of
which is to provide the cosmetic industry with a natural anti-aging skin-care factor from a plant.
Total flavonoids of bamboo leaf has multiple functions including scavenging free radicals,
anti-oxidation, irradiation protection, anti-bacteria, enhancing multiplication of skin cells, skin
oxidization damage prevention, decreasing synthesis of melanin delaying senescence of skin, etc.
The flavonoid preparation can be applied to nutrition lotion, sunscreen lotion, anti-wrinkle cream,
face cleansing cream, shampoo, bath gel and many other personal care cosmetics.
Application of total flavonoids of bamboo leaf as preventive medicine and functional foods against
prostate disease.
This patent was filed on March 25, 2003 and PCT international patent (PCT/CN2004/000531) and patent
applications for Japan and USA were also filed. This invention provides an application of total
flavonoids of bamboo leaf as preventive medicine and functional foods against prostate disease.
This invention provides an effective plant extractive, the total flavonoids of bamboo leaf, with
abundant resources, safe to use, and highly effective.
Bamboo leaf antioxidant and its use.
This patent was filed on October 10, 2003 and PCT international patent (PCT/CN2004/000531) and
patent applications for Japan and USA were also filed. This invention provides the composition and
application of antioxidant of bamboo (AOB), the purpose of which is to provide the food industry a
novel food additive that is abundant, safe, effective, low-cost, nutritious, and having multiple
functions. AOB is a yellowish brown powder or particles prepared from bamboo leaves. The main
antioxidant components are flavonoids, lactones, and phenolic acids. AOB has a smooth texture, no
medicine smell, no bitterness in taste or pungent smell. It has
excellent water solubility and is, stable,
resistant to acid hydrolyzation, heat hydrolyzation and enzyme hydrolyzation. AOB can be widely
applied in edible oil, oil-containing foods, meat products, sea foods, fruit juices, dairy, soft
drinks, wine, flavorings, and bakeries.
Application of bamboo leaf extract as acrylamide inhibitor in heat-treated foods.
This patent was filed on March 21, 2005 and PCT international patent (PCT/CN2006/000431) was filed
on March 21, 2006. This invention provides a new application of bamboo leaf extract as acrylamide
inhibitor in heat-treated foods. When the bamboo leaf extract in this invention is used as
acrylamide inhibitor and used in the above food applications, it can inhibit the acrylamide
formation up to 20-98%.
Preparation method and application of phytosterols extracted from bamboo shoot.
This patent was filed on December 29, 2004. This invention provides a preparation method and
application of phytosterols extracted from bamboo shoots. The
preparation has excellent functions of
anti-inflammation, lowering blood lipid and cholesterol inhibition of hyperplasia of leukemic
cells, and can be applied in cosmetics, foods, nutraceuticals and pharmaceuticals.
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Preparation method and application of amino acids and peptides extracted from bamboo shoots.
This patent was filed on April 27, 2005. This invention provides a preparation method and
application of amino acids and peptides extracted from bamboo shoot. The amino acids preparation
has multiple pharmaceutical and nutraceutical functions, including improving brain metabolism,
anti-depression, and slowing down memory loss. The preparation has an excellent texture and taste,
and can be widely used in functional food, beverages, and flavorings.
Preparation method and application of high quality non-soluble plant dietary fiber micro powder
extracted from bamboo shoots.
This patent was filed on March 16, 2006. This invention provides a preparation method and
application of high quality non-soluble plant dietary fiber micro powder extracted from bamboo
shoot. It has multiple pharmaceutical and nutraceutical functions, including purgation, de-toxin,
obesity control. The preparation has an excellent texture and taste, and can be widely used in
functional food, and conventional food.
D.
Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends,
uncertainties, demands, commitments or events that are reasonably likely to have a material effect
on our net sales, profitability, liquidity or capital resources, or that caused the disclosed
financial information to be not necessarily indicative of future operating results or financial
conditions.
E.
Off-balance Sheet Arrangements
We have no outstanding off-balance sheet arrangements, derivative financial instruments, interest
rate swap transactions or foreign currency forward contracts. We do not engage in trading
activities involving non-exchange traded contracts.
F.
Tabular disclosure of contractual obligations.
The
following table summarizes contractual obligations as of December 31,
2005.
Payments
due by period
Less than
More than
Total
1 year
1 to 3 years
3-5 years
5 years
Rmb
Rmb
Rmb
Rmb
Rmb
Short-term
borrowings
3,569
3,569
—
—
—
Operating
leases
948
615
333
—
—
Total
contractual cash obligations
4,517
4,184
333
—
—
The
Company is a party to four lease agreements for office premises
and staff quarters. The lease agreements are described below:
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(a)
The lease agreement of our Corporate Office (situated in Hong
Kong) commenced on May 27, 2005, and shall continue for a period of two
years, at a monthly rent of Rmb 33,000 As of December 31, 2005, the future minimum lease payments
under this non-cancelable operating lease amounted to Rmb 358,000 and
Rmb 158,000 for years ended
December 31, 2006 and 2007 respectively.
(b)
The lease agreement of staff quarters (situated in Hong Kong)
for managers of our Corporate Office commenced on
December 11, 2005, and shall continue for a period of two years, at a monthly rent
of Rmb 7,000. As of December 31,
2005, the future minimum lease payments under this non-cancelable operating lease amounted
to Rmb 86,000 and Rmb 81,000 for years ended December 31, 2006 and 2007 respectively.
(c)
The lease agreement of staff quarters (situated in Hong Kong) for Alan Li, the executive director and Co-Chief
Executive Officer of the Company, commenced on December 8, 2005,
and shall continue for a period of two years,
at a monthly rent of Rmb 8,000. As of December 31, 2005, the future minimum lease payments under
this non-cancelable operating lease amounted to Rmb 100,000 and Rmb
93,000 for years ended December
31, 2006 and 2007 respectively.
(d)
The lease agreement for the office of Shenzhen Innoessen
(situated in Shenzhen, China) commenced on March 23, 2005, and
shall continue for
a period of one year, at a monthly rent of Rmb 24,000. As of December 31, 2005, the future minimum
lease payments under this non-cancelable operating lease amounted to
Rmb 71,000 for year ended
December 31, 2006.
Lease
rental costs incurred by the Company for the year ended December 31, 2003, 2004 and 2005
amounted to Rmb596,000, Rmb519,000 and Rmb1,052,000 respectively.
Except
as disclosed above, as of December 31, 2005, we did not have
other contractual
obligations.
Contingencies
G.
Safe Harbor.
Forward-Looking Statement Disclosure
This news release contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements regarding CTDC contained in this press release that
are not historical in nature, particularly those that utilize terminology such as "may," "will,"
"should," "likely," "expects," "anticipates," "estimates," "believes" or "plans," or comparable
terminology, are forward-looking statements. Forward-looking statements are based on current
expectations and assumptions, and entail various risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking statements. Important
factors known to Tramford that cause actual results to differ materially from those expressed in
such forward-looking statements are identified and discussed in CTDC's filings with the Securities
and Exchange Commission.
Item 6 Directors, Senior Management and Employees
A.
Directors and senior management.
Our directors and executive officers and their present positions with our company, as at the date
of this Annual Report, are as follows:
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Name
Age
Positions with the Company
Changshan Zhao
41
Chairman of the Board and Executive Director
Xu Qian
42
Chief Executive Officer and Executive Director
Alan Li
38
Co-Chief Executive Officer (Greater China) and Executive Director
Ju Zhang
44
Executive Director
Michael Siu
37
Executive Director, Chief Financial Officer and Secretary
Peter Fu (1)(2)
51
Independent Director
L C Wan (1)(2)
45
Independent Director
Meng Wan (3)
42
Independent Director
Yezhong Ni (1)(2)
36
Independent Director
Weidong Wang (3)
39
Independent Director
Xinping Shi (3)
48
Independent Director
Aaron Zhu *
38
Co-Chief Executive Officer (International)
Zhenwei Lu
35
Chief Investment Officer
(1)
Member of the Audit Committee
(2)
Member of the Compensation Committee
(3)
Member of the Nominating Committee
*
Ceased to be Co-Chief Executive Officer on February 21, 2006
Information about Directors and Officers
Set
forth below is certain information with respect to each director and
officer as of August 31, 2006:
Mr. Changshan Zhao
, 41, nominee of Beijing Holdings, was appointed the Chairman of the Board on
February 8, 2005. He also was the Vice-Chairman and General Manager of Beijing Holdings. Mr. Zhao
obtained his master degree in business administration in the Guanghua School of Management of the
Beijing University. He was appointed the Vice-Chairman and General Manager of Beijing Holdings in
November 2003. Prior thereto, he was a senior officer of the Beijing People's Municipal Government.
Mr. Xu Qian
, 42, nominee of Beijing Holdings, was appointed the Director and Co-Chief Executive
Officer of the Company on March 29, 2005. Mr. Qian graduated from the Economics and Management
Faculty of the Beijing Industrial University with a bachelor degree in Economics in 1986. From 1986
to 1993, he worked as an economic analyst in the Statistics Bureau of the BPMG. From 1993 to 1996,
he worked as an independent auditor in Hong Kong and from 1996 to 1998, he worked as the Project
Chief Financial Officer of the TA Orient Telecommunication Co., Ltd. Since 1998, he worked as the
Finance Manager of Beijing Holdings. In March 2005, he was promoted to serve as the Chief Financial
Officer of Beijing Holdings and was further promoted as the Assistant General Manager of Beijing
Holdings in March 2006. Mr. Qian has extensive experience in merger and acquisition, corporate
restructuring and financial management.
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Mr. Alan Li
, 38 , was appointed the Co-Chief Executive Officer (Greater China) and Director of the
Company on May 24, 2005. Mr. Li obtained his master degree in Business Administration from Murdoch
University, Australia. From 2000 to 2002, Mr. Li had been the Executive Director and
Vice President of Linchest Technology Ltd. ("Linchest") and he had led Linchest in achieving the
60% market share of the School Management education software in China. Mr. Li has extensive
experience in management, financial planning and investments in China, and particularly, he has
deep exposure in overseas listing of Chinese companies. Mr. Li is currently responsible for
business development, mergers and acquisition and capital market development of the Company in the
Greater China Region.
Mr. Ju Zhang
, 44, was appointed a Director of the Company on May 24, 2005. Mr. Zhang obtained his
master degree from the Chinese Academy of Social Sciences in Philosophy and a bachelor degree from
Tsinghua University in Energy Engineering. Mr. Zhang currently is the Assistant to General Manager
of the Research and Development Department of the China Merchants Group ("CMG"), one of the largest
state-owned enterprises directly under the administration of the China State Council and having its
business zones all across Hong Kong and China in real estate, energy, logistics and technology, and
the largest ports, highways, and industrial zones investor and operator in China. Prior thereto, he
was the Deputy Chairman and General Manager of China Merchants Technology Holdings Co. Ltd
("CMTH"). a wholly owned subsidiary of CMG. Mr. Zhang was also the Associate Professor at the
Chinese Academy of Medical Sciences and Peking Union Medical College, the Assistant Director of
Department of Research in National Committee of Science & Technology and Department of Research in
Chinese Ministry of Science & Technology.
Michael Siu
, 37, was appointed a Director of the Company on February 8, 2005. He had also served as
the Chief Financial Officer and Secretary of the Company since September 1997. He is currently a
fellow member of the Association of Chartered Certified Accountants and an associate member of the
Hong Kong Institute of Certified Public Accountants.
Peter Fu
, 51, was appointed an Independent Director and a member of the Audit Committee of the
Company on April 5, 2005. On May 24, 2005, he was also appointed a member of the Company's
Compensation Committee. Mr. Fu began his career in the finance industry in 1978 after his
graduation from Wharton School, University of Pennsylvania. He made his mark as one of top
institutional sales in Hong Kong when he worked for HG Asia (currently known as ABN Amro) in the
mid-80s. Since then, Mr. Fu had taken up senior sales positions in other investment banks including
Citicorp Vickers and Barings Securities in Hong Kong. For the ten years between late 1991 and early
2001, Mr. Fu was one of the senior executives of the Peregrine Group in Hong Kong, which operates
currently under the name of BNP Paribas Peregrine. From 2003 to 2005, he was the head of the
corporate finance team of the Kim Eng Group focusing on Hong Kong and China business. Mr. Fu
currently is a senior advisor of the Goldbond Group, one of the leading investment bank in the
Asian capital market.
L C Wan
, 45, was appointed an Independent Director and member and the financial expert of the Audit
Committee of the Company on March 24, 2005. On May 24, 2005, he was also appointed a member of the
Company's Compensation Committee. Mr. Wan graduated from the Coventry Polytechnic with a master
degree in 1988. He was fellow member of the Chartered Association of Certified Accountants and an
associate member of the Hong Kong Institute of Certified Public Accountants. Prior to his service
with the Company, he was the General Manager in Finance and Administration of the China Digital
satNet Limited and the Project Financial Controller of the C.P. Pokphand Co. Ltd. Mr. Wan had
extensive and valuable experience in financial management.
Meng Wan
, 42, was appointed an Independent Director of the Company on May 24, 2005. On July 28,
2005, he was also appointed a member of the Company's Nominating Committee. Professor Wan was the
Dean of Laws of the Beijing Foreign Studies University, an Arbitrator of the China International
Economic and Trade Arbitration Commission and China Maritime Arbitration Commission and a member of
The World Jurist Association. Professor Wan also received his doctorate and master of laws degrees
from Wuhan University Law School, and he taught as a guest professor at Wuhan University and at
Zhonnan University of Economics and Law. He was also a senior research fellow at the London
Institute of International Banking and Finance. Professor Wan specializes in economic law and is a
former President and Chief Justice of the Wuhan Maritime Court and Chief Judge of the Economic
Division of the Hubei High Court.
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Yezhong Ni
, 36, was appointed an Independent Director and a member of the Audit Committee of the
Company on April 28, 2005. On May 24, 2005, he was also appointed a member of the Company's
Compensation Committee. Mr. Ni is a partner of the Kingson Law Firm, one of the top law firms in
China. He graduated from the Law School of the Beijing University in 1990 and was experienced in
legal services for bankruptcy, derivatives and financial instruments. Mr. Ni had been appointed in
1999 as one of the lead attorneys for the liquidation of the Guangdong International Trust &
Investment Company, the largest bankruptcy case of financial institution in the Chinese history.
Weidong Wang
, 39, was appointed an Independent Director and a member of the Nominating Committee of
the Company on July 28, 2005. Mr. Wang had been the Business Representative of Henan Province in
Australia from February 1990 to June 1991 and the Business Director of China National Cereals, Oils
& Foodstuffs Import & Export Corporation from 1991 to 2000. Since March 2000, Mr. Wang had been
appointed the Deputy General Manager of Ceroilfood Enterprises Limited — Foreign Office of China
Business Department, in charge of overseas business development and management. Mr. Wang has ample
experience in national cereals, oils and foodstuffs import and export industry and has extensive
access to sale channels all over the world. He was awarded the qualification of International
Business Engineer in 1994 in China, and obtained his master degree in Public Finance from Tianjin
University of Finance & Economics in 1999 and a MBA degree in 2000 from Murdoch University,
Australia.
Xinping Shi
, 48, was appointed an Independent Director and a member of the Nominating Committee of
the Company on July 28, 2005. Dr. Shi is the Director of Logistics Management Research Centre,
Coordinator of the focused research area of Logistics and Supply Chain Management, and Associate
Professor of the Department of Finance and Decision Sciences of Hong Kong Baptist University. Dr.
Shi has been served as the Independent Director of China Merchants Shekou Holdings Company Limited,
a company listed on the Shenzhen Stock Exchange; the Director of Weboptimal International Limited,
a management consulting firm; Guest Professor of the College of Logistics, the Beijing Normal
University and the Advisor of the Chamber of Hong Kong Logistics. Dr. Shi obtained his doctorate
degree and master degree in Business Administration from Middlesex University and Lancaster
University, UK respectively and the Bachelor of Science from North-Western Polytechnic University,
Xian, China.
Zhenwei Lu
, 35, was appointed the Chief Investment Officer of the Company on May 24, 2005. Mr. Lu
obtained his bachelor degree from Shanghai Marine College and a master degree from Zhong Nan
Finance, Politics and Law University. He was also the Vice General Manager of CMTH. Since 1993, Mr.
Lu had served as an executive of China Merchants Group at its Guangzhou office, an executive of
Shenzhen Haihong Chemicals Co., Ltd., The Finance Manager of Hong Kong Haitong Limited, the Finance
Manager and Assistant to the General Manager of Shenzhen Zhaoxun Communication Co. Ltd, and
Assistant to General Manager of CMTH and Shenzhen Merchants Technology Investment Holdings Co.,
Ltd. Mr. Lu was appointed the General Manager of CMTH since March 2006. Mr. Lu is currently
responsible for strategic corporate investment and mergers and acquisitions of the Company in the
Greater China Region
.
The directors were appointed at our shareholders meeting held on October 21, 2005 and will serve
until the next annual shareholders meeting of the Company.
There are no family relationships between the above named officers and directors. Beijing Holdings
is our 62.73% shareholder, however, we do not have any formal agreement and arrangement with
Beijing Holdings and pursuant to which the authority of direct nomination of directors into the
Company's board was granted. All of our directors are appointed through resolution passed in our
annual shareholders meeting. Nevertheless, prior to the establishment of our nominating committee
on July 28, 2005, it was the Company's practice in previous year to include two candidates
recommended by Beijing Holdings in the list of candidates of directors eligible for election in
our annual shareholders meeting, as the Company's intention to
capitalize on the specific position of our major
shareholder in promoting our business in China. In the Company's 2005 Annual Shareholders Meeting, however, all candidates were
recommended by the Company's nomination committee based on their experience and capability and such
practice no longer existed. Mr. Changshan Zhao and Mr. Xu Qian were selected by the nominating
committee as candidates on the fact their senior positions in Beijing Holdings will enhance closer
involvement of Beijing Holdings in the future development of the Company.
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Audit Committee.
Mr. Peter Fu, Mr. L C Wan and Mr. Yezhong Ni were appointed the members of the
Audit Committee of our board of directors. According to the Charter of the Audit Committee, the
responsibilities of the Audit Committee include the oversight of (1) integrity of our financial
statements; (2) our compliance with legal and regulatory requirements; (3) the qualification,
appointment, compensation, retention and oversight of our independent auditors, including resolving
disagreements between management and the auditors regarding financial reporting; and (4) the
performance of our independent auditors and of our internal control function.
The Audit Committee was given the resources and assistance necessary to discharge its
responsibilities, including appropriate funding, as determined by the Committee, the unrestricted
access to our personnel and documents and our independent auditors. The Committee shall also have
authority, with notice to the
Chairman of the Board, to engage outside legal, accounting and other advisors as it deems necessary
or appropriate.
The Audit Committee is required to meet at least two times a year and may call special meeting as
required. All members of the Audit Committee shall be financially literate, having a basic
understanding of financial controls and reporting, and none of them shall receive directly or
indirectly any compensation from our company other than his or her directors' fee and benefits.
Compensation Committee.
The Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for our officers, including our Chief Executive
Officer, and employees and administers our stock option plans. The Compensation Committee consists
of three directors, each of whom meets the independence requirements and standards established by
the NASDAQ rules and the SEC regulations. The Compensation Committee was established on May 24,
2005 and Mr. Peter Fu, L C Wan and Yezhong Ni were appointed the members.
Nominating Committee.
The purpose of the Nominating Committee is to assist the Board of Directors
in identifying qualified individuals to become board members, consultants and officers of the
Company, in determining the composition of the Board of Directors and in monitoring a process to
assess Board effectiveness. The Nominating Committee established on July 28, 2005, consists of
three directors, each of whom meets the independence requirements and standards established by the
NASDAQ rules and the SEC regulations. Mr. Meng Wan, Weidong Wang and Xinping Shi were appointed the
members.
B.
Compensation.
Except Mr. Changshan Zhao who had been paid Rmb 405,000 in the 2005 Period for his capacity as the
Chairman of the Board of the Company, we did not pay any compensation to other directors in the
2005 Period.
The directors who also acted in their capacities as officers of the Company were paid in the 2005
Period as follows:
Compensation paid
(Amounts in thousand, Rmb)
Name
Management position held
2005
2004
Changshan Zhao
Chairman
405
—
Xu Qian
Chief Executive Officer
315
—
Alan Li
Co-Chief Executive
Officer (Greater China)
303
—
Michael Siu
Chief Financial Officer
and Secretary
487
270
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The Company has granted stock options to certain officers and directors as described in Item 6E.
We do not have any employment contracts with our officers or directors except Mr. Michael Siu who
had entered into an employment contract with the Company when he joined on July 1, 1997 as the
Finance Manager of the Company. The terms of the contract followed the sample employment contract
as suggested by the Labour Department of the Government of Hong Kong, such as five working days per
week, termination of contract by one month's notice and annual pay leave of seven days. The
contract also included guaranteed double pay of salary in the last month of each year, however,
there was no term of guaranteed stock options.
C.
Board practices.
At the Annual Meeting on October 21, 2005, Changshan Zhao, Xu Qian, Alan Li, Ju Zhang, Michael Siu,
Peter Fu, L C Wan, Meng Wan, Yezhong Ni, Weidong Wang and Xinping Shi were appointed the directors
of the Company. There was no subsequent change of directors of the Company up to the date of this
Annual Report.
A total of seventeen (17) meetings of directors were held in 2005. Our Memorandum and Articles of
Association do not require the establishment of audit committee and compensation committee.
Following the requirements of the Sarbanes Oxley Act of 2002, we established an audit committee
comprised of the independent directors in 2004. On May 24, 2005, we established the Compensation
Committee and on July 28, 2005, we established the Nominating Committee. It is stated in the
respective charters that only independent directors are qualified to be appointed as members of
these committees.
D.
Employees.
As of December 31, 2005, our total staff consisted of 130 employees compared to that of 66 in 2004.
The increase was due to the completion of the acquisition of the 100% equity interest of CNT, the
nutraceutical business.
An analysis of the employees by function is as follows:
2005
2004
Corporate administration
18
9
Finance
8
3
Research and developments
7
—
Technology
43
46
Sales and services
24
8
Workers
30
—
Total
130
66
We do not have any collective bargaining agreements with our employees. We have never experienced
any material labor disruptions and are unaware of any current efforts or plans to organize
employees. We believe we have good relationships with our employees.
E.
Share ownership.
None of our executive officers and directors own shares of the company as of June 26, 2006:
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The names and titles of our executive officers and directors to whom we have granted options which
are outstanding as of August 31, 2006 and the number of shares of our common stock subject to
such options are set forth in the following table:
Exercise
Number
per option
Name
Title/Office
of options
(US$)
Expiration Date
Changshan Zhao
Chairman and
Executive Director
50,000
1.15
December 28, 2009 (1)
45,000
1.85
September 20, 2016 (2)
Xu Qian
Chief Executive
Officer and
Executive Director
50,000
1.15
December 28, 2009 (1)
25,000
1.85
September 20, 2016 (2)
Alan Li
Co-Chief Executive
Officer and
Executive Director
75,000
1.85
September 20, 2016 (2)
Michael Siu
Chief Financial
Officer, Secretary
and Executive
Director
40,000
1.15
December 28, 2009 (1)
15,000
1.85
September 20, 2016 (2)
Ju Zhang
Executive Director
10,000
1.85
September 20, 2016 (2)
Peter Fu
Independent Director
10,000
1.85
September 20, 2016 (2)
L C Wan
Independent Director
10,000
1.85
September 20, 2016 (2)
Meng Wan
Independent Director
10,000
1.85
September 20, 2016 (2)
Yezhong Ni
Independent Director
10,000
1.85
September 20, 2016 (2)
Weidong Wang
Independent Director
10,000
1.85
September 20, 2016 (2)
Xinping Shi
Independent Director
10,000
1.85
September 20, 2016 (2)
Zhenwei Lu
Chief Investment
Officer
40,000
1.85
September 20, 2016 (2)
(1)
These options were granted under the Company's 1996 Stock Option Plan. These options were
granted pursuant to a board resolution passed on December 28, 1999 (the "Resolution") and are
fully vested as of December 31, 2005. Pursuant to the Resolution, the persons holding the
position of Chairman and Chief Executive Officer were each granted 50,000 options. Unless the
options were exercised during their service period with the Company, the remaining unexercised
options can be succeeded by the newly appointed persons holding these positions. Mr. Xiaohong
Li and Mr. Xinhao Jiang had resigned on February 8, 2005 and March 9, 2005 respectively. They
had not exercised any of the above options granted and so Mr. Zhao Changshan and Mr. Jeff
Qian, respectively the newly appointed Chairman and Chief Executive Officer, succeeded all
granted options of their respective positions.
(2)
These options were granted under the Company's 2000 Stock Option Plan. These options were
granted pursuant to a board resolution passed on September 21, 2005 and are fully vested as of
December 31, 2005.
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Stock Option Plans
Pursuant to shareholders' resolutions passed on October 10, 1996, September 20, 2000 and October
21, 2005, the 1996 Stock Option Plan (the "1996 Plan"), the 2000 Stock Option Plan (the "2000
Plan") and the 2005 Stock Option Plan (the "2005 Plan") were approved respectively.
Details of these plans are as follows:
1996 Stock Option Plan
Types of Grants and Eligibility
The 1996 Plan is designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not our employees, and our present and future
subsidiary companies and to offer an additional inducement in obtaining the services of such
employees and consultants.
Shares Subject to the 1996 Plan
The aggregate number of shares of our common stock, $0.01 par value per share ("Common Stock") for
which options may be granted under the Plan shall not exceed 200,000. Such shares of Common Stock
may, in the discretion of our Board of Directors (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held
as treasury shares. Any shares of Common Stock subject to an option which for any reason expires,
is cancelled or is terminated unexercised or which ceases for any reason to be exercisable shall
again become available for the granting of options under the 1996 Plan. We shall at all times
during the term of the 1996 Plan reserve and keep available such number of shares of Common Stock
as will be sufficient to satisfy the requirements of it.
Administration of the 1996 Plan
The 1996 Plan shall be administered by the Board of Directors or, to the extent the Board of
Directors may determine, a committee of the Board of Directors (the "Committee") consisting of not
less than two directors. A majority of the members of the Committee shall constitute a quorum, and
the acts of a majority of the members present at any meeting at which a quorum is present, and any
acts approved in writing by all members without a meeting, shall be the acts of the Committee. All
references in the 1996 Plan to determinations or actions of the Committee shall be deemed to
include determinations and actions by the Committee or the Board of Directors.
The Committee may from time to time, in its sole discretion, consistent with the purposes of the
1996 Plan, grant options to employees (including officers and directors who are our employees, our
consultants or any of our subsidiaries. Such options granted shall cover such number of shares of
Common Stock as the Committee may determine in its sole discretion.
Subject to the express provisions of the 1996 Plan, the Committee shall have the authority, in its
sole discretion, to determine the employees and the consultants who shall be granted options; the
times when options shall be granted; the number of shares of Common Stock to be subject to each
option; the term of each option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments and, if in installments, the number of
shares of Common Stock to be subject to each installment, whether the installments shall be
cumulative, the date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or installment; whether shares of Common
Stock may be issued upon the exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price; the fair market value of
a share of Common Stock; whether to restrict the sale or other disposition of the shares of Common
Stock acquired upon the exercise of an option and, if so, whether to waive any such restriction;
whether to
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subject the exercise of all or any portion of an option to the fulfillment of
contingencies as specified in the applicable stock option contract, including without limitation,
contingencies relating to entering into a covenant not to compete with us, any of subsidiaries or a
parent, to financial objectives for us, any of our subsidiaries or a parent, a division of any of
the foregoing, a product line or other category, and/or the period of continued employment of the
optionee with us, any of our subsidiaries or a parent, and to determine whether such contingencies
have been met; the amount, if any, necessary to satisfy our obligation to withhold taxes or other
amounts; whether an optionee is disabled; to construe the respective Contracts and the 1996 Plan;
with the consent of the optionee, to cancel or modify an option,
provided
such modified provision
would be permitted to be included in an option on the date of modification; to prescribe, amend and
rescind rules and regulations relating to the 1996 Plan; and to make all other determinations
necessary or advisable for administering the 1996 Plan. Any controversy or claim arising out of or
relating to the 1996 Plan, any option granted under the 1996 Plan or any applicable stock option
contract shall be determined unilaterally by the Committee in its sole discretion. The
determinations of the Committee on the above matters shall be conclusive and binding on the
parties. No member or former member of the Committee
shall be liable for any action, failure to act or determination made in good faith with respect to
the 1996 Plan or any option hereunder.
Exercise Price
The exercise price of the shares of Common Stock under each option shall be determined by the
Committee in its sole discretion;
provided
, however, the exercise price of an option shall not be
less than the fair market value of the Common Stock subject to such option on the date of grant.
Term
The term of each option granted pursuant to the 1996 Plan shall be such term as is established by
the Committee, in its sole discretion;
provided, however,
that the term of each option granted
pursuant to the 1996 Plan shall be for a period not exceeding ten years from the date of grant.
Exercise
An option (or any part of installment thereof), to the extent then exercisable, shall be exercised
by giving written notice to us at our principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefore (or the amount due on
exercise if the Contract permits installment payments) (a) in cash or by certified check or (b) if
the applicable Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise equal to the aggregate exercise price of all
options being exercise, or with any combination of cash, certified check or shares of Common Stock.
The Committee may, in its sole discretion, permit payment of the exercise price of an option by
delivery by the optionee of a properly executed notice, together with a copy of the optionee's
irrevocable instructions to a broker acceptable to the Committee to deliver promptly to us the
amount of sale of loan proceeds sufficient to pay such exercise price.
A person entitled to receive Common Stock upon the exercise of an option shall not have the rights
of shareholder with respect to such shares of Common Stock until the date of issuance of a share
certificate to him for such shares;
provided, however,
that until such share certificate is issued,
any optionee using previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share of Common Stock be purchased or issued under the 1996
Plan.
Termination of Relationship
Any optionee whose relationship with us, our subsidiaries and parent as an employee or consultant
is terminated for any reason (other than his death or disability) may exercise such option, to the
extent exercisable on the date of such termination, at any time within three months after the date
of termination, but not thereafter and in no event after the date the option would otherwise have
expired;
provided, however,
that if such relationship is terminated either (a) for cause, or (b)
without our consent, such option shall terminate immediately.
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Notwithstanding the foregoing, except as may otherwise be expressly provided in the applicable
Contract, options granted under the 1996 Plan shall not be affected by any change in the status of
the optionee so long as the optionee continues to be our employee of, or our consultant, any of our
subsidiaries or a parent (regardless of having changed from one to the other or having been
transferred from one corporation to another).
Nothing in the 1996 Plan or in any option granted under the 1996 Plan shall confer on any optionee
any right to continue in the employ of, or as consultant to us, our parent or any of our
subsidiaries, or interfere in any way with any right of ours, our parent or any of our subsidiaries
to terminate the optionee's relationship at any time for any reason whatsoever without liability to
us, our parent or any of our subsidiaries.
Death or Disability
If an individual optionee dies (a) while he is our employee of, our consultant, any of our
subsidiaries or a parent, (b) within three months after the termination of such relationship
(unless such termination was for cause or without our consent) or (c) within one year following the
termination of such relationship by reason of disability (as determined by the Board of Directors),
his option may be exercised, to the extent exercisable on the date of his death, by an executor,
administrator or other person who at the time is entitled by law to exercise the rights of a
deceased optionees under such option (the "Legal Representative") at any time within one year after
death, but not thereafter and in no event after the date the option would otherwise have expired.
Any optionee whose relationship has terminated by reason of disability (as determined by the Board
of Directors) may exercise his option, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter and in no event after
the date the option would otherwise have expired.
Adjustment upon changes in Common Stock
Notwithstanding any other provision of the 1996 Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, spin-off, merger in which we are the surviving
corporation, or exchange of shares or the like which results in a change in the number or kind of
those shares of Common Stock which are outstanding immediately prior to such event, the aggregate
number and kind of shares subject to the 1996 Plan, the aggregate number and kind of shares subject
to each outstanding option and the exercise price thereof, whose determination shall be conclusive
and binding on all parties. Such adjustment may provide for the elimination of fractional shares
which might otherwise be subject to options without payment thereto.
In the event of (a) the liquidation or dissolution of our company, or (b) a merger in which we are
not the surviving corporation or a consolidation, any outstanding options shall terminate upon the
earliest of any such event, unless other provision is made therefore in the transaction.
Amendments and Termination of the 1996 Plan
No option may be granted under the 1996 Plan after October 2006. The Board of Directors, without
further approval of our shareholders, may at any time suspend or terminate the 1996 Plan, in whole
or in part, or amend it form time to time in such respects as it may deem advisable, including,
without limitation, to comply with, conform to or adopt any change in application law, regulations,
rulings or interpretations of administrative agencies;
provided, however,
that no amendment shall
be effective without the requisite prior or subsequent shareholder approval that would (a) increase
the maximum number of shares of Common Stock for which options may be granted under the 1996 Plan,
(b) materially increase the benefits accruing to participants under the 1996 Plan or (c) change the
eligibility requirements to receive options hereunder. No termination, suspension or amendment of
the 1996 Plan shall, without the consent of the holder of an existing and outstanding option
affected thereby, adversely affect his rights under such option. The power of the Committee to
construe and administer any options granted under the 1996 Plan prior to the termination or
suspension of the 1996 Plan nevertheless shall continue after such termination or during such
suspension.
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Non-Transferability of Options
No option granted under the 1996 Plan shall be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the optionee, only
by the optionee or his Legal Representatives. Except to the extent provided above, options may not
be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of
law or otherwise) and shall not be subject to execution, attachment or similar process, and any
such attempted assignment, transfer, pledge, hypothecation or disposition shall be null and void
ab
initio
of no force or effect.
All
options to purchase 200,000 shares of common stock under the 1996 Stock Option Plan were
granted.
2000 Stock Option Plan
Types of Grants and Eligibility
The 2000 Plan is designed to provide an incentive to our key employees (including officers and
directors who are key employees) and to consultants and directors who are not our employees or
employees of our present and future subsidiaries and to offer an additional inducement in obtaining
the services of such individuals.
Shares Subject to the 2000 Plan
The aggregate number of shares of Common Stock for which options may be granted under the 2000 Plan
may not exceed 400,000; provided, however, that the maximum number of shares of Common Stock with
respect to which options may be granted to any individual in any fiscal year may not exceed
100,000. Such shares of Common Stock may consist either in whole or in part of authorized but
unissued shares of Common Stock or shares of Common Stock held in our treasury shares. Shares of
Common Stock subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable may again become available for the
granting of options under the 2000 Plan.
Administration of the 2000 Plan
Except in the case of non-employee director options, in which case the Plan is administered by the
Board of Directors, the 2000 Plan is administered by a committee consisting of not less than two
directors (the "2000 Plan Committee"), each of whom shall be a "non-employee director" within the
meaning of rules and regulations promulgated by the Securities and Exchange Commission.
Subject to the express provisions of the 2000 Plan, the 2000 Plan Committee has the authority, in
its sole discretion, with respect to options, to determine, among other things: the key employees,
consultants and advisors who are to receive options; the times when they may receive options; the
number of shares of Common Stock to be subject to each option; the term of each option; the date
each option is to become exercisable; whether an option is to be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of Common Stock to be subject to
each installment; whether the installments are to be cumulative; the date each installment is to
become exercisable and the term of each installment; whether to accelerate the date of exercise of
any installment; whether shares of Common Stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price are to become due and
the amounts of such installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any such restriction; and whether to subject
the exercise of all or any portion of an option to the fulfillment of contingencies as specified in
an applicable stock option contract. With respect to all options, the 2000 Plan Committee has such
discretion to determine the amount, if any, necessary to satisfy our obligation to withhold taxes;
with the consent of the optionee, to cancel or modify an option, provided such option as modified
would be permitted to be granted on such date under the terms of the 2000 Plan; to prescribe, amend
and rescind rules and regulations relating to the 2000 Plan; and to make all other determinations
necessary or advisable for administering the 2000 Plan. The Board of Directors has the authority
described above with respect to the granting of non-employee director options.
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Exercise Price
The exercise price of the shares of Common Stock under each option is to be determined by the 2000
Plan Committee. The exercise price of the shares of Common Stock under each non-employee director
option is to be equal to the fair market value of the Common Stock subject to such option on the
date of grant.
Term
The term of each option granted pursuant to the 2000 Plan is established by the 2000 Plan
Committee, in its sole discretion, at or before the time such option is granted. Subject to early
termination, each non-employee director option is to be exercisable on a term of ten years from the
date of grant.
Exercise
An option (or any part or installment thereof), to the extent then exercisable, is to be exercised
by giving written notice to us at our principal office. Payment in full of the aggregate exercise
price may be made (a) in cash or by certified check, or (b) if the applicable stock option contract
at the time of grant so permits,
with the authorization of the 2000 Plan Committee and with previously acquired shares of Common
Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate
exercise price of all options being exercised, or (c) with any combination of cash, certified check
or shares of Common Stock.
The 2000 Plan Committee may, in its discretion, permit payment of the exercise price of an option
by delivery by the optionee of a properly executed exercise notice, together with a copy of his
irrevocable instructions to a broker acceptable to the 2000 Plan Committee to deliver promptly to
us the amount of sale or loan proceeds sufficient to pay such exercise price.
Termination of Relationship
Any employee holder of an option whose employment or relationship with us (and our parent and
subsidiaries) has terminated for any reason other than his death or disability may exercise such
option, to the extent exercisable on the date of such termination, at any time within three months
after the date of termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if his employment is terminated either (a) for
cause, or (b) without our consent, such option terminates immediately. Options granted to employees
under the 2000 Plan are not affected by any change in the status of the holder so long as he or she
continues to be our full-time employee, our parent or any of our subsidiaries (regardless of having
been transferred from one corporation to another).
Death or Disability
If an optionee dies (a) while he is our employee, our consultant, our parent or any of our
subsidiaries, (b) within three months after the termination of such relationship (unless such
termination was for cause or without our consent), or (c) within one year following the termination
of such relationship by reason of disability, an option may be exercised, to the extent exercisable
on the date of death, by the Legal Representatives, at any time within one year after death, but
not thereafter and in no event after the date the option would otherwise have expired.
Any optionee whose relationship has terminated by reason of disability may exercise his option, to
the extent exercisable upon the effective date of such termination, at any time within one year
after such date, but not thereafter and in no event after the date the option would otherwise have
expired.
Adjustments Upon Changes in Common Stock
Notwithstanding any other provisions of the 2000 Plan, in the event of any change in the
outstanding Common Stock by reason of a share dividend, recapitalization, merger or consolidation
in which we are the surviving corporation, split-up, combination or exchange of shares or the like,
the aggregate number and
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kind of shares subject to the 2000 Plan, the aggregate number and kind of
shares subject to each outstanding option and the exercise price thereof will be appropriately
adjusted by the Board of Directors, whose determination will be conclusive.
In the event of (a) the liquidation or dissolution of our company or (b) a merger or consolidation
in which we are not the surviving corporation, any outstanding options will terminate, unless other
provision is made therefore in the transaction.
Amendments and Termination of the 2000 Stock Option Plan
No option may be granted under the 2000 Plan after October 2007. The Board of Directors, without
further approval of our stockholders, may at any time suspend or terminate the 2000 Plan, in whole
or in part, or amend it from time to time in such respects as it may deem advisable, including,
without limitation, to comply with the provisions of certain rules and regulations promulgated by
the Securities and Exchange Commission, among other things; provided, however, that no amendment
may be effective without the requisite prior or subsequent shareholder approval which would (a)
except as required for anti-dilution adjustments, increase the maximum number of shares of Common
Stock for which options may be granted under the 2000 Plan, (b) materially increase the benefits to
participants under the 2000 Plan, or (c) change the eligibility requirements for individuals
entitled to receive options under the 2000 Plan.
Non-Transferability of Options
No option granted under the 2000 Plan may be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the holder thereof,
only by such holder or such holder's legal representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and may not be subject to execution, attachment or similar
process.
No optionee has any rights as a shareholder with respect to any shares subject to an option prior
to the date of the issuance of a certificate or certificates for such shares.
Options to subscribe 370,000 shares and 30,000 shares of common stock under the 2000 Stock Option
Plan were granted on September 21, 2005 and July 18, 2006 respectively.
2005 Stock Option Plan
Types of Grants and Eligibility
The 2005 Plan is designed to provide incentives to employees (including key employees such as
officers and directors) of the Company and to consultants and directors who are not employees of
the Company and its subsidiary companies and to offer an additional inducement in obtaining the
services of such individuals.
Shares Subject to the 2005 Stock Option Plan
The
aggregate number of Shares for which the options may be granted under the 2005 Plan may not exceed
1,000,000 shares; such Shares may consist either in whole or in part of authorized but un-issued
shares of common stock or shares of common stock held in the treasury of the Company. Shares of
common stock subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable may again become available for the
granting of options under the 2005 Plan.
Administration of the 2005 Plan
The 2005 Plan is administered by the Company's Compensation Committee (the "Committee").
Subject to the express provisions of the 2005 Plan, the Committee has the authority, in its sole
discretion, with respect to options, to determine, among other things: the key employees,
consultants and advisors who are to receive options; the times when they may receive options; the
number of shares of common stock to be subject to each option; the term of each option; the date
each option is to become exercisable; whether an
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option is to be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of common stock to be subject to
each installment; whether the installments are to be cumulative; the date each installment is to
become exercisable and the term of each installment; whether to accelerate the date of exercise of
any installment; whether shares of common stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price are to become due and
the amounts of such installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares of common stock
acquired upon the exercise of an option and to waive any such restriction; and whether to subject
the exercise of all or any portion of an option to the fulfillment of contingencies as specified in
an applicable stock option contract. With respect to all options, the Committee has such
discretion to determine the amount, if any, necessary to satisfy the Company's obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option, provides such
option as modified would be permitted to be granted on such date under the terms of the 2005 Plan;
to prescribe, amend and rescind rules and regulations relating to the 2005 Plan; and to make all
other determinations necessary or advisable for administering the 2005 Plan. The Board of
Directors also has the authority described above with respect to the granting of director options.
Exercise Price
The exercise price of the shares of common stock under each option is determined by the
Committee at the time of the grant. The exercise price of the shares of common stock is to be
equal to the fair market value of the common stock subject to such option on the date of grant.
Term
The term of each option granted pursuant to the 2005 Plan is established by the Committee, in its
sole discretion, at or before the time such option is granted. Subject to early termination, the
option of each non-employee director is exercisable for a term of ten years from the date of grant.
Exercise
An option (or any part or installment thereof), to the extent then exercisable, is to be exercised
by giving written notice to the Company at its principal office. Payment in full of the aggregate
exercise price may be made (a) in cash or by certified check, or (b) if the applicable stock option
contract at the time of grant so permits, with the authorization of the Committee, with previously
acquired shares of common stock having an aggregate fair market value, on the date of exercise,
equal to the aggregate exercise price of all options being exercised, or (c) with any combination
of cash, certified check or shares of common stock.
The Committee may, in its discretion, permit payment of the exercise price of an option by delivery
by the optionee of a properly executed exercise notice, together with a copy of his irrevocable
instructions to a broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price.
Termination of Relationship
Any employee holder of an option whose employment or relationship with the Company (and its parent
and subsidiaries) has terminated for any reason other than his death or disability may exercise
such option, to the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after the date the option
would otherwise have expired; provided, however, that if his employment is terminated either (a)
for cause, or (b) without the consent of the Company, said option terminates immediately. Options
granted to employees under the 2005 Plan are not affected by any change in the status of the holder
so long as he or she continues to be a full-time employee of the Company, its parent or any of its
subsidiaries (regardless of having been transferred from one corporation to another).
Death or Disability
If an optionee dies (a) while he is an employee or consultant to, the Company, its parent or any of
its subsidiaries, (b) within three months after the termination of such relationship (unless such
termination was
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for cause or without the consent of the Company), or (c) within one year following
the termination of such relationship by reason of disability, an option may be exercised, to be
extent exercisable on the date of death, by an executor, administrator or other person at the time
entitled by law to the rights of the optionee under such option, at any time within one year after
death, but not thereafter and in no event after the date the option would otherwise have expired.
Any optionee whose relationship has terminated by reason of disability may exercise his option, to
the extent exercisable upon the effective date of such termination, at any time within one year
after such date, but not thereafter and in no event after the date the option would otherwise have
expired.
Adjustments upon Changes in Common Stock
Notwithstanding any other provisions of the 2005 Plan, in the event of any change in the
outstanding common stock by reason of a share dividend, recapitalization, merger or consolidation
in which the Company is the surviving corporation, split-up, combination or exchange of shares or
the like, the aggregate number and kind of shares subject to the 2005 Plan, the aggregate number
and kind of shares subject to each outstanding option and the exercise price thereof will be
appropriately adjusted by the Board of Directors, whose determination will be conclusive.
In the event of (a) the liquidation or dissolution of the Company or (b) a merger or consolidation
in which the Company is not the surviving corporation, any outstanding options will terminate,
unless other provision is made therefore in the transaction.
Amendments and Termination of the 2005 Plan
No
option may be granted under the 2005 Plan after October 20, 2015. The Board of Directors, without
further approval of the Company's stockholders, may at any time suspend or terminate the 2005 Plan,
in whole or in part, or amend it from time to time in such respects as it may deem advisable,
including, without limitation, to comply with the provisions of certain rules and regulations
promulgated by the Securities and Exchange Commission, among other things; provided, however, that
no amendment may be effective without the requisite prior or subsequent Stockholder approval which
would (a) except as required for anti-dilution adjustments, increase the maximum number of shares
of common stock for which options may be granted under the 2005 Plan, (b) materially increase the
benefits to participants under the 2005 Plan, or (c) change the eligibility requirements for
individuals entitled to receive options under the 2005 Plan.
Non-Transferability of Options
No option granted under the 2005 Plan may be transferable otherwise than by will or the laws of
descent and distribution, and options may be exercised, during the lifetime of the holder thereof,
only by such holder or such holder's legal representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and may not be subject to execution, attachment or similar
process.
No
options were granted under the 2005 Plan.
Item 7 Major Shareholders and Related Party Transactions
A.
Major shareholders.
The following
table sets forth as of August 31, 2006, the beneficial ownership of (i) all persons
known to us to be beneficial owners of equal or more than five percent or more of our common stock
and (ii) our current officers and directors and (iii) our current officers and director as a group.
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Shares of common stock
Principal Stockholder
beneficially owned (1)
Percent of class
Beijing Holdings of Room 4301,
Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong
7,072,882
(2)
62.73
%
China Internet Technology Co.,
Ltd. of c/o Room 2413-18, 24/F.,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
1,186,441
10.52
%
Great Legend Internet
Technology and Service Co., Ltd.
of c/o Room 2413-18, 24/F., Shui
On Centre, 8 Harbour Road,
Wanchai, Hong Kong
508,474
4.51
%
Changshan Zhao of c/o Room
4301, Central Plaza, 18 Harbour
Road, Wanchai, Hong Kong
0(3)(4
)(5)
*
Xu Qian of c/o Room
4301, Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong
0(3)(4
)(5)
*
Ju Zhang of c/o Room 2413,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Michael Siu of c/o Room 2413,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Peter Fu of c/o Room 2413, Shui
On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
L C Wan of c/o Room 2413,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Meng Wan of c/o Room 2413,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Yezhong Ni of c/o Room
2413, Shui On Centre, 8 Harbour Road,
Wanchai,
Hong Kong
0(4
)(5)
*
Weidong Wang of c/o Room
2413, Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Xinping Shi c/o Room 2413, Shui
On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
Zhenwei Lu of c/o Room 2413,
Shui On Centre, 8 Harbour Road,
Wanchai, Hong Kong
0(4
)(5)
*
All officers and directors as a
group (twelve persons)
8,767,797(2)(3)(4
)(5)
77.76
%
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*
less than 1%.
(1)
Unless otherwise noted, all persons named in the table have sole voting and investment power
with respect to all shares of common stock beneficially owned by them.
(2)
Included in the 7,072,882 shares owned by Beijing Holdings are 974,576 shares and 849,576
shares owned by CMEC Ceramics Holdings Limited ("CMEC") and Perfect Capital Holdings Limited
("Perfect Capital") respectively. CMEC was previously owned by CMEC-GE Capital China
Industrial Holding Limited. Pursuant to a sale and purchase agreement date June 30, 2000,
Beijing Holdings acquired the entire interest of CMEC. Pursuant to another sale and purchase
agreement dated May 30, 2002, Beijing Holdings, through Perfect capital, a 100% subsidiary,
acquired the entire shares of the Company held by Oriental Patron China Investment Limited, an
initial shareholder of the Company.
(3)
Mr. Changshan Zhao, Chairman of the Board, and
Mr. Xu Qian, our Chief Executive Officer, are respectively, the General Manager and Assistant General Manager of Beijing Holdings and
therefore they may be deemed to beneficially own the shares of Common Stock owned by Beijing
Holdings. In addition to them, the Beijing Enterprises Group Corporation Limited, the sole
shareholder of Beijing Holdings, may be deemed to beneficially own the shares of Common Stock
owned by Beijing Holdings.
(4)
Prior to the establishment of the Company's nominating committee on July 28, 2005, it is our
practice to include two candidates recommended by Beijing Holdings in the list of candidates
of directors eligible for election in the our annual shareholders
meeting, as the Company's intention to capitalize on the specific
position of our major shareholder in promoting our business in China. In the Company's 2005
Annual Shareholders Meeting, however, all qualified candidates were selected by our nominating
committee based on the candidates' experience and capability and this practice no longer
existed. Mr. Changshan Zhao and Mr. Xu Qian were selected by the nominating committee as
candidates as their senior positions in Beijing Holdings will enhance closer
involvement of Beijing Holdings in the future development of the Company.
(5)
Holds options which are not currently exercisable or which
vest within 60 days of the August 31,
2006.
Except as disclosed below, there was no significant related party transactions made with major
shareholders
B.
Related party transactions.
The transactions and balances with related parties are analyzed as follows:
(a)
Transactions with related parties
Year ended December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Transactions
with related parties
Disposal
of Zhuhai branch of BBHL to BEDC (Note a)
—
—
1,300
Net operating cash outflows of Zhuhai branch reimbursed. (Note a)
(1,300
)
Acquisition
of CNT from Beijing Holdings by issuance of 2,233,800 new shares at US$2.41 per share and
2,146,200 new shares at US$2.1 per share respectively (Note b)
—
—
79,928
Disposal
of available-for-sale securities to Beijing Holdings (Note c)
—
—
2,167
54
Table of Contents
Note
(a)
On March 31, 2005 BBHL entered into an agreement with BEDC, the sole shareholder of China Internet Technology Company
Limited ("China Internet"), the then 17.21% shareholder of the Company, to sell its Zhuhai branch for a consideration of Rmb 1.3 million.
The consideration was determined based on the operating cashflow generated by Zhuhai branch from May 1, 2002 to March 31, 2005, the period of which
Zhuhai branch was managed and controlled by the Company. Upon disposal, the Company agreed to reimburse the same aggregated net operating cash outflows of
Rmb 1.3 million to the Zhuhai branch as part of the conditions of disposal. The consideration of the transaction is zero as the Company received Rmb1.3 million
from BEDC and at the same time the Company transferred Rmb1.3 million to Zhuhai branch. The transaction was closed on March 31, 2005 and resulted in a disposal loss of Rmb0.51 million.
(b)
On September 13, 2005, the Company entered into agreements with Beijing Holdings, the then 47.18% shareholder
 of the Company, to (i) Acquire a 51% equity interest in CNT in
exchange for 2,233,800 shares of the Company and (ii) obtain an
option to acquire the remaining 49% equity interest in CNT in
exchange for 2,146,200 shares of the Company. Effective October 31,
2005, the acquisition of 51% of CNT was completed and effective
December 22, 2005, the option was also exercised to acquire the
remaining 49% equity interest in CNT.
(c)
On November 17 2005, the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the 6,312,000 shares invested in Xi'an
Haitian Antenna Company Limited ("Xi'an Haitian") then
holding the Company for a
cash consideration of Rmb 2.17 million. These shares were
previously held as available-for-sale securities by the Company and
represented less than 1% of the total outstanding shares of
Xi'an Haitian (approximately 0.975%). The sale consideration was determined by the quoted closing stock
price of Xi'an Haitian at HK$0.33 per share at the date of the agreement. Xi'an Haitian is a
company engaged in research, development, production, sales, installation, services and
wireless communication network optimization of base station antennas and is also listed on the
Growth Enterprise Market of the Hong Kong Stock Exchange. The shares were acquired upon the
initial public offering ("IPO") of Xi'an Haitian. Its stock price dropped continuously after
the IPO due to poorer operating results as a result of the keen competition in the market.
Beijing Holdings is also a passive investor of Xi'an Haitian who owns approximately 8% equity
interest of Xi'an Haitian after its IPO. Beijing Holdings
currently nominates one non-executive director to the board of
Xi'an Haitian. The Company does not currently participate in the
management or operations of Xi'an Haitian.
(b)
Balances with related parties
As of December 31, 2004 and 2005, the balances with related parties were as follows:-
December 31
2004
2005
(Amounts in thousand, Rmb)
Balances with related parties
Funds held
by Beijing Holdings, the ultimate holding company, for security
investment purposes (Note d)
6,529
—
Proceeds receivable from Beijing Holdings, the ultimate holding company, in
respect of sale of shares of Xi'an Haitian Antenna
(Note e)
—
2,167
Funds held by Beijing Holdings Investment
Management Center, a fellow subsidiary, for security investment purposes
(Note f)
3,388
—
Funds held
by China Biotech Holdings Limited, a related company with common
director, for potential
acquisition of technology and business in China
(Note g)
—
6,262
Due from
Beijing Investments (BVI) Limited, a fellow subsidiary, for
security investment purposes (Note h)
164
—
Due from
Great Legend Internet Technology and Service Co. Ltd., a shareholder,
for expenses paid on behalf
30
—
Due to BEDC,
the holding company of a shareholder
(Note i)
—
645
Due to China
Biotech Holdings Limited, a related company with common director (Note j)
—
244
Note
(d)
Due to Beijing Holding's good relationships with leading
investment banks and the Company's desire to access potential investment
opportunities as a result of these relationships, the Company previously deposited funds
with Beijing Holdings (since 2002) to invest on its behalf in Hong Kong. Nevertheless, due
to the poor performance of the Hong Kong Stock market in the last two
years, the Company withdrew its entire deposit of Rmb 6.53 million in May 2005. There was no agreement signed with Beijing Holdings
for the deposit.
(e)
On November 17, 2005 the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the shares it held in Xi'an Haitian for a cash
consideration of Rmb 2.17 million. The
value of the consideration was determined by the quoted closing stock price of Xi'an Haitian
at HK$0.33 per share at the date of the agreement.
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Table of Contents
(f)
Due to its good relationship with leading investment banks and potential investment
opportunities to be gained from those relationships, the Company previously deposited funds
with Beijing Holdings Investment Management Center ("BHIMC")
to invest on our behalf in China. Again, due to the poor performance of the China
Stock market, we withdrew the entire funds of Rmb 3.39 million in December 2005. There was no agreement signed with
BHIMC for the deposit.
(g)
China Biotech Technology Inc. ("China Biotech"), is a
company incorporated in BVI in which Mr. Alan Li, the executive director and Co-Chief Executive
Officer of the Company, is also an executive director. China
Biotech has experience in the nutraceutical business in China, China
Biotech's experience includes making investments in companies and
technologies involved in this industry. In view of China Biotech's
experience, the Company deposited Rmb6.26 million with China Biotech for
purpose of making (with the assistance of China Biotech) a potential
acquisition of technology and
businesses in the nutraceutical industry in China. There was no agreement
 signed for the funds deposited with China Biotech and the Company
can withdraw the funds without any restrictions.
(h)
The amount represented the advance of funds for the purchase on
behalf of the Company of trading securities in Hong Kong by Beijing Investments (BVI) Limited, a wholly
owned subsidiary of Beijing Holdings. This amount was wholly
withdrawn by the Company in March
2005.
(i)
The amount represented the contract sums received on behalf
of BEDC by BHLHK in Hong Kong as the customer of BEDC paid in Hong
Kong dollars, whereas BEDC did not maintain a Hong Kong dollar bank account in Hong Kong.
(j)
The amount represented administrative expenses paid on behalf
of CNT by China
Biotech in China.
(k)
Other than information already disclosed elsewhere in this Form 20-F, no person who has been
an insider of the Company since January 1, 2004 or any associate or affiliate of such insider
has had any material direct or indirect interest in any transaction with our Company since
January 1, 2004 or in any proposed transaction of our company.
C.
Interests of experts and counsel.
Not Applicable.
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Table of Contents
Item 8 Financial Information
A.
Consolidated Statements and Other Financial Information.
Our consolidated financial statements are included herein under Item 18.
Except for an interim dividend paid in 1997, we have not paid any dividends on our common stock.
The payment of dividends in the future, if any, is within the discretion of our Board of Directors
and will depend upon our earnings, its capital requirements and financial condition and other
relevant factors. We do not anticipate declaring or paying any dividends in the foreseeable future.
We have experienced a delay in collecting financial information from Anji Bio due to certain
disputes between Zhejiang Innoessen and the Anji Buyers as described in Item 3(D) —  "Risk
Factors". As stated previously, the Anji Buyers refused to cooperate with the audit instructions
issued by the Company, such as provision of financial statements for the Company to prepare its
consolidated financial statements and access by staff sent from the Company at site of Anji Bio.
The Company finally terminated the employment of the general manager of Anji Bio. The general
manager of Anji Bio then sent a letter directly to our independent registered public accounting
firm containing certain allegations against the management of the Company. These allegations were
then investigated by the Company's audit committee and concluded to be invalid. Subsequent to the
investigation, the ex-general manager of Anji Bio sent another letter to our independent registered
public accounting firm withdrawing all of his allegations.
In the opinion of the senior management of the Company, the conflict with Anji Bio ended on July
26, 2006 and the audited financial statements could be completed. The impacts of this event,
included the late filing of this Annual Report, the possible delisting of our stock from Nasdaq and
the additional costs and capital expenditures which were incurred. Pursuant to the Anji Memorandum,
we have to complete the disposal transaction by September 30, 2006. As of September 11, 2006, the
verification on the assets and liabilities of Anji Bio is complete and management believes that it
is in a position to finalize the disposal prior to that deadline. The remaining items to be
determined are agreement on the final consideration and the drafting of final legal documents.
Due to the above matters, particularly the time the management and the audit committee taken to
perform investigations on the complaints sent by Mr. Hu. Our completed financial statements were
sent late to our auditors for commencement of their audit and the above matters had caused the
auditors and the audit committee to request for additional time to seek additional information with
respect to the financial statements and as a result this Annual Report was filed later than the
required statutory deadline.
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B.
Significant Changes.
Not Applicable
Item 9 The Offer and Listing.
A.
Offer and listing details.
We have authorized capital of US$25,000,000 divided into 2,500,000,000 shares of par value US$0.01
each. As of August 31, 2006, 11,274,497 shares are issued and fully paid.
The annual high and low market prices of our common stock for the five most recent full financial
years are as set forth below:
NASDAQ Capital Market
Common Stock
(Year Ending)
High
Low
December 31, 2005
8.800
1.530
December 31, 2004
5.600
0.350
December 31, 2003
0.700
0.030
December 31, 2002
0.430
0.010
December 31, 2001
0.444
0.090
The high and low market prices of our common stock for each financial quarter over the two most
recent full financial years are as set forth below:
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Table of Contents
NASDAQ Capital Market
Common Stock
(Quarter Ending)
High
Low
December 31, 2005
3.600
1.560
September, 2005
4.650
1.530
June 30, 2005
4.940
3.240
March 31, 2005
8.800
3.030
December 31, 2004
5.600
1.400
September 30, 2004
3.171
1.320
June 30, 2004
4.200
0.550
March 31, 2004
6.530
0.350
For
the most recent eight months, the high and low market prices of our common stock are as set
forth below:
NASDAQ Capital Market
Common Stock
(Month Ending)
High
Low
August 31, 2006
5.62
3.02
July 31, 2006
3.970
1.200
June 30, 2006
3.580
3.280
May 31, 2006
6.150
4.400
April 30, 2006
7.800
6.300
March 31, 2006
8.950
6.500
February 28, 2006
14.50
3.420
January 31, 2006
4.540
2.010
B.
Plan of Distribution.
Not Applicable.
C.
Markets.
Our
common stock was included for quotation on the NASDAQ Global Market (formerly
known as NASDAQ National Market) on December 13, 1996 under the symbol "TRFDF". Pursuant to the implementation of the new listing requirements since February 1998,
we moved the listing of our common stock to the NASDAQ Capital Market on October 12,
1998 under the same symbol.
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Table of Contents
Our common stock was listed for quotation on the NASDAQ Capital Market and
not on any other public trading market.
On January 9, 2006, the name of the Company was changed to China Technology Development Group
Corporation and its common stock continued to trade on NASDAQ Capital Market under the new symbol
"CTDC".
D.
Selling Shareholders.
Not applicable.
E.
Dilution.
(a)
The Company had authorized the issuance, pursuant to the 1996 Stock Option Plan, 2000 Stock
Option Plan and 2005 Stock Option Plan, of options to purchase respectively 200,000 shares,
400,000 shares and 1,000,000 shares of Common Stock to the Company's existing shareholders,
employees, officers, directors and consultants.
(b)
Pursuant to a board resolution passed on December 28, 1999, options to purchase 140,000
shares of Common Stock were granted, for an exercise period of ten years, to certain directors
and officers at an exercise price of US$1.15 per share.
(c)
Pursuant to a board resolution passed on September 20, 2005, options to purchase the
remaining 60,000 shares of Common Stock under the 1996 Stock Option Plan were granted and
pursuant to the same board resolution, options to purchase 370,000 shares of Common Stock were
granted under the 2000 Stock Option Plan, for an exercise period of ten years, to a director
at an exercise price of US$1.85 per share and.
(d)
As at August 31, 2006, no options granted under the 1996 Stock Option Plan and 2000 Stock
Option Plan were exercised.
(e)
The Company entered into an agreement dated July 12,
2005 with Ivory Capital Asia Pte, Ltd (the "Ivory
Capital")(filed as Exhibit 10.1 hereto) on an non-exclusive
basis to raise at least US$20 million in new capital for the
Company and its subsidiaries and to provide financial advisory
services to the Company concerning the strategic development of the
Company's business for a period of six months, unless the
extension was mutually agreed. Pursuant to the agreement, retainer
fee of US$ 40,000 per month was payable 50% in cash and 50% in the
Company's shares at average price of last 30 days prior to
date of the signing of the agreement. Besides, a success fee of 3% on
the initial US$20 million of capital commitments received from
investors and 4% on the amount of capital commitments in excess of
US$20 million received from investors was payable in cash if any.
Accordingly, an aggregate
of 34,488 shares of our Common Stock shall be issued to Ivory
Capital as part of the retainer fee charged. Ivory Capital finally failed to raise any
funds for the Company during the six month contract term and the
services of Ivory Capital were terminated by
the Company. The 34,488 shares of common stock were not issued to
Ivory Capital. The Company, however, is currently under negotiation with
Ivory Capital for the resumption of the contract at the same terms as
previously signed as substantial pre-funding work has been done even
though no
funds were finally raised. As of date, no agreement, memorandum
or letter of intent has been signed in respect of resuming the
contract but a provision of the unpaid retainer fee was made in the
financial statements for the fiscal year ended December 31, 2005.
F.
Expenses of the issue.
Not Applicable.
Item 10 Additional Information.
A.
Share capital.
Not Applicable.
B
. Memorandum and articles of association.
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Table of Contents
The Memorandum and Articles of Association of our company as amended were included in the Proxy
Statement dated September 21, 2005 filed at the Securities and Exchange Commission on September 26,
2005 in relation to the Annual Meeting of Shareholders of the Company.
Our corporate affairs are governed by our Memorandum and Articles of Association and by the
International Business Companies Act of the British Virgin Islands. Principles of law relating to
such matters as the validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders differ from those that
would apply if we were incorporated in a jurisdiction within the United States. Further, the rights
of shareholders under British Virgin Islands law are not as clearly established as the rights of
shareholders under legislation or judicial precedent in existence in most United States
jurisdictions.
Thus, our public shareholders may have more difficulty in protecting their interests in the face of
actions by the management, directors or controlling shareholders than they might have as
shareholders of a corporation incorporated in a United States jurisdiction. Please refer to Item
3(D) for a detailed discussion of such risk.
C.
Material contracts.
1.
On July 12, 2005, an agreement was entered into between the Company and Ivory Capital whereas
the Company engaged Ivory Capital on an non-exclusive basis to provide financial advisory services
to the Company concerning the strategic development of the Company's business, including
assisting in the development of a business strategy to maximize international investor interest and
to raise at least US$20 million in new capital for the Company.
2.
On September 13, 2005, the Company entered into a sale and purchase agreement with Beijing
Holdings, its then 47.18% shareholder, pursuant to which the Company
acquired 51% of the issued
and outstanding stock of CNT.
3.
On September 13, 2005, the Company also entered into an option agreement with Beijing
Holdings to acquire the remaining issued and outstanding stock of CNT. At the Annual Meeting
of Stockholders of the Company held on October 21, 2005, the special resolutions to approve
the acquisition by the Company of the 51% equity interest in CNT and the option to acquire the
remaining 49% equity interest in CNT, were passed.
4.
On March 14, 2003, BBHL entered into a framework
purchase agreement with the Legend (Beijing) Limited for three years. Under which BBHL agreed to provide
the network security products and its maintenance works based on the actual quantities ordered
through purchase orders issued by the Legend Group.
The
contract with the Legend (Beijing) Limited expired in March 2006. We are currently
negotiating the renewal of the contract and sales with the Legend Group since the expiry of
the old contract are conducted on individual basis.
5.
On February 10, 2006, BBHL had entered into a supply contract for a term of two years with the
Legendsec Ltd. at exactly the same terms of that of the Legend Group. Legendsec was a new
company formed in 2004 by a group of experienced salesmen left the Legend Group after the
restructuring of the Legend Group in 2004.
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Table of Contents
6.
On March 20, 2004, Zhejiang Innoessen entered into a
contract with the China New Era Health Industry Group Limited for the purchase of EOB-f02 and
EOB-f04.
7.
On July 27, 2006, Zhejiang Innoessen had entered into
the Anji Memorandum with the Anji
Buyers to, among other things, dispose of its entire 93.67% ownership interest in Anji Bio.
D. Exchange controls.
China's government imposes control over the convertibility of Rmb into foreign currencies. Under
the current unified floating exchange rate system, the People's Bank of China publishes a daily
exchange rate for Rmb, or the PBOC Exchange Rate, based on the previous day's dealings in the
inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an authorized range above or
below the PBOC Exchange Rate according to market conditions.
Pursuant to the Foreign Exchange Control Regulations issued by the State Council on January 29,
1996 and effective as of April 1, 1996 (and amended on January 14, 1997) and the Administration of
Settlement, Sale and Payment of Foreign Exchange Regulations which came into effect on July 1, 1996
regarding foreign exchange control, or the Regulations, conversion of Renminbi into foreign
exchange by foreign investment enterprises for current account items, including the distribution of
dividends and profits to foreign investors of joint ventures, is permissible upon the proper
production of qualified commercial vouchers or legal documents as required by the Regulations.
Foreign investment enterprises are permitted to remit foreign exchange from their foreign exchange
bank account in China upon the proper production of, inter alia, the board resolutions declaring
the distribution of the dividend and payment of profits. Conversion of Rmb into foreign currencies
and remittance of foreign currencies for capital account items, including direct investment, loans,
security investment, is still subject to the approval of the State Administration of Foreign
Exchange, or SAFE, in each such transaction. On January 14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important provision, as
Article 5 provides that the State shall not impose restrictions on recurring international payments
and transfers.
Under the Regulations, foreign investment enterprises are required to open and maintain separate
foreign exchange accounts for capital account items (but not for other items). In addition, foreign
investment enterprises may only buy, sell and/or remit foreign currencies at those banks authorized
to conduct foreign exchange business upon the production of valid commercial documents and, in the
case of capital account item transactions, document approval from SAFE.
Currently, foreign investment enterprises are required to apply to SAFE for "foreign exchange
registration certificates for foreign investment enterprises." With such foreign exchange
registration certificates (which are granted to foreign investment enterprises, upon fulfilling
specified conditions and which are subject to
62
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review and renewal by SAFE on an annual basis) or with the foreign exchange sales notices from the
SAFE (which are obtained on a transaction-by-transaction basis), foreign-invested enterprises may
enter into foreign exchange transactions at banks authorized to conduct foreign exchange business
to obtain foreign exchange for their needs.
E.
Taxation.
The following discussion is a summary of certain anticipated, British Virgin Islands, Cayman
Islands, Hong Kong and PRC tax consequences of an investment in the Common Stock and warrants. The
discussion does not deal with all possible tax consequences relating to an investment in the Common
Stock and warrants and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance companies and
tax-exempt entities) may be subject to special rules. In particular, the discussion does not
address the tax consequences under state, local and other national (e.g., United States,
non-British Virgin Island and non-Hong Kong) tax laws. Accordingly, each prospective investor
should consult its own tax advisor regarding the particular tax consequences to it of an investment
in the Common Stock and warrants. The following discussion is based upon laws and relevant
interpretations there of in effect as of the date of this Annual Report, all of which are subject
to change.
British Virgin Islands Taxation
.
Under the International Business Companies Act of the British Virgin Islands as currently in
effect, a holder of Common Stock who is not a resident of the British Virgin Islands is exempt from
British Virgin Islands income tax on dividends paid with respect to the Common Stock and all
holders of Common Stock are not liable to British Virgin Islands income tax on gains realized
during the year on sale or disposal of such shares; the British Virgin Islands does not impose a
withholding tax on dividends paid by the Company incorporated under the International Business
Companies Act.
There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on
companies incorporated under the International Business Companies Act. In addition, the Common
Stock is not subject to transfer taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between the United States and the
British Virgin Islands.
Hong Kong Taxation
Under the laws of Hong Kong, as currently in effect, a holder of Common Stock is not subject to
Hong Kong tax on dividends paid with respect to such shares and no holder of Common Stock is liable
for Hong Kong tax on gains realized on sale or other disposition of such Common Stock except that
those persons who are classified for Hong Kong purposes as dealers in securities in Hong Kong may
be subject to Hong Kong tax in respect of any gain resulting on the disposition of Common Stock.
Hong Kong does not impose a withholding tax on dividends paid by the Company or its subsidiaries.
In addition, the Company will not be subject to Hong Kong taxes as a result of its receipt of
dividends from any of its subsidiaries.
China Taxation
There are
no material China tax consequences to holders of Common Stock solely as a result of the
purchase, ownership and disposition of such Common Stock. There is an income tax treaty in effect
between the United States and China.
Cayman Island Taxation
The Cayman Islands currently have no exchange control restrictions and no income, corporate or
capital gains tax, estate duty, inheritance tax, gift tax or withholding tax applicable to the
Company or any holder of shares. Accordingly, payment of dividends on, and any transfer of, the
shares will not be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax
will be required on such payments to any holder of a share and gains derived from the sale of
shares will not be subject to Cayman Islands income or corporation tax. The Cayman Islands are not
party to any double taxation treaties.
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F.
Dividends and paying agents.
Not Applicable
G.
Statement by experts.
Not Applicable.
H.
Documents on display.
We have previously filed with the Commission our registration statement on Form F-1, as amended,
and our prospectus under the Securities Act of 1933, with respect to our ordinary shares.
We are subject to the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the Securities and Exchange Commission. Specially, we are
required to file annually a Form 20-F no later than six month after the close of each fiscal year,
which is December 31. Copies of reports and other information, when so filed, may be inspected
without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the Securities and Exchange Commission at Judiciary Plaza, 100 F. Street, N.E.,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public
Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a Web site at
www.sec.gov that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the
furnishing and content of quarterly reports and proxy statements, and officers, directors and
principal shareholders are exempt from the reporting requirements pursuant to Section 16 of the
Exchange Act.
Our financial statements have been prepared in accordance with U.S. GAAP.
We will furnish our shareholders with annual reports and all required interim reports, which will
include a review of operations and consolidated financial statements (unaudited for interm report
and audited for annual report) prepared in conformity with U.S. GAAP.
Documents concerning the Company that are referred to in this document may also be inspected at our
office, which is Room 2413-18, Shui On Centre, 8 Harbour Road, Wanchai, Hong Kong.
Subsidiary Information.
Not Applicable
Item 11 Quantitative and Qualitative Disclosures About Market Risk.
Foreign exchange risk
We are exposed to the risk of foreign currency exchange rate fluctuation. We have never used
derivative instruments to hedge our exchange rate risks, do not plan to do so, and may not be
successful should we attempt to do so in the future. Nevertheless, we believe such risk is low as
no foreign currency liabilities are incurred and the principal operations are limited solely to the
China market.
Our
functional currency is the Renminbi. Transactions in other currencies
are recorded in Renminbi at the
rates of exchange prevailing when the transactions occur. Monetary assets and liabilities
denominated in other currencies are converted into Renminbi at rates of exchange in effect at the
balance sheet dates. Exchange gains and losses are recorded in our statements of operations as a
component of current period earnings.
The China State Administration for Foreign Exchange, under the authority of the People's Bank of
China, controls the conversion of Renminbi into foreign currencies. The principal regulation
governing foreign
64
Table of Contents
currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under
the Rules, once various procedural requirements are met, Renminbi is convertible for current account
transactions, including trade and services, but not for capital account transactions, including
direct investment, loan or investment in securities outside China, unless the prior approval of the
State Administration of Foreign Exchange of China is obtained. Although
the Chinese government regulations now allow greater convertibility of Renminbi for current account
transactions, significant restrictions still remain. Currently, BBHL,
our Chinese subsidiary, is not
involved in foreign exchange transactions as all transactions are completed in Renminbi.
The value of the Renminbi is subject to changes in China's central government policies and to
international economic and political developments affecting supply and demand in the China Foreign
Exchange Trading System market. Since 1994, the conversion of Renminbi into foreign currencies,
including U.S. dollars, has been based on rates set by the People's Bank of China, which are set
daily based on the previous day's interbank foreign exchange market rates and current exchange
rates on the world financial markets. Since 1994, the official exchange rate generally has been
stable. However, recently there has been increased political pressure
on the Chinese government to
decouple the Renminbi from the U.S. dollar.
We conduct
substantially all of our operations through our Chinese operating companies, and their
financial performance and position are measured in terms of Renminbi. Any devaluation of the Rmb against
the United States dollar would consequently have an adverse effect on our financial performance and
asset values when measured in terms of United States dollar. Our solutions are primarily procured,
sold and delivered in China for Renminbi. The majority of our revenues are denominated in Renminbi. Should
the Renminbi devalue against United States dollar, such devaluation could have a material adverse effect
on our profits and the foreign currency equivalent of such profits
repatriated by the Chinese entities
to us. In addition, from time to time we may have United States dollar denominated borrowings, and
therefore a decoupling of the Renminbi may affect our financial performance in the future.
Interest rate risk
We are exposed to interest rate risk arising from having short-term variable rate borrowings from
time to time. Our future interest expense would fluctuate in line with any change in our borrowing
rates. We do not have any derivative financial instruments and believe our exposure to interest
rate risk and other relevant market risks is not material.
Inflation
In recent years, China has not experienced significant inflation, and thus inflation has not had a
material impact on our results of operations in recent years. According to the National Bureau of
Statistics of China, the change in Consumer Price Index in China was — 1.2%, 3.9% and 1.8% in 2003,
2004 and 2005 respectively.
65
Table of Contents
Item 12 Description of Securities Other than Equity Securities.
Not Applicable.
66
Table of Contents
PART II
Item 13 Default, Dividend Arrearages and Delinquencies.
None.
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds.
Not applicable.
Item 15 Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, our
company's management, including our chief executive officers and our chief financial officer, is
responsible for establishing and maintaining effective disclosure controls and procedures, as
defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. As of
December 31, 2005, an evaluation was performed under the supervision and with the participation of
management, including our chief executive officers and our chief financial officer, of the
effectiveness of our company's disclosure controls and procedures. Based on that evaluation, our chief executive officers and our chief
financial officer concluded that our company's disclosure controls and procedures as of December
31, 2005 were not effective because management has identified certain internal control deficiencies in our
internal control over financial reporting that they considered to constitute material weaknesses in
our internal control over financial reporting.
The internal control deficiencies that were identified as material weaknesses include: (1)
inability to exercise sufficient operational and financial control over a newly acquired
subsidiary, which is particularly obvious after disagreement in corporate direction existed between
the Company and the management of the subsidiary since early 2006; (2) lack of adequate accounting
personnel with sufficient U.S. GAAP technical expertise, including insufficient complement of
financial reporting personnel commensurate with the Company's financial reporting requirements and
insufficient formalized and consistent finance and accounting policies and procedures to detect
instances of non-compliance with such existing policies and procedures; and (3) inadequate
enforcement in respect of segregation of duties in functional access to accounting system of our
subsidiaries.
Our management, including our chief executive officers and our chief financial officer,
acknowledged that our company's internal controls suffered from the internal control deficiencies
identified. Our management are committed to remedy these deficiencies to our company's internal
controls and has planned to implement a series of remedial measures, including, among other things:
(1) establishment of a dedicated team led by our audit committee to reassess the procedures dealing
with controls over subsidiaries, including the system of the appointment of management to
subsidiaries, financial reporting system of subsidiaries and the communication system with
subsidiaries; (2) provision of additional training to our accounting personnel on the requirements
of U.S. GAAP to increase their familiarity with those standards and expansion of our finance
function by recruiting additional qualified accountants as well as the reassessment of our existing
finance and accounting policies and procedures; and (3) establishment of the information technology
department for reinforcement of overall controls on our information technology environment, with
particular focuses on the segregation of duties in financial accounting system and implementation
of effective policies and procedures to ensure the existence of a regulated information technology
operation of the Group.
Our management, however, believes that the lack of control over the newly acquired subsidiary is
mainly caused by our disputes over corporate direction between us and which is mainly caused by
lack of communication with the subsidiary, particularly when we are
keen to upgrade the
subsidiary's control standards to listed company standards after acquired. Nevertheless, we
believes that none of these internal control deficiencies have had a material effect on our
financial condition or results of operations or caused our financial statements as of and for the
year ended December 31, 2005 to contain a material misstatement.
Management of us target to
complete the entire ratifications of the above weaknesses within the year ending December 31, 2007.
Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include a management's internal
control report with our Annual Report on Form 20-F for the fiscal year ending December 31, 2007.
The Company will start the exercise of evaluation, designing and implementing processes to improve
our internal controls to comply with the requirements of the Sarbanes-Oxley Act of 2002 soon. The
exercise will be supervised and with the participation of our management, including our chief
executive officers and our chief financial officer. We are currently still reviewing our efforts to
improve our internal controls and may in the future identify additional deficiencies to our
internal controls. Should we discover any additional deficiencies, we will take appropriate
measures to correct or improve of our internal controls. See the section headed "Item 3. Key
Information — Risk Factors — Compliance with requirements under Section 404 of the Sarbanes-Oxley
Act of 2002".
Item 16A Audit Committee Financial Expert
The Board has nominated Mr. Peter Fu, Mr. L C Wan and Mr. Yezhong Ni, independent directors, as
members of the Audit Committee, and Mr. L C Wan as the financial expert as defined under the
applicable rules of the SEC issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.
Item 16B. Code of Ethics
The Code of Ethics for the members of the Company's Board of Directors and Officers was approved by
the Board of Directors on April 28, 2005 and is filed as Exhibit 14.1 hereto.
Item 16C. Principal Accountant Fees and Services
Audit Fees
67
Table of Contents
The audit fee of PricewaterhouseCoopers, our independent registered public accounting firm for the
fiscal years ended December 31, 2005 and 2004, amounted to Rmb
1.77 million and Rmb 0.61 million
respectively.
Audit-Related Fees
Except as described above, no other audit-related fees were paid by us for the fiscal years ended
December 31, 2005 and 2004 to PricewaterhouseCoopers and other professional accounting firms.
Tax Fees
Taxation review services performed by PricewaterhouseCoopers were included as part of their audit
works for the fiscal years ended December 31, 2005 and 2004 and thus no separate bills were issued
to us. For statutory tax filings of BHLHK requested by the applicable regulations in Hong Kong for
the fiscal years ended December 31, 2005 and 2004, it was performed by S L Lee & Lau. S L Lee &
Lau charged a fee of Rmb 3,000 for the 2004 filing and fee of 2005
was not yet agreed up to the date
of this report
.
All Other Fees
Other than
audit fee, a fee of Rmb 104,000 was charged by PricewaterhouseCoopers
for their advisory services provided to the Company in answering technical enquires
from the SEC in October 2005. On August 9,
2005, a fee of Rmb 20,800 was also charged by PricewaterhouseCoopers,
at the request of the Company, for
issuance of a letter of consent to
include its audit report dated June 30, 2005 with the
Company's Registration Statement on Form S-8 filed on
August 11, 2005. PricewaterhouseCoopers did not provide
any products or render any professional services, other than those disclosed above during either of
the fiscal years ended December 31, 2005 or December 31, 2004.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The policy of our directors who perform the functions customarily performed by an audit committee
is to pre-approve all audit and permissible non-audit services provided by the independent
auditors. These services may include audit services and other services.
Audit of Financial Statements
PricewaterhouseCoopers is our principal independent registered public accounting firm. S L Lee &
Lau was engaged to file the Hong Kong tax returns of BHLHK.
Item 16D. Exemptions from the Listing Standards for Audit Committee.
Not applicable
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers.
1.
On October 31, 2005, the transaction to acquire from Beijing Holdings the 51% equity
interest of the issued and outstanding stock of CNT was closed and as a result of the closing
of the transaction, the Company , issued 2,233,800 shares of the Company's common stock of
US$0.01 each to Beijing Holdings. After the closing of the transaction, Beijing Holdings'
ownership in the Company increased from 47.18% to 60.11% and the
Company had total outstanding shares of 9,128,297 shares.
2.
On December 22, 2005, the Company exercised the option to acquire from Beijing Holdings the
remaining 49% equity interest of CNT and closed the transaction on the same day. As a result
of the closing of the transaction, the Company became the shareholder of 100% equity interest
in CNT and, in return, issued 2,146,200 new shares of the Company's common stock of US$0.01
each to Beijing Holdings. Beijing Holdings' ownership increased to 62.73% of the total issued
and outstanding shares of 11,274,497 shares.
68
Table of Contents
3.
On December 22, 2005, Beijing Holdings entered into a Placing Agreement with Best Scene
Management Limited ("Best Scene"), a company in which Mr. Alan Li, our the executive director
and Co-Chief Executive Officer, had an equity interest. Pursuant to the Placing Agreement,
Best Scene was appointed the placing agent, on a fully underwritten
basis, to sell, on behalf of Beijing Holdings, up to
1,100,000 shares of the Company's common stock (the "Placing Shares") to certain placees at a
fixed price of US$2.15 per Placing Share. As of January 9, 2006, an aggregate of 560,000
Placing Shares had been successfully sold to certain placees who were not connected parties of
the Company.
Item 17 Financial Statements.
The Company has elected to provide Financial Statements pursuant to Item 18 (see below).
Item 18 Financial Statements.
The following documents are filed as Attachment A hereto and are included as part of this Annual
report on Form 20-F.
Financial Statements.
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Operations and Comprehensive Income for each of the three years ended
December 31, 2003, 2004 and 2005.
Consolidated Balance Sheets as of December 31, 2004 and 2005.
Consolidated Statements of Cash Flows of the company and subsidiaries for each of the three years
ended December 31, 2003, 2004 and 2005.
Consolidated Statements of Changes in
Shareholders' Equity for each of the three years
ended December 31, 2003, 2004 and 2005.
Notes to Consolidated Financial Statements.
Item 19 Exhibits.
The following exhibits are filed as part of this Annual Report:
3.1
Amended Memorandum and Articles of Association of China Technology Development Group
Corporation.
10.1
Agreement with Ivory Capital Asia Pte Ltd. dated July 12, 2005.
10.2
Agreement with Beijing Holdings Limited to acquire 51% of CNT dated September 13, 2005.
10.3
Option Agreement with Beijing Holdings Limited to acquire 49% of CNT dated September 13, 2005.
10.4
Supply of Goods Agreement with New Era Health Industry Group
Limited dated March 22, 2004 (translated version).
10.5
Framework Agreement with the Legend (Beijing) Limited dated
March 14, 2003 (translated version).
10.6
Framework Agreement with Legendsec (Beijing) Limited dated
February 10, 2006 (translated version).
10.7
Memorandum Agreement with Mr. Hu Linfu and Madam Chen Shuizhen for termination of the
co-operation in Anji Bio dated July 27, 2006 (translated version).
14.1
Code of Ethics for CEO and Senior Financial Officers.
21.1
List of the company's significant subsidiaries, their jurisdiction of incorporation and the
names under which they operate business, if different from their name.
69
Table of Contents
31.1
Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of
2002 (by Xu Qian).
31.2
Certification of Co-Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of
2002 (by Alan Li).
31.3
Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of
2002.
32.1
Certification of Chief Executive Officer, Co-Chief Executive Officer and Chief Financial Officer required by Section 906
of the Sarbanes-Oxley Act of 2002.
70
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing Form 20-F and has
duly caused and authorized the undersigned to sign this Annual Report on its behalf.
CHINA TECHNOLOGY DEVELOPMENT
GROUP CORPORATION
Date
:
September
19
,
2006
/s/ Michael Siu
Name:
Michael Siu
Title:
Executive Director, Chief Financial
Officer and Secretary
73
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
F – 2
Consolidated Statements of Operations for
each of the three years ended December 31, 2003, 2004 and 2005
F – 3
Consolidated Balance Sheets as of December 31, 2004 and 2005
F - 4
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 2003, 2004 and 2005
F - 5
Consolidated Statements of Changes in Shareholders' Equity for each
of the three years ended December 31, 2003, 2004 and 2005
F - 8
Notes to Consolidated Financial Statements
F - 9
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
China Technology Development Group Corporation
(Formerly known Tramford International Limited)
We have audited the accompanying consolidated balance sheets of China Technology Development
Group Corporation and its subsidiaries ("the Group") as of
December 31, 2005 and 2004, and the
related consolidated statements of operations, cash flows and changes in shareholders' equity for each of the three years in the period ended December 31,
2005. These financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of China Technology Development Group Corporation and its
subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers
Hong Kong, September 19, 2006.
F-2
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
for the years ended December 31, 2003, 2004 and 2005
Note
2003
2004
2005
2005
Rmb
Rmb
Rmb
US$
(Note 2(e))
Continuing operations:
Revenues
22
8,405
2,720
7,503
930
Cost of sales
(4,421
)
(1,394
)
(3,290
)
(408
)
Gross profit
3,984
1,326
4,213
522
Selling, general and
administrative expenses
(8,362
)
(7,768
)
(21,971
)
(2,721
)
Impairment of goodwill
—
(4,337
)
—
—
Bad debt expense
—
—
(128
)
(16
)
Operating loss
22
(4,378
)
(10,779
)
(17,886
)
(2,215
)
Interest income
119
243
302
37
Finance cost
—
—
(11
)
(1
)
Non-operating income
4
2,310
167
276
34
Non-operating expenses
5
—
—
(2,628
)
(326
)
Loss before income tax provision
(1,949
)
(10,369
)
(19,947
)
(2,471
)
Income tax provision
6
(249
)
—
(9
)
(1
)
Loss from continuing operations
before minority interests
(2,198
)
(10,369
)
(19,956
)
(2,472
)
Minority interests – continuing
operations
890
—
712
88
Loss from continuing operations
(1,308
)
(10,369
)
(19,244
)
(2,384
)
Discontinued operations:
7
Income/(loss) from discontinued
operations including loss on
disposal of Rmb 509 on March
31, 2005
366
254
(288
)
(36
)
Net loss for the year
(942
)
(10,115
)
19,532
(2,420
)
Loss per share
17
- Basic and dilutive
(0.14
)
(1.47
)
(2.67
)
(0.33
)
Loss per share from continuing
operations
- Basic and dilutive
(0.19
)
(1.51
)
(2.63
)
(0.33
)
Income/(loss) per share from
discontinued operations
- Basic and dilutive
0.05
0.04
(0.04
)
(0.00
)
Weighted-average ordinary shares
17
- Basic and dilutive
6,894
6,894
7,327
7,327
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
at December 31, 2004 and 2005
Note
2004
2005
2005
Rmb
Rmb
US$
(Note 2(e))
ASSETS
CURRENT ASSETS
Cash and cash equivalents
5,255
18,324
2,271
Short-term investments — security trust account
6,872
109
13
Available-for-sale securities
12,730
366
45
Trade accounts receivable, net
1,060
791
98
Inventories
1,192
2,586
320
Due from related parties
18
10,111
8,447
1,047
Other assets
8
1,087
1,462
181
TOTAL CURRENT ASSETS
38,307
32,085
3,975
Long-term prepayment for rental of land
9
—
528
65
Property, plant and equipment, net
10
49
9,169
1,136
Intangible assets
11
—
6,541
811
Goodwill
12
999
69,526
8,615
TOTAL ASSETS
39,355
117,849
14,602
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable
175
572
71
Consideration payable on the acquisition of an
operating unit
1,950
—
—
Accrued professional fees
888
3,869
480
Income tax payable
249
245
30
Value added tax and business tax payable
781
41
5
Deferred government grants
13
—
230
28
Short term borrowings
14
—
3,569
442
Due to related parties
18
—
889
110
Deferred tax liabilities
—
492
61
Other liabilities and accrued expenses
15
2,458
3,719
461
TOTAL CURRENT LIABILITIES
6,501
13,626
1,688
Contingencies and commitments
21
Minority interests
—
5,515
683
SHAREHOLDERS' EQUITY
Common stock (US$0.01 par value; 2,500,000,000
shares authorized; shares issued and
outstanding 9,044,888 in 2004 and 11,274,497
in 2005)
20
749
910
113
Additional paid-in capital
20
187,159
269,924
33,447
Accumulated deficit
(151,644
)
(171,176
)
(21,211
)
Accumulated other comprehensive losses
(3,232
)
(950
)
(118
)
Treasury stock, at cost (2,150,391 shares in
2004 and Nil shares in 2005)
20
(178
)
—
—
TOTAL SHAREHOLDERS' EQUITY
32,854
98,708
12,231
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
39,355
117,849
14,602
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
for the years ended December 31, 2003, 2004 and 2005
2003
2004
2005
2005
Rmb
Rmb
Rmb
US$
(Note 2(e))
Cash flows from operating activities
Net loss
(942
)
(10,115
)
(19,532
)
(2,420
)
Adjustments to reconcile net loss to net cash
used in operating activities
Minority interests in loss of consolidated
subsidiaries
(890
)
—
(712
)
(88
)
Amortization/written off of intangible asset and
software development costs
1,085
—
692
86
Stock-based compensation
—
—
3,176
394
Impairment of goodwill
—
4,748
—
—
Amortization of long-term prepayment for rental of land
—
—
2
1
Depreciation
475
76
376
47
Dividend income
(295
)
(67
)
(115
)
(14
)
Profit on disposal of property, plant and equipment
—
—
(1
)
(1
)
(Gain)/ loss on disposal of available-for-sale
securities
(2,005
)
(100
)
2,596
322
Loss on disposal of discontinued operations
—
—
509
63
Bad debt expense
—
—
128
16
Changes in assets and liabilities:
(Increase)/ in trade accounts receivable
(66
)
1,595
321
40
Decrease in trading securities
49
—
—
—
Decrease/(increase) in inventories
512
(485
)
79
10
(Increase)/decrease in due from related parties
and other assets
(263
)
228
(7.621
)
(946
)
(Decrease)/increase in trade accounts payable,
amount due to a related party and other current
liabilities
(2,676
)
1,110
1,904
236
Increase/(decrease)
in income taxes payables
249
—
(4
)
(1
)
Decrease in income tax recoverable
—
—
35
4
Net cash used in operating activities
(4,767
)
(3,010
)
(18,167
)
(2,251
)
Cash flows from investing activities
Security trust account
2,275
4,393
6,763
838
Dividend income
295
67
115
14
(Increase)/decrease
in funds held by related parties
for security investment purposes (Note 18)
(2,578
)
1,097
10,081
1,249
Acquisition
of subsidiaries, net of cash acquired (Note (a))
—
—
(35
)
(4
)
Net cash and
cash equivalents disposed of upon disposal of discontinued operations
(Note (b))
—
—
(350
)
(44
)
Proceeds from disposal of available-for-sale
securities
11,810
4,788
12,511
1,550
Purchase of available-for-sales securities
(11,454
)
(9,443
)
—
—
Purchases of property, plant and equipment
(29
)
(37
)
(879
)
(109
)
Proceeds
on disposal of fixed assets
—
—
1
1
Net cash provided by investing activities
319
865
28,207
3,495
(Continued)
F-5
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
for the years ended December 31, 2003, 2004 and 2005
(Continued)
2003
2004
2005
2005
Rmb
Rmb
Rmb
US$
(Note 2(e))
Cash flows from financing activities
Proceeds from borrowings
—
—
3,500
434
Repayments of borrowings
—
—
(10
)
(1
)
Net cash provided by financing activities
—
—
3,490
433
Effect of exchange rate changes on cash and cash
equivalents
(355
)
—
(461
)
(57
)
Net
(decrease)/increase in cash and cash equivalents
(4,803
)
(2,145
)
13,069
1,620
Cash and cash equivalents at beginning of year
12,203
7,400
5,255
651
Cash and cash equivalents at end of year
7,400
5,255
18,324
2,271
Supplemental
disclosure of cash flow information
Income taxes
paid
—
—
—
—
Interest
paid
—
—
11
1
Supplemental
disclosure non-financing activities
Issue of new
shares for business combination (Note 3)
—
—
79,928
9,904
Stock
options granted (Note 16)
—
—
3,176
393
F-6
Table of Contents
Note(a)
Purchase of China Nature Technology Inc. (Refer to Note 3 for details)
2005
Rmb
Net assets acquired (excluding cash & cash equivalents):
Trade accounts receivable, net
108
Inventories
1,473
Due from related parties
21
Income tax recoverable
35
Other assets
1,638
Long-term prepayment for rental of land
530
Property, plant and equipment, net
8,617
Intangible asset
6,891
Goodwill
38,457
Trade accounts payable
(271
)
Deferred government grants
(273
)
Due to a related party
(204
)
Short term borrowings
(79
)
Deferred tax liabilities
(251
)
Other liabilities and accrued expenses
(913
)
Minority interests
(11,804
)
43,975
)
Discharged by:
Issuance of
shares at fair value
43,523
Capitalized
expenses directly incurred in acquisition of CNT
*
936
Less: Cash
and cash equivalents acquired from CNT
(484
)
Total net consideration
43,975
* Out of the capitalized acquisition expenses, an aggregate of Rmb
417 was
still unpaid as of December 31, 2005.
Note(b)
Disposal of discontinued operations (Refer to Note 7 for details)
2005
Rmb
Net assets disposed of (excluding cash & cash equivalents):
Trade accounts receivable, net
56
Other assets
18
Goodwill
999
Income tax payables
(753
)
Other liabilities and accrued expenses
(161
)
159
Loss on disposal of discontinued operations
(509
)
(350
)
Discharged by:
Cash
and cash equivalents disposed
(350
)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands)
for the years ended December 31, 2003, 2004 and 2005
Accumulated
Stock
other
Total
Options
Accumulated
comprehensive
shareholders'
No. of
Equity
Granted
losses
losses
equity
shares
Rmb
Rmb
Rmb
Rmb
Rmb
Balance at December
31, 2002
6,894,497
187,730
—
(140,587
)
(643
)
46,500
Net loss
—
—
(942
)
—
(942
)
Net unrealized gain
on
available-for-sale
securities
—
—
—
401
401
Less: Reclassification
adjustment for loss
realized on sale (Note (a))
—
—
—
587
587
Translation
adjustment
—
—
—
(355
)
(355
)
Total comprehensive loss for the year
(633
)
Balance at December
31, 2003
6,894,497
187,730
—
(141,529
)
(10
)
46,191
Net loss
—
—
(10,115
)
—
(10,115
)
Net unrealized loss
on
available-for-sale
securities
—
—
—
(3,222
)
(3,222
)
Total comprehensive loss for
the year
(3,222
)
Balance at December
31, 2004
6,894,497
187,730
—
(151,644
)
(3,232
)
32,854
Issue of shares
4,380,000
79,928
—
—
—
79,928
Stock options
granted
3,176
—
—
3,176
Net loss
—
(19,532
)
—
(19,532
)
Net unrealized loss
on
available-for-sale
securities
—
—
(147
)
(147
)
Less: Reclassification
adjustment for loss
realized on sale (Note (a))
—
—
2,890
2,890
Translation
adjustment
—
—
(461
)
(461
)
Total comprehensive loss for
the year
(2,282
)
Balance at December
31, 2005
11,274,497
267,658
3,176
(171,176
)
(950
)
98,708
US$
US$
US$
US$
US$
Balance at December
31, 2005
(Note 2(e))
33,166
394
(21,211
)
(118
)
12,231
Note (a): The
cost of securities sold on the amount reclassified out of accumulated
other comprehensive income into earnings was determined
based on a specific identification basis.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
1
Nature of operations and basis of presentation
China Technology Development Group Corporation (the "Company" or "CTDC") (formerly known as
Tramford International Limited and was renamed to CTDC on January 9, 2006) was incorporated under
the laws of the British Virgin Islands on September 19, 1995 as a holding company. The
consolidated financial statements include the financial statements of the Company and its
subsidiaries (hereinafter collectively referred to as the "Group").
On May 8, 2000, Jingle Technology Limited ("JTL"), a 100% subsidiary of CTDC, was formed to
act as an investment holding company within the Group. Effective July 1, 2000, JTL purchased 100%
interests in BHL Networks Technology Co. Ltd. ("BHLNet"), which in turn holds 76% interest in
Beijing BHL Networks Technology Co. Ltd ("BBHL"), for a consideration of Rmb21,959. Pursuant to
agreements entered into among the Group and the vendors in September 2002, the consideration was
reduced from Rmb21,959 to Rmb20,262. BBHL is a Sino-foreign equity joint venture and is
principally engaged in the provision of information technology and network security consultancy
services and sales of computer related products in the People's Republic of China ("China" or the
"PRC"). BHLNet and BBHL are hereinafter referred to
collectively as the "IT Operations". The IT
Operations continue to engage in the provision of information technology and network security
consultancy services and the development of network security software for all years presented. The
other wholly owned subsidiary of CTDC, BHL Networks Technology Company Limited ("BHLHK")(formerly Jing Tai
Industrial Investment Company Limited), acts as the treasury center for the Group.
On September 13, 2005, CTDC entered into a sale and purchase agreement with Beijing Holdings
Limited ("Beijing Holding"), its then 47.18% shareholder, pursuant to which the Company acquired
51% of the issued and outstanding stock of Future Solutions Development Inc. (subsequently renamed
to China Natures Technology Inc. on November 25, 2005, "CNT"). At the same day, the Company also
entered into an option agreement with Beijing Holdings to acquire the remaining issued and
outstanding stock of CNT. At the Annual Meeting of Stockholders of the Company held on October 21,
2005, the special resolutions to approve the acquisition by the Company of the 51% equity interest
in CNT and the option to acquire the remaining 49% equity interest in CNT were passed.
Effective October 31, 2005, CTDC purchased 51% interests in CNT at a consideration of
2,233,800 shares of CTDC. Effective December 22, 2005, CTDC exercised the option to acquire the
remaining 49% interests of CNT at a consideration of 2,146,200 shares of CTDC.
CNT holds 71.43% interests in Zhejiang University (Hangzhou) Innoessen Bio-technology Inc.
("Zhejiang Innoessen"). Zhejiang Innoessen then holds 93.67% interests in Anji Science Bio-Product
Inc. ("Anji Bio"). Shenzhen Innoessen Bio-tech Inc. ("Shenzhen Innoessen') was a wholly owned
subsidiary of CNT and was formed as  CNT's sales and marketing center for South China. CNT, Zhejiang Innoessen, Anji Bio and Shenzhen Innoessen are hereinafter referred to
collectively as the "Nutraceutical Operations". The Nutraceutical Operations are engaged in the
development, manufacturing and marketing of healthfood products utilizing bio-active components of bamboo.
The accompanying financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP"), present the consolidated
results of the operations of the Group. All intercompany balances and transactions have been
eliminated in the consolidated financial statements of the Group.
The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period.
Accounting estimates have been employed in these financial statements to determine reported
amounts, including realizability of receivables and other assets, useful lives of assets and income
taxes. Actual results could differ from those estimates.
The financial information has been prepared in Renminbi (Rmb), the national currency of the
PRC and also the functional currency of the Group (see also footnote 2(e)). Unless indicated
otherwise, amounts in Renminbi have been rounded to the nearest thousand.
As of December 31, 2005, the list of subsidiaries, their jurisdiction of incorporation and
our respective effective shareholding in each of the subsidiaries were shown as follows:
Effective percentage
Name of Company
Jurisdiction
Shareholding
BHLHK
Hong Kong
100
%
JTL
BVI
100
%
BHLNet
Cayman Islands
100
%
BBHL
China
76
%
CNT
BVI
100
%
Zhejiang Innoessen
China
71.43
%
Anji Bio.
China
66.91
%
Shenzhen Innoessen
China
100
%
F-9
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
2
Summary of significant accounting policies
The following is a summary of significant accounting policies followed by the Group in the
preparation of the financial statements.
(a) Consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries as of December 31, 2004 and 2005, and the statements of operations, cash flows and
changes in shareholders' equity for the years ended December 31, 2003, 2004 and 2005. All
significant inter-company balances and transactions have been eliminated during consolidation.
Subsidiaries are those entities in which the company, directly or indirectly, controls the
composition of the board of directors, controls more than half the voting power or holds more than
half of the issued share capital.
The results of subsidiaries acquired or disposed of during the year are included in the
consolidated statements of operations from the effective date of acquisition or up to the effective
date of disposal, as appropriate. The gain or loss on disposal of a subsidiary represents the
difference between the proceeds of the sale and the Company's share of its net assets together with
any unamortized goodwill or goodwill/negative goodwill taken to reserves and which was not
previously charged or recognized in the consolidated statements of operations.
Minority interests represent the interest of outside shareholders in the operating results and
net assets of subsidiaries.
In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial
Interpretation ("FIN") No. 46 which requires certain variable interest entities (the "VIEs") to be
consolidated by the primary beneficiary of the entity if the ownership interest held by the equity
investors in the entity does not have characteristics of a controlling financial interests or does
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 was effective for all new VIEs created or
acquired after December 15, 2003, the FASB issued FIN 46 (revised), which provides for the deferral
of the implementation date to the end of the first reporting period after March 15, 2004, unless
the Company has a special purpose entity, in which case the provisions must be applied for fiscal
years ending December 31, 2003. There was no impact to the financial statements upon adoption of FIN 46R.
(b) Revenues
Revenues arise from product sales and the rendering of services. Revenue is generally
recognized when all of the following criteria are met (i) persuasive evidence of an arrangement
exists; (ii) delivery has occurred or services have been rendered; (iii) the sellers' price to the
buyer is fixed or determinable, and (iv) collectibility is reasonably assured. Specifically,
product sales represent the invoiced value of goods, net of discounts, supplied to customers.
Revenues of product sales are recognized upon delivery to customers and when title has passed. Rendering of
services represent fees charged on the provision of information technology and network security
consultancy services. Fees on such services are recognized upon the completion of the underlying
services and collectibility to the fees is reasonably assured.
(c) Taxation
Deferred income taxes are provided using the liability method under Statement of Financial
Accounting Standards ("SFAS") No.109, "Accounting for Income Taxes". Under the liability method,
deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the carrying amounts of existing assets and liabilities in the
financial statements and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be recovered or settled. The tax
consequences of these differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely than not that
some portion of, or all of, the deferred tax assets will not be realized.
(d) Concentration of credit risk and major customers
The Group is engaged in the provision of information technology and network security services
and the development, manufacturing and marketing of nutraceutical products to a wide range of industries and end users
within the PRC. All the Group's revenue is derived from sales to customers located in the PRC.
Accordingly, the Group's trade accounts receivable are concentrated with respect to both geography
and customer. The Group performs ongoing credit evaluations of its customers and generally does
not require collateral. Approximately, 6.28%, 18.59% and 32.97% of the total revenues were
contributed by 3 major customers during the year ended December 31, 2005.
F-10
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
2
Summary of significant accounting policies (continued)
(e) Foreign currency transaction gains and losses and translation of foreign currencies
All foreign currency transaction gains and losses are recognized as other non-operating
income/(expense) in the consolidated statements of operations.
The Renminbi is not freely convertible into foreign currencies. The PRC Government has
instituted a single regulated floating exchange rate system principally based on market supply and
demand. Under this system, a nationwide inter-bank foreign market has been established by
designating certain banks as authorised foreign exchange banks where Renminbi can be converted into
foreign currencies subject to prior approval from the PRC State Administration of Exchange Control.
The
functional currency of the Group is Renminbi. The functional currency of BBHL, Zhejiang Innoessen, Anji Bio and Shenzhen Innoessen is
Renminbi. Its business is primarily conducted in China and denominated in Renminbi.
The functional currency of CTDC and its other subsidiaries is Hong Kong dollar. The financial
statements of CTDC and these subsidiaries are translated into Renminbi, using exchange rates in
effect at period end, wherever appropriate, for assets and liabilities and average exchange rates
during each reporting period for results of operations. Adjustments resulting from the translation
of financial statements are reflected as a separate component of shareholders' equity.
For the convenience of the reader, a translation of amounts from Renminbi (Rmb) into United
States Dollars (US$) has been made at the noon buying rate in New York City for cable transfer in
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2005 of Rmb 8.0702 = US$1.00. Such translations should not be construed as
representations that the Renminbi amounts represent or have been or could have been converted into
United States dollars at that or any other rate.
(f) Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the
respective assets. Upon retirement or sale, the cost of disposed assets and the related accumulated
depreciation are deducted from the respective accounts and the resulting gain or loss is included
as other non-operating income/(expense) in the consolidated statement of operations. Maintenance
and repair costs are expensed as incurred. The estimated useful lives of property, plant and
equipment are as follows:
Building
20 years
Plant and machineries
10 years
Motor vehicles
5 years
Furniture, fixtures, office and computer equipment
3 years
(g) Prepayment for rental of land
Prepayment
for rental of land represents up-front payments to acquire long-term
interests in lessee occupied properties. The premiums are stated at cost and are amortised over the period of the lease on a straight-line basis to the consolidation statements of operations
(h) Intangible assets
Intangible
assets represent the extraction of bamboo
flavonoids and its related application patents obtained through the acquisition of the
Nutraceutical Operations on October 31, 2005. The extraction of
bamboo flavonoids (the core technology) is recognized at
fair value upon acquisition and is amortized on a straight-line basis over its estimated useful
life of eight years. The related application patents of the
extraction of bamboo flavonoids (the completed technologies) are
recognized at fair value upon acquisition and are amortized on a
straight-line basis over the
estimated useful life of five years. The acquired in-process research and
development technologies is immediately expensed off.
(i) Goodwill
Goodwill represents cost in excess of the fair value of net assets acquired and was amortized
on a straight-line basis over a period of five years prior to January 1, 2002. The Group adopted
Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets,
effective January 1, 2002, and ceased the amortization of goodwill. Instead it is tested at least
annually for impairment.
F-11
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
2
Summary of significant accounting policies (continued)
(j) Impairment
Annual impairment test for goodwill is carried out in two steps. The first step of the
impairment test which is used to identify potential impairment, compares the fair value of the
reporting unit with its carrying amount, including goodwill. The fair value is determined by the
forecasted discounted net cash inflows of the reporting unit for a period of five years. If the
carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is
considered impaired. The second step of the impairment test quantifies the amount of the
impairment loss by comparing the carrying amount of goodwill to its implied fair value. An
impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair
value. Goodwill must be tested for impairment at least annually, or more frequently if warranted.
The carrying value of a long-lived asset is considered impaired by the Group when the
anticipated undiscounted cash flow from such asset is less than its carrying value. If an
impairment is identified, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk involved or based
on independent appraisals.
Long-lived assets, including certain identifiable intangibles with finite-lives, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable.
(k) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost includes the
purchase cost of products at invoiced value using a first-in first-out method. Net realizable
value is determined by reference to the sales proceeds of items sold in the ordinary course of
business or to a management estimate based on prevailing market conditions.
(l) Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and liquid
investments with an original maturity of three months or less. The carrying value of cash
equivalents approximates their fair value.
(m) Investment in securities
Investment in securities comprise of available-for-sale which
are carried at fair value, with unrealized gains and losses, if any,
reported, net of tax, in other comprehensive income.
(n) Earnings per share
Basic earnings per share represents income available to common shareholders divided by the
weighted-average number of common stocks outstanding during the period. Diluted earnings per share
reflects additional common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result from the assumed
issuance. Dilutive potential common stocks that may be issued by the Group relate solely to
outstanding stock options and are determined using the
treasury stock method. Effect of stock options is excluded from the computation if the effect would be antidilutive.
F-12
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
2
Summary of significant accounting policies (continued)
(o) Deferred government grants
Grants from the government are recognized at their fair value where there is a reasonable
assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to research and development costs are deferred and recognized in the
consolidated statements of operations over the period necessary to match them with costs which the
government grants are intended to fund. Government grants relating to the purchase of
property, plant and equipment are included in deferred government grants and are recognized in the
consolidated statements of operations on a straight line basis over the expected lives of the
related assets.
(p) Stock-based compensation
The Group grants stock options to its employees and certain non-employees.
The Group applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" and complies with the disclosure provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation – Transition and Disclosure" ("SFAS
No. 148") for options granted to employees. In
general, compensation cost is recognized based on the difference, if any, between the fair value of
the Company's shares and the exercise price as determined on the date the option is granted. Under
APB Opinion No. 25, because the exercise price of all the options issued by the Company to
employees equals or is higher than the market price of the underlying stock on the date of grant,
no compensation expense is recognized. The Group applies SFAS No. 123, as amended by SFAS No. 148 for options granted to
non-employees. A charge for stock-based awards for the services rendered by non-employees using the
Black-Scholes option pricing model are recognized in the consolidated statements of operations by
the Group when incurred.
For the fiscal year ended December 31, 2005, the stock compensation expenses of Rmb2,475
was charged to the selling, general and administrative expenses in the consolidated statements
of operations in respect of the options succeeded by the newly appointed chairman and chief
executive officer, being the difference between the market price of the share of common stock
of the Company and the exercise price of the options. For options granted to employees on September 20, 2005,
there was no impact on the consolidated statements of operations as the exercise of these options
was equal to the market price of the share of common stock of the Company at date of grant.
F-13
Table of Contents
—
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
(p)       Stock-based
compensation (continued)
Stock-based compensation to employees
Had compensation cost for options granted to employees under the Company stock option plans
(the "Plans") been determined based on the fair value at the grant date, as prescribed by SFAS 123
and SFAS 148, the Company's pro forma net loss would have been as follows:
December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Net loss for the year, as reported
(942
)
(10,115
)
(19,532
)
Add:
stock-based compensation as reported
—
—
2,475
Less: Stock-based compensation
determined using the fair value method
—
—
(7,791
)
Pro forma loss for the year
(942
)
(10,115
)
(24,848
))
Basic and diluted loss
per share (in Rmb)
- As reported
(0.14
)
(1.47
)
(2.67
)
- Pro forma
(0.14
)
(1.47
)
(3.39
)
There was no option granted to employees in the fiscal years ended December 31, 2003 and 2004.
The fair value of each option granted in the fiscal year ended December 31, 2005 is estimated on
the date of grant using the Black-Scholes option pricing model with the following assumptions used
for grants during the applicable period.
Options
Options
granted
to
deemed
Options
deemed
other
granted
to
granted
to the
employees
the
chairman
chief
executive
on
on
February
officer
on March
September
8,
2005
29,
2005
20,
2005
Average risk-free rate of return*
3.313%
3.861%
4.050%
Weighted average expected option life
2 years
2 years
5 years
Volatility rate
197.2%
158.2%
133.8%
Dividend yield
—
—
—
* Risk-free rate represents the yields to maturity of respective US Government
STRIPS (Source: Bloomberg)
The
stock compensation expenses, if any, will be charged to the selling,
general and administrative expenses in the consolidated statements of
operations.
(q) Operating
leases
Leases
where substantially all the risk and rewards of ownership of assets
remain with the leasing company are accounted for as operating
leases. Payments made under operating leases net of any incentives
received from the leasing company are charged to the consolidated
statements of operations on a straight-line basis over the lease
periods.
(r) Recent accounting pronouncements
In
December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS
No. 123R"). This statement is a revision to SFAS No. 123 and supersedes APB Opinion No. 25. This
Statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, and addresses transactions in which an entity obtains
employee services in share-based payment transactions. Entities are required to measure the cost of
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite service period (usually the
vesting period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the original award
immediately before the modification. This statement is effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. In accordance with the
standard, the Group is required to adopt SFAS No. 123R effective January 1, 2006.
F-14
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
2
Summary of significant accounting policies (continued)
(r) Recent accounting pronouncements (continued)
Upon adoption, the Group has two application methods to choose from: the modified-prospective
transition approach or the modified-retrospective transition approach. Under the
modified-prospective transition method the Group would be required to recognize compensation cost
for share-based awards to employees based on their grant-date fair value from the beginning of the
fiscal period in which the recognition provision are first applied as well as compensation cost for
awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain
unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required.
Under the modified-retrospective transition method, the Group would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No. 123. Under this method, the Group is permitted to apply this presentation
to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The
Company plans to adopt SFAS No. 123R using the modified-prospective transition method. Although the
Group is currently evaluating the impact of this Standard, it is expected that the adoption will
not have a significant impact on the results of operations and financial position.
Subsequently in August, October and November 2005, the FASB released
Staff Position ("FSP") 123(R)-1, "Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FASB Statement No. 123(R)," FSP123(R)-2, "Practical Accommodation to the Application of Grant Date as Defined
in FASB Statement No. 123(R)" and FSP 123(R)-3, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards."
Additionally, on February 1, 2006, the FASB issued FSP 123(R)-4, "Classification of Options and Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent Event." The
FSPs clarify certain accounting provisions set forth in SFAS No. 123(R). The requirements
and guidance prescribed in SFAS No. 123(R), Staff Accounting Bulletin
No. 107 and the FSPs is effective in 2006. The Group considers that
the adoption of SFAS No. 123R will not have
significant impact on its financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" (SFAS
No. 154"), which was a replacement of APB Opinion No. 20 and FAS No. 3 effective for accounting changes
made in fiscal years beginning after December 15, 2005. SFAS No. 154 requires restrospective
application to prior periods' financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. It also requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change. SFAS No. 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change
in accounting estimate effected by a change in accounting principle. The Company does not expect
the adoption of SFAS No. 154 on January 1, 2006 to have a material impact on its results of
operations and financial condition.
In November 2005, the FASB issued FSP FAS115-1 and FAS 124-1, which nullifies certain provisions of EITF Issue 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments", and completely supersedes EITF Topic D-44, "Recognition of
Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value", addresses (1) determining when an investment should
be considered impaired, (2) determining whether an impairment should be deemed other than temporary, and (3) measuring impairment loss. FAS 115-1 and
FAS 124-1 are effective as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. The
Company does not expect the adoption of FAS115-1 and FAS124-1 on
January 1, 2006 will have a significant effect on its financial statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets—An Amendment of FASB Statement No.
140" ("SFAS No. 156"). SFAS No. 156 requires that all
separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits,
but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS No. 156 is effective as of the
beginning of an entity's first fiscal year that begins after September 15, 2006, which for the Group will be as of the beginning of fiscal
2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN48"), which is an interpretation
of SFAS No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attributable for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective as of the beginning of an
entity's first fiscal year that begins after December 15, 2006, which for the Group will be as of the beginning of fiscal 2007. The Company does not believe that the adoption of SFAS No. 156 will have a significant effect on its financial statements.
F-15
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
3
Business combination
On September 13, 2005, the Company entered into agreements with
Beijing Holdings Limited, the then 47.18% shareholder of the Company,
to (i) acquire 51% equity interest in CNT in exchange for 2,233,800
shares of the Company (the "51% Acquisition") and (ii) obtain an option to acquire the
remaining 49% equity interest in CNT in exchange for 2,146,200 shares
of the Company (the "49% Acquisition"). Effective October
31, 2005, the 51% Acquisition was completed and effective December
22, 2005, the option was
also exercised and the 49% Acquisition was completed.
The acquisition was accounted for using the purchase method
of accounting. Accordingly, the purchase consideration has been allocated to the assets
acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.
The excess of the purchase price over the fair value of net assets
acquired was Rmb 69,526 and has
been recorded as goodwill.
The
fair value of the shares issued for the 51% Acquisition was approximately US$2.41 per share which was
calculated based on the simple average of five days' quoted closing price of the Company's stock,
including two days prior and after the announcement date of the transaction and the announcement
date on September 26, 2005. The fair value of the shares issued
for the 49% Acquisition was approximately US$2.1 per share which
was the quoted closing price of the Company's stock on
December 22, 2005, the date we exercised the option. The
consideration paid, the net assets of the Nutraceutical Operations
acquired and the goodwill arising there from can be summarized as follows.
Acquisition of
51%
Rmb
49%
Rmb
Consideration Paid:
Shares of
common stock issued at fair value
43,523
36,405
Direct cost
related to the acquisition capitalized
936
—
Subtotal
44,459
36,405
Less Net
assets acquired
Cash and cash equivalents
247
2,387
Trade accounts receivable, net
56
166
Inventories
751
748
Due from related parties
11
19
Income taxes recoverable
18
—
Other assets
835
307
Property, plant and equipment, net
4,665
4,487
Intangible assets
3,514
3,205
Trade accounts payable
(138
)
(148
)
Income taxes
payable
—
(2
)
Deferred government grants
(139
)
(113
)
Due to a related party
(104
)
(119
)
Short term borrowings
(40
)
(1,749
)
Deferred tax
liabilities
(251
)
(241
)
Other liabilities and accrued expenses
(466
)
(909
)
Minority interests
(2,957
)
(2,702
)
Subtotal
6,002
5,336
Goodwill
arising from acquisition of Nutraceutical Operations
38,457
31,069
Since
December 2005, we had disagreements with management and the minority
shareholder of Anji Bio. The Company could not timely obtain the
Financial Statements and access to the site of Anji Bio. Through
negotiations, the disagreements were resolved and a memorandum was
signed on July 27, 2005. Management of the Company has assessed
the situation of Anji Bio and determine that it shall be
considered as a consolidated subsidiary of the Company for the year
ended December 31, 2005 in the view that we are the legally
effective owner of it.
A
detailed list of intangible assets acquired is included in
Note 11 to the consolidated financial statements.
The
following unaudited pro forma information is based on the assumption that the acquisition took
places as of the beginning of the year (January 1, 2005), with comparative information for the
immediately preceding year as though the acquisition had been completed at the beginning of that
year:
Unaudited
Years ended December 31,
2004
2005
Rmb
Rmb
Revenue from continuing operations
6,854
11,698
Net loss for the year from continuing operations
(11,623
)
(20,064
)
Loss per share from continuing operations
(1.69
)
(2.74
)
The pro forma results have been prepared for comparative purposes only. They do not purport to
be indicative of the results of operations which actually would have resulted had the contribution
been effect on January 1, 2004 or future results of operations of the consolidated entities.
The
weighted average amortization period for the intangible assets
acquired was 5.19 years (Note 11). There was no goodwill that was
expected to be deductible for tax purposes.
F-16
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
4
Non-operating income
Non-operating income consisted of the following:
Year ended December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Realized gains on trading securities
8
—
—
Realized gains on available-for-sale securities
2,005
100
—
Dividend income from available-for-sale securities
295
67
115
Subsidies
from government
—
—
161
Others
2
—
—
2,310
167
276
5
Non-operating expenses
Non-operating expenses consisted of the following:
Year ended December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Realized loss on available-for-sale
securities – transferred from
comprehensive loss
—
—
2,596
Others
—
—
32
—
—
2,628
6
Income tax provision
The Company was incorporated under the laws of the British Virgin Islands ("BVI"), and under
current BVI law, is not subject to tax on income or capital gains as it does not carry out business
in the BVI. No provision for Hong Kong profits tax was provided for the company's subsidiary operating in
Hong Kong for year ended December 31, 2004 and 2005 as it had no
estimated assessable profits arising in Hong Kong. Except Auji Bio
which was subject to PRC income tax at rate of 33%. The
Company's other subsidiaries operating in the PRC incurred
losses and therefore no PRC income taxes
were provided.
Composition of income tax expense
The current and deferred portions of income tax expense included in the consolidated
statements of operations and comprehensive income for the years ended December 31 are as follows:
2003
2004
2005
Rmb
Rmb
Rmb
Current income tax expenses
249
—
9
Recognition of deferred tax assets
1,531
2,927
5,943
Change in valuation allowance
(1,531
)
(2,927
)
(5,943
)
Income tax expenses
249
—
9
F-17
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
6
Income tax provision (continued)
Reconciliation of income tax expense by applying PRC statutory Enterprise Income Tax rate
Income tax expense differed from the amounts computed by applying PRC statutory Enterprise
Income Tax ("EIT") rate of 33% as a result of the following:
2003
2004
2005
Rmb
Rmb
Rmb
Income tax credit at PRC statutory EIT rate
(522
)
(3,338
)
(6,446
)
Effect of different taxation rate in Hong Kong
(474
)
465
572
Income not subject to taxation
(76
)
(53
)
(60
)
Expenses not deductible for taxation purpose
—
—
—
Utilization of previously unrecognized tax losses
(192
)
—
—
Increase in previously recognized tax loss
resulting from an increase in tax rate
(18
)
—
—
Change in valuation allowance
1,531
2,926
5,943
Total income tax expense
249
—
9
Significant components of deferred tax assets
December 31,
December 31,
2004
2005
Rmb
Rmb
Tax loss carryforwards
11,464
17,407
Less: valuation allowance
(11,464
)
(17,407
)
Deferred tax assets
—
—
Tax loss carryforwards from the Company's PRC subsidiary can be carried forward for five
years. As the realization of the current tax loss carryforwards credit is uncertain, a full
valuation allowance against the deferred tax assets as at December 31, 2005 has been provided.
7
Discontinued operations
On March 31, 2005, BBHL entered into an agreement with Beijing Enterprises Development
Corporation ("BEDC"), a related party (Note 18), to sell its branch in Zhuhai, China which
represented the entire service rendering business segment of BBHL, at zero consideration. In this connection, the service-rendering business segment was presented as discontinued
operations.
An
analysis of the results and the loss on disposal of discontinued operations is as follows:-
Year ended
Year ended
Period ended
December
December
March 31,
31, 2003
31, 2004
2005
Rmb
Rmb
Rmb
Revenues
3,337
3,949
1,040
Cost of sales
(2,204
)
(2,755
)
(678
)
Gross profit
1,133
1,194
362
Selling, general and administrative expenses
(767
)
(529
)
(141
)
Impairment of goodwill
—
(411
)
—
Profit from discontinued operations
366
254
221
Loss on disposal of discontinued operations
—
—
(509
)
Profit/(loss) from discontinued operations
366
254
(288
)
There was no tax charge incurred for the discontinued operations for the years ended December
31, 2003, 2004 and 2005.
F-18
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
8
Other assets
Other assets consisted of the following:
December 31,
December 31,
2004
2005
Rmb
Rmb
Rental and utility deposits
129
408
Advance to staff
74
207
Prepayment for insurance
379
305
Prepayment for consultancy fee
11
80
Prepayment for raw materials
100
83
Others
394
319
1,087
1,462
9
Long term prepayment for rental of land
December 31,
December 31,
2004
2005
Rmb
Rmb
Acquisition of subsidiaries
—
530
Amortisation
—
(2
)
—
528
The prepayment for rental of land represented the amount paid for the land use right held on medium term lease of 50 years in the PRC. The land use term will be expired on August 1, 2052.
10
Property, plant and equipment, net
December 31,
December 31,
2004
2005
Rmb
Rmb
Building
—
2,475
Plant and machineries
—
5,170
Computer equipments
1,972
1,678
Furniture, fixtures and office equipments
581
1,099
Motor vehicles
108
830
Less: accumulated depreciation
(2,612
)
(2,083
)
49
9,169
Depreciation for the year ended
December 31, 2003, 2004 and 2005 amounted to Rmb475, Rmb76 and
Rmb376 respectively.
11 Intangible assets
The
intangible assets represented the unamortized cost of the extraction of bamboo flavonoids and its related
application patents obtained through the acquisition of the Nutraceutical Operations on October 31,
2005.
F-19
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
11 Intangible assets (continued)
The
fair values of intangible assets acquired in 2005 represented the
core technology, completed technology and in process research and
development ("IPR&D") which amounted to Rmb
624, Rmb 5,792 and Rmb 475 respectively. The fair value of the core
technology is determined by the relief from royalty approach. Under
this approach, an asset is valued based upon the incremental
after-tax cash flow accruing to the owner by virtue of the fact that
the owner does not have to pay a "fair royalty" to a third
party for the use of that asset. Accordingly, a portion of the
owner's earnings, equal to the after-tax royalty that would have
been paid for use of the asset can be attributed to that asset. The
value of the asset depends on the present worth of future after-tax
royalties derived from ownership. Thus, indications of value are
developed by discounting future after-tax royalties attributable to
the asset to their present worth at market-derived rates of return
appropriate for the risks of that particular asset. The
relevant royalty rate was determined by referring to the profit margin of
the CNT and actual market transaction in biotechnology industry whose
royalty rates ranged from 1% to 10% with median of approximately
4%. In
calculating the royalty saving attributable to the core technology,
the related R&D expenses for maintaining the core technology
were deducted. The maintenance R&D expense was estimated based
on 2% of the maintenance R&D expense to sale. Net
cash flow was derived by deducting tax expense from net royalty
saving. In arriving at net present value, the projected cash flow to
the core technology was then discounted to present value at a
discount rate of 25% until the end of the economic life in 2012.
The
fair value of completed technology and IPR&D is
determined by the estimation of its replacement cost because they
are not unique and highly reproduced. The replacement cost of the
completed technology and IPR&D include staff costs,
equipment, sampling and testing costs, and overhead costs such as
utility expense and rents for R&D center. We then multiplied the
average development cost per technology by total number of months
required to complete the existing technology.
The
fair value, accumulated amortization/write off for the fiscal year ended
December 31, 2005 and the remaining balance as of December 31, 2005
of the core technology, completed technology and IPR&D
technology were summarized as follows:
Accumulated
Fair
Acquired
amortization/
value
during
write off
Balance as of
upon
the
during the
December 31,
acquisition
year
year
2005
Rmb
Rmb
Rmb
Rmb
Core technology
624
—
(13
)
611
Completed technology
Bamboo leaf extract for prostate disease
209
—
(7
)
202
AoB antioxidant from bamboo leaf extract
1,726
—
(58
)
1,668
ZoB from
bamboo leaf extract
1,964
—
(65
)
1,899
Bamboo shoot
extractive for
dietary supplements and fertilizer
1,892
—
(63
)
1,829
Zhukangning capsule from bamboo leaf extract
—
343
(11
)
332
5,791
343
(204
)
5,930
In-Process
Research and Development technology
Bamboo shoot
extractive for calories control
448
—
(448
)
—
Bamboo shoot
extractive for hair loss prevention
27
—
(27
)
—
475
—
(475
)
—
Total
6,890
343
(692
)
6,541
Amortization expense for the years ended December 31, 2003, 2004 and 2005 amounted to
Rmb1,085, Rmb Nil and Rmb 217 respectively. The intangible asset of the network security and
server switch technology acquired in 2000 has been fully amortized during the year ended December
31, 2003.
The
estimated amortization expenses of the intangible assets in each of the five succeeding years
amounted to Rmb 1,305.
12 Goodwill
The
Group recorded goodwill of Rmb 69,526 in connection with the acquisition of
its Nutraceutical Operations in 2005. The goodwill for the year ended December 31, 2005 is as follows:
Network
Information
Nutraceutical
security
Technology
operations
Total
Rmb
Rmb
Rmb
Rmb
Balance as of December 31, 2003
4,337
1,410
—
5,747
Impairment loss for 2004
(4,337
)
(411
)
—
(4,748
)
Balance as of December 31, 2004
—
999
—
999
Goodwill
arising from business combination (Note 3)
—
—
69,526
69,526
Goodwill
relating to discontinued operations disposed
—
(999
)
—
(999
)
Balance as of December 31, 2005
—
—
69,526
69,526
In 2004, an assessment for impairment for the network security consultancy segment was carried
out after the annual forecasting process. In view of the underperformance of the unit, the earning
forecast was revised by management. Based on the revised forecast, the present value of future cash
flows of the unit is lower then the carrying value of goodwill and therefore, goodwill impairment
loss of Rmb4,337 was reported.
F-20
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
12 Goodwill (continued)
Further, an assessment for impairment was also carried out in 2004 for the information
technology consultancy reporting unit. During the process, the estimated selling price of the
reporting unit subsequent to balance sheet date was compared against the carrying value of the
reporting unit with a shortfall of Rmb411. Therefore, an impairment loss of Rmb411 was recognized
in the information technology consultancy reporting unit. Following the disposal of the
information technology consultancy reporting unit on March 31, 2005. The Rmb 999, which represented
the carrying amount of the goodwill of the reporting unit, was disposed of and was grouped into the
net assets of the discontinued operations as mentioned in Note 7.
13 Deferred government grants
Rmb
Balance as at December 31, 2004
—
Addition upon acquisition of the Nutraceutical Operations on October 31, 2005
273
Amounts
utilized during the year:
- Research and development costs
(43
)
Balance as at December 31, 2005
230
The entire deferred government grants belong to the Nutraceutical Operations acquired on
October 31, 2005. The Group is obliged to utilize the government
grants only for funding the
research and development costs and costs for purchase of plant and machinery incurred for the
research and development projects registered with the relevant authorities. Savings in deferred
government grants upon completion of the research and development projects, however, is not
required to return to the relevant authorities and is recognized as revenue. An aggregated amounts
of Rmb 1,862 was received by Zhejiang Innoessen as deferred
government grants in 2003. Of the same Rmb
1,060, Rmb 221 and Rmb 308 were utilized for research and
development costs, purchase of plant and machinery and recognized to
revenue respectively for the period from the date when the grants were received to October 31, 2005, the date of
acquisition. The amounts utilized for research and development costs since October
31, 2005 to December 31, 2005 was Rmb 43.
The
deferred government grants are included as current liabilities of the
Company.
14
Short term borrowings
The
Company's short term borrowings as of each balance sheet date,
denominated in Renminbi, were analyzed as follows:
December 31,
December 31,
2004
2005
Rmb
Rmb
Unsecured
bank loans repayable within one year
—
3,069
A secured
revolving banking facility
—
500
Total
—
3,569
The
weighted
average interest rate of short term borrowings was 6.14% as of
December 31, 2005. The secured revolving banking facility was
secured by the land use right of the Anji Bio.
15 Other liabilities and accrued expenses
December 31,
December 31,
2004
2005
Rmb
Rmb
Deposits received
1,373
934
Accrued salaries and staff benefits
1,007
2,021
Others
78
764
2,458
3,719
F-21
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
16 Stock-based compensation
On October 10, 1996, the Company's shareholders approved a stock option plan to grant options
for a maximum of 200,000 shares (the "1996 Plan"). The 1996 Plan provides for a grant of options
to employees, officers, directors and consultants of the Group. The 1996 Plan is administered by
the Board of Directors or a committee appointed by the Board, which determines the terms of
option's grant, including the exercise price, the number of shares subject to the option and
option's exercisability. The exercise price of all options granted under the 1996 Plan must be at
least equal to the fair market value of such shares on the date of grant. The maximum term of
options granted under the stock option plan is 10 years.
On September 20, 2000, the Company's shareholders approved a stock option plan to grant
options for a maximum of 400,000 shares (the "2000 Plan"). The 2000 Plan provides for a grant of
options to employees, officers, directors and consultants of the Group. The 2000 Plan is
administered by the Board of Directors or a committee appointed by the Board, which determines the
terms of option's grant, including the exercise price, the number of shares subject to the option
and option's exercisability. The exercise price of all options granted under the 2000 Plan must be
at least equal to the fair market value of such shares on the date of grant. The maximum term of
options granted under the stock option plan is 10 years.
On October 21, 2005, the Company's shareholders approved another stock option plan to grant
options for a maximum of 1,000,000 shares (the "2005 Plan"). The 2005 Plan provides for a grant of
options to employees, officers, directors and consultants of the Group. The 2005 Plan is
administered by the Company's Compensation Committee, which determines the terms of option's grant,
including the exercise price, the number of shares subject to the option and option's
exercisability. The exercise price of all options granted under the 2005 Plan must be at least
equal to the fair market value of such shares on the date of grant. The maximum term of options
granted under the stock option is 10 years.
The Group grants stock options to its employees and certain non-employees.
The Group applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" and complies with the disclosure provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation – Transition and Disclosure" ("SFAS No. 148') for options granted to employees. In
general, compensation cost is recognized based on the difference, if any, between the fair value of
the Company's shares and the exercise price as determined on the date the option is granted. Under
APB Opinion No. 25, because the exercise price of all the options issued by the Company to
employees equals or is higher than the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Group applies SFAS No. 123, as amended by SFAS No. 148 for options granted to
non-employees. A charge for stock-based awards for the services rendered by non-employees using the
Black-Scholes option pricing model are recognized by the Group once incurred.
A summary of the stock option activity for both employees and non-employees is follows:
Year ended December 31,
2003
2004
2005
Weighted
Weighted
Weighted
average
average
average
exercise
exercise
exercise
Number
price
Number
price
Number
price
of
(US$ per
of
(US$ per
of
(US$ per
options
share)
options
share)
options
share)
Outstanding at beginning of year
140,000
1.15
140,000
1.15
140,000
1.15
Granted
—
—
—
—
430,000
1.85
Exercised
—
—
—
—
—
—
Cancelled
—
—
—
—
—
—
Outstanding at end of year
140,000
1.15
140,000
1.15
570,000
1.68
F-22
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
16 Stock-based compensation (continued)
The following table summarizes information with respect to stock options outstanding at
December 31, 2005:
Options outstanding
Weighted
Options exercisable
average
Weighted
Weighted
remaining
average
average
Number
contractual
exercise
Number
exercise
Date of grant
outstanding
life
price
exercisable
price
(US$ per share)
(US$ per share)
December 28, 1999
140,000
4 years
1.15
140,000
1.15
September 20, 2005
430,000
9.72 years
1.85
430,000
1.85
570,000
570,000
The share options granted on December 28, 1999 were made pursuant to the 1996 Plan and are
immediately exercisable. The share options granted on September 20, 2005 included 60,000 share
options made pursuant to the 1996 Plan and 370,000 share options made under the 2000 Plan. All
share options granted on September 20, 2005 are immediately exercisable.
There
were no options granted in the fiscal years ended December 31,
2003 and 2004. The Company had granted three groups of options to employees during the year ended December 31, 2005.
The options of the chairman and the chief executive officer of the Company were deemed granted on February 8, 2005 and March  29, 2005 respectively upon their appointment to the positions.
These options were granted under the 1996 Plan of the Company
pursuant to a board resolution passed on December 28, 1999. The
resolution had passed 50,000 options were each granted to the
respective position. In case the person holding the position has not
exercised the options during his service with the Company, the person
who is appointed can succeed the options at the
same terms. Upon the new  appointment of the chairman and the chief executive officer in 2005, their predecessors had not exercised any of the options granted and therefore, the remaining
options were succeeded by the newly appointed persons. Pursuant to another resolution passed on September 20, 2005, another 430,000 options were granted to other employees.
Stock-based compensation to non-employees
The
Company granted 65,000 stock options under the 2000 Plan to certain consultants on September 20,
2005 in respect of their advisory services provided to the Company.
The options were fully vested and non-forfeitable. Accordingly, the Company recorded a compensation expenses of approximately Rmb 701 for the
fiscal year ended December 31, 2005, estimated using the Black Scholes option pricing model. All
options granted to consultants are immediately exercisable after
being granted.
The following assumptions were used in the Black-Scholes option pricing model in assessing the
fair value of options granted to non-employees:
Average risk-free rate of return*
3.983
%
Weighted average expected option life
2.5 years
Volatility rate
133.18
%
Dividend yield
—
* Risk-free rate represents the yields to maturity of respective US Government
STRIPS (Source: Bloomberg)
17 Loss per share
Basic loss per share represents income available to common stockholders divided by the
weighted-average number of common stocks outstanding during the period. Diluted earnings per share
reflects additional common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result from the assumed
issuance. Dilutive potential common stocks that may be issued by the Group relate solely to
outstanding stock options, and are determined using the treasury stock method. Effects of stock
options are excluded from the computation if the effect would be antidilutive.
Basic and diluted loss per share have been calculated in accordance with SFAS No. 128 for the
years ended December 31, 2003, 2004 and 2005 as follows:
F-23
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CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
17  (continued)
Year ended December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Net loss for the year
(942
)
(10,115
)
(19,532
)
Net loss from continuing operations attributable to
holders of common stock, basic and diluted shares
(1,308
)
(10,369
)
(19,244
)
Net income/(loss) from discontinued operations
attributable to holders of common stock, basic and
dilutive shares
366
254
(288
)
Weighted-average shares used in computing basic and
diluted loss per share
6,894
6,894
7,327
Incremental shares from assumed conversions of
stock options
—
55
274
Weighted-average shares used in computing diluted
loss per share
6,894
6,949
7,601
Loss per
share (in Rmb)
- Basic and dilutive
(0.14
)
(1.47
)
(2.67
)
Loss per
share from continuing operations (in Rmb)
- Basic and dilutive
(0.19
)
(1.51
)
(2.63
)
Income/(loss) per share from discontinued operations (in Rmb)
- Basic and dilutive
0.05
0.04
(0.04
)
Income/(loss) per share are calculated based on the weighted average number of shares of
common stock issued and, as appropriate, diluted shares of common stock equivalent outstanding for
each of the relevant years and the related loss amount. The number of incremental shares from
assumed exercise of share options has been determined using treasury stock method. Under the
treasury stock method, the proceeds from the assumed conversion of options are used to repurchase
shares of common stock using the average fair value for the years.
For all the three years ended December 31, 2003, 2004 and 2005, the number of shares used in
the calculation of diluted loss per share is equal to the number of shares used to calculate basic
loss per share as the incremental effect of share options would be antidilutive in these
loss-making years.
18 Related party transactions
The transactions and balances with related parties are analyzed as follows:-
Year ended December 31,
2003
2004
2005
Rmb
Rmb
Rmb
Transactions with related parties
Disposal of Zhuhai
branch of BBHL to BEDC
(Note a)
—
—
1,300
Net
operating cash outflows of Zhuhai branch reimbursed (Note a)
(1,300
)
Acquisition
of CNT from Beijing Holdings by
issuance of 2,233,800
new shares at US$2.41
per share and 2,146,200 new shares at US$2.1 per share respectively (Note b)
79,928
Disposal of
available-for-sale
securities to Beijing
Holdings (Note c)
—
—
2,167
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CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
18
Related party transactions (continued)
(a)
On March 31, 2005 BBHL entered into an agreement with BEDC, the sole shareholder of China Internet Technology Company
Limited ("China Internet"), the then 17.21% shareholder of the Company, to sell its Zhuhai branch for a consideration of Rmb 1.3 million.
The consideration was determined based on the operating cashflow generated by Zhuhai branch from May 1, 2002 to March 31, 2005, the period of which
Zhuhai branch was managed and controlled by the Company. Upon disposal, the Company agreed to reimburse the same aggregated net operating cash outflows of
Rmb 1.3 million to the Zhuhai branch as part of the conditions of disposal. The consideration of the transaction is zero as the Company received Rmb1.3 million
from BEDC and at the same time the Company transferred Rmb1.3 million to Zhuhai branch. The transaction was closed on March 31, 2005 and resulted in a disposal loss of Rmb0.51 million.
(b)
On September 13, 2005, the Company entered into agreements with Beijing
Holdings, the then 47.18% shareholder of the Company, to (i) acquire a 51% equity interest in
CNT in exchange for 2,233,800 shares of the Company and (ii) obtain an option to acquire the remaining
49% equity interest in CNT in exchange for 2,146,200 shares of the Company. Effective October 31, 2005,
the acquisition of 51% of CNT was completed and effective December 22, 2005, the option was also exercised
to acquire the remaining 49% equity interest in CNT.
(c)
On November 17, 2005, the Company entered into a sale and purchase
agreement with Beijing Holding to dispose of all of the 6,312,000 shares invested in Xi'an Haitian Antenna Company Limited
("Xi'an Haitian") then held by the Company for  a cash consideration of Rmb 2.17 million.
These shares were previously held as available-for-sale securities by the
Company and it represented less than one percent of the outstanding shares of Xi'an Haitian (approximately
0.975%). The sale consideration was determined by the quoted closing stock price of Xi'an Haitian at HK$0.33
per share at the date of the agreement. Xi'an Haitian is a company engaged in research, development,
production, sales, installation, services and wireless communication network optimization of base station
antennas and is also listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. The shares were
acquired upon the initial public offering ("IPO") of Xi'an Haitian. Its stock price dropped
continuously after the IPO due to poorer operating results as a result of the keen competition in the market.
Beijing Holdings is also a passive investor of Xi'an Haitian who owns approximately 8% equity interest of Xi'an Haitian after
its IPO. Beijing Holdings currently nominates one non-executive
director to the board of Xi'an Haitian. The Company
dose not currently participate in the management or operations
of Xi'an Haitian.
As of December 31, 2004 and 2005, the balances with related parties were as follows:-
December 31,
December 31,
2004
2005
Rmb
Rmb
Balances with related parties
Funds held
by Beijing Holdings, the ultimate holding company, for security
investment purposes (Note d)
6,529
—
Proceeds
receivable from Beijing Holdings, the ultimate holding company, in respect of sale
of shares of Xi'an Haitian Antenna (Note e)
—
2,167
Funds held
by Beijing Holdings Investment Management Center, a fellow subsidiary
for security investment purposes (Note f)
3,388
—
Funds held
by China Biotech Holdings Limited, a related company with common
director, for potential
acquisition of technology and business in China (Note g)
—
6,262
Due from
Beijing Investments (BVI) Limited, a fellow subsidiary, for
security investment purposes (Note h)
164
—
Due from
Great Legend Internet Technology and Service Co. Ltd., a shareholder, for expenses paid on behalf
30
—
Due to BEDC,
the holding company of a shareholder (Note i)
—
645
Due to China Biotech
Holdings Limited, a related company with common director,
 (Note j)
—
244
F-25
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
18 Related party transactions (continued)
Note
(d)
Due to Beijing Holding's  good relationship with leading
investment banks and the Company's desire to access potential investment
opportunities as a result of these relationships, the Company previously deposited funds
with Beijing Holdings (since 2002) to invest on its  behalf  in Hong Kong. Nevertheless, due
to the poor performance of the Hong Kong Stock market in the last two
years, the Company withdrew its
entire funds of Rmb 6.53 million in May 2005. There was no agreement signed with Beijing
Holdings for the deposit.
(e)
On November 17, 2005 the Company entered into a sale and purchase agreement with Beijing Holding
to dispose of all of the shares it held in Xi'an Haitian for
cash consideration of Rmb2.17 million.
The value of the consideration was determined by the quoted closing
stock price of Xi'an Haitian at HK$0.33
per share at the date of the agreement.
(f)
Due to its good relationship with leading investment banks and potential investment
opportunities to be gained from those relationships, the Company previously deposited funds with Beijing
Holdings Investment Management Center ("BHIMC") to invest
our behalf in China. Again, due to the poor
performance of the China Stock market, we withdrew the entire funds of Rmb 3.39 million in December
2005. There was no agreement signed with BHIMC for the deposit.
(g)
China Biotech Holdings Limited ("China Biotech"),
is a company incorporated in BVI in  which Mr. Alan
Li, the executive director and Co-Chief Executive Officer of the Company, is also an executive
director. China Biotech has experience in nutraceutical business in China. China Biotech's experience
includes making investments in companies and technologies involved in this industry. In view of China
Biotech's experience, the Company deposited  Rmb 6.26 million  with China Biotech for the purpose of making
(with the assistance of China Biotech) potential acquisitions of technology and businesses in the
nutraceutical industry in China. There was no agreement signed for the funds deposited with China Biotech
and the Company can withdraw the funds without any restrictions.
(h)
The amount represented the advance of funds for the purchase on behalf of the Company of
trading securities in Hong Kong by Beijing Investments (BVI) Limited, a wholly owned
subsidiary of Beijing Holdings. This amount was wholly withdrawn by the Company in March
2005.
(i)
The amount represented the contract sums received on behalf of BEDC by BHLHK in Hong Kong
as the customer of BEDC paid in Hong Kong dollars whereas BEDC did not maintain a Hong Kong
dollar bank account in Hong Kong.
(j)
The amount represented administrative expenses paid on behalf
of CNT by
China Biotech in China.
19
Retirement benefits
As stipulated by the regulations of PRC, the PRC subsidiary is required to make contributions
to the retirement fund organized by the PRC government at the rate of 19% of the base salaries of their staff. Contributions made
in connection with the mandatory fund, which are expensed as incurred, were Rmb293, Rmb363 and Rmb401 for the
years 2003, 2004 and 2005 respectively. The PRC subsidiary has no obligation for the payment of
pension benefits beyond the annual contributions described above.
F-26
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
20
Common Stock
Common Stock of the Company as of December 31, 2004 and 2005 was as follows:
Ordinary shares
Common
Treasury
with par value
Additional paid-in
stock
stock
US$0.01 each
capital
Total
Rmb
Rmb
Rmb
December 31, 2004
6,894,497
2,150,391
571
187,159
187,730
Issues of shares for
acquisition during the year
4,380,000
—
339
79,589
79,928
Stock
options granted to certain consultants (Note (a))
—
—
701
701
Stock
options granted to officers (Note (b))
—
—
—
2,475
2,475
Cancellation of treasury stocks
—
(2,150,391
)
—
—
—
December 31, 2005
11,274,497
—
910
269,924
270,834
(a)
This represented the fair value of the stock options granted
to certain consultants.
(b)
This represented the expenses of the stock options granted to
the Company's chairman and chief executive officer. Details of
which is discussed in Note 2(p)
(c)
The entire treasury stocks of 2,150,391 shares of the Company had been cancelled during the
year ended December 31, 2005.
21 Contingencies and commitments
Operating lease commitments
As of December 31, 2005, the Group had future aggregate minimum lease payments under
non-cancelable operating leases as follows:
December 31,
2004
2005
Rmb
Rmb
In respect of land and buildings
Not later than one year
477
615
Later than one year and not later than five years
—
332
Later than five years
—
—
Total
477
947
The
Company is a party to form lease agreements for office premises and
staff quarters. The lease agreements are described below:
F-27
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
21 Contingencies and commitments (continued)
Operating lease commitments (continued)
(a)
The lease agreement of our Corporate Office (situated in Hong
Kong) commenced on May 27, 2005, and shall continue for a period of two
years, at a monthly rent of Rmb 33. As of December 31, 2005, the future minimum lease payments
under this non-cancelable operating lease amounted to Rmb 358 and Rmb 158 for years ended
December 31, 2006 and 2007 respectively.
(b)
The lease agreement of staff quarters (situated in Hong Kong)
for managers of our Corporate Office commenced on
December 11, 2005, and shall continue for a period of two years, at a monthly rent of Rmb 7. As of December 31,
2005, the future minimum lease payments under this non-cancelable operating lease amounted to
Rmb 86 and Rmb 81 for years ended December 31, 2006 and 2007 respectively.
(c)
The lease agreement of staff quarters (situated in Hong Kong) for Alan Li, the executive director and Co-Chief
Executive Officer of the Company, commenced on December 8, 2005,
and shall continue for a period of two years,
at a monthly rent of Rmb 8. As of December 31, 2005, the future minimum lease payments under
this non-cancelable operating lease amounted to Rmb 100 and Rmb 93 for years ended December
31, 2006 and 2007 respectively.
(d)
The lease agreement for the office of Shenzhen Innoessen
(situated in Shenghen, PRC)
commenced on March 23, 2005, and shall continue for
a period of one year, at a monthly rent of Rmb 24. As of December 31, 2005, the future minimum
lease payments under this non-cancelable operating lease amounted to Rmb 71 for year ended
December 31, 2006.
Lease rental costs incurred by the Group for the year ended December 31, 2003, 2004 and 2005
amounted to Rmb596, Rmb519 and Rmb1,052 respectively.
Contingencies
On
June 20, 2006, the ex-general manager and the minority
shareholder of Anji Bio (the "Anji Buyers") filed claims
against Anji Bio and Zhejiang Innoessen in the People's Court of
the Anji County (the "Anji Court") with respect to the
unlawful termination of service of the ex-general manager of Anji
Bio. The Anji Buyers have requested that the Anji Court order the
termination was unlawful and pay Rmb 50 as economic compensation to
the ex-general manager. The case has been scheduled to take place on
July 31, 2006, Pursuant to the memorandum entered into
between Zhejiang innoessen and the Anji Buyers dated July 27,
2006, it was mutually agreed to defer the litigation. As also stipulated
in the same memorandum, the litigation would be cancelled upon the
completion of the memorandum. The Group has not provided for the claim
as the management of the Company has confidence in completing the
memorandum.
F-28
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
22 Segment information
For management reporting purposes, the Group's business segment results are reported to the
management in two business segments: IT Operations and Nutraceutical Operations. These business
segments are determined based on the nature of the business engaged by each segment.
Management evaluates each segment's performance based upon earnings before interest expense,
depreciation and amortization charges and other income/ expenses. Such measure is then adjusted to
exclude items that are of a non-recurring or unusual nature. Management believes such discussions
are the most informative representation of how management evaluates performance.
Summarized financial information by business segment of our continuing operations for 2005,
2004 and 2003 is as follows:
Net identifiable
Depreciation
Operating
assets/
and
Capital
Revenues
loss
(liabilities)
amortization
expenditures
Rmb
Rmb
Rmb
Rmb
Rmb
Year 2005
IT Operations
6,468
(3,269
)
2,579
67
221
Nutraceutical Operations
1,035
(1,343
)
11,890
410
16,584
Total operating segments
7,503
(4,612
)
14,469
477
16,805
Corporate
—
(13,274
)
14,713
118
454
Group
7,503
(17,886
)
29,182
595
17,259
Year 2004
IT Operations
2,720
(7,798
)
(1,920
)
76
—
Total operating segments
2,720
(7,798
)
(1,920
)
76
—
Corporate
—
(2,981
)
33,473
—
—
Group
2,720
(10,779
)
31,553
76
—
Year 2003
IT Operations
8,405
(2,102
)
3,581
1,560
29
Total operating segments
8,405
(2,102
)
3,581
1,560
29
Corporate
—
(2,276
)
36,161
—
—
Group
8,405
(4,378
)
39,742
1,560
29
The Group is engaged in the provision of information technology and network security services
and the sale and marketing of nutraceutical products to a wide range of industries and end users
within the PRC. All the Group's revenue is derived from sales to customers located in the PRC.
Approximately, 6.28%, 18.59% and 32.97% of the total revenues were contributed by 3 major customers
of our IT operation during the year ended December 31, 2005.
The Group operates mainly in the PRC and accordingly no geographical segment information is
presented.
There are no sales or other transactions between the segments. Segment assets consist
primarily of cash and cash equivalents, inventories, trade receivables, other assets and fixed
assets. Segment liabilities comprise operating liabilities.
In 2004, operating profit/ (loss) of segments include goodwill impairment loss of Rmb4,337 for
IT operations.
F-29
Table of Contents
CHINA TECHNOLOGY DEVELOPMENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands, unless otherwise stated)
23 Subsequent events
Investment In Fujian Jian'ou Yingshi Food Technology Limited ("Fujian Jian'ou")
On January 12, 2006 Zhejiang Innoessen entered into a joint venture agreement with Fujian
Jian'ou Food Production Limited (the "Agreement") to form the Fujian Jian'ou. Pursuant to the
Agreement, Zhejiang Innoessen will invest Rmb5.1 million (the "Capital Injection") to own 51%
interest of Fujian Jian'ou. Rmb3.0 million and Rmb2.1 million of the Capital Injection
will be invested in the form of technology owned by Zhejiang Innoessen and a mix of plant and machinery (after
valuation) and cash respectively. Pursuant to the Agreement, the deadline of Capital Injection is December 31,
2006. As of date, an aggregated sum of Rmb600 in the form of cash had been invested.
Since
early June of 2006, the Fujian Province of China had been subject to
the heaviest rainstorms and floods in the past fifty years, Jian'ou, one of the cities in the FujianProvince,
suffered the most damage. As a result of this flooding, the production facilities held by Fujian
Jian'ou (having started its trial run in May 2006) were damaged. It was noted that the
factory was flooded under 2.50-meters water for over thirty hours.
All operations of Fujian Jian'ou are currently stopped and management is in the process of
quantifying losses. A preliminary assessment indicates that it will take at least two months to cleanup
the site and restore the factory's capability. As of date,
management is in process of quantifying the impacts of which to our
operating results for the year ending December 31, 2006.
Disposal
of Anji Bio
On
July 27, 2006, Zhejiang Innoessen entered into a memorandum with the ex-general manager and minority shareholders of
Anji Bio (the "Anji Buyers") pursuant to which the entire interest in Anji Bio held by Zhejiang Innoessen was disposed to Anji Buyers. The final consideration, however, is not yet determined, subject to the finalization of the value determined for the fixed assets of Anji Bio and which will be used as a basis for the total consideration for the whole transaction.
F-30