Edgar Filing: CHINA RECYCLING ENERGY CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission file number: 333-120431

China Recycling Energy Corporation

(Known as "China Digital Wireless, Inc." prior to March 08, 2007)
-------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)

Nevada
------------------------------------
(State or other jurisdiction of incorporation or organization)

90-0093373
----------------------------------------
(I.R.S. Employer Identification No.)

429 Guangdong Road
Shanghai, China 200001
----------------------------------------
(Address of principal executive offices)

N/A
----------------------------------------
(Zip Code)

Issuer's telephone number: (011) 86-21-6336-8686

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

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

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]

Page 1

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

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

The issuer's revenues for its most recent fiscal year ended December 31, 2006
were US$ 2,889,436.

The aggregate market value of the voting common stock held by non-affiliates
computed by reference to the price at which the common stock was sold, or the
average bid and asked prices of such common stock, as of March 31, 2007, is
$3,429,453. The number of shares of common stock outstanding as of March 31,
2006 was 17,147,268.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

CHINA RECYCLING ENERGY CORPORATION

(KNOWN AS "CHINA DIGITAL WIRELESS, INC." PRIOR TO MARCH 08, 2007)

FORM 10-KSB

TABLE OF CONTENTS

PART I

Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market For Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Item 8A. Controls and Procedures.
Item 8B. Other Information

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

Page 2

Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits
Item 14. Principal Accountant Fees and Services

Consolidated Financial Statements............................................F-1

PART I

When we use the terms "we," "us," "our" and "the Company," we mean China
Digital Wireless, Inc., a Nevada corporation, and its wholly-owned subsidiary,
Sifang Holdings Co., Ltd., and Sifang Holdings Co., Ltd.'s wholly-owned
subsidiary, Shanghai TCH Data Technology Co., Ltd. Since March 08, 2007, China
Digital Wireless, Inc. has changed its name to "China Recycling Energy
Corporation". However, since this Form 10KSB is for fiscal year ended December
31, 2006 when the name change has not occurred, we still use China Digital
Wireless, Inc. as the full name of the reporting issuer on this Form 10KSB.

The information set forth in this Report on Form 10-KSB including, without
limitation, that contained in Item 6, Management's Discussion and Analysis or
Plan of Operation, contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate to future
events or our future financial performance, and involve risks and uncertainties.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "could," "expect," "plan," "intend," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
report. Although management believes that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to be correct or
that actual future results will not be different from the expectations expressed
in this report. In evaluating these statements, you should specifically consider
various factors, including the risks outlined in the "Risk Factors" section
below.

ITEM 1. DESCRIPTION OF BUSINESS

General

Our current operations include providing value added information services,
cellular phone distribution and advertising services through our Chinese
operating subsidiaries. In 2006 and first quarter of 2007, we also began to
engage in recycling energy business, providing energy saving and recycling
products and services.

Overview

Business History. We originally began operations as a Colorado corporation
known as Boulder Brewing Company, or Boulder Brewing. We were incorporated in
Colorado on May 8, 1980 and operated as a microbrewery of various beers. Boulder
Brewing was unable to become profitable within any segment of its core business,

Page 3

became illiquid, and was forced to divest itself of all of its assets. Boulder
Brewing became dormant without any operations or assets in the second quarter of
1990.

In September 2001, Boulder Brewing changed its state of incorporation from
Colorado to Nevada and changed its name to Boulder Acquisitions, Inc., or
Boulder Acquisitions. From the date of reincorporation until June 23, 2004
Boulder Acquisitions had no material operations or assets.

On June 23, 2004, we completed a stock exchange transaction with the
shareholders of Sifang Holdings Co., Ltd. ("Sifang Holdings"). The exchange was
consummated under Nevada and Cayman Islands law pursuant to the terms of a
Securities Exchange Agreement dated as of June 23, 2004 by and among Boulder
Acquisitions, Sifang Holdings and the shareholders of Sifang Holdings. Pursuant
to the Securities Exchange Agreement, we issued 13,782,636 shares of our common
stock to the shareholders of Sifang Holdings, representing approximately 89.7%
of our post-exchange issued and outstanding common stock, in exchange for 100%
of the outstanding capital stock of Sifang Holdings. We presently carry on the
business of Sifang Holdings' wholly-owned subsidiary, Shanghai TCH Data
Technology Co., Ltd., a corporation organized under the laws of the PRC, or TCH.

Effective August 6, 2004, we changed our name from Boulder Acquisitions,
Inc. to China Digital Wireless, Inc.

On January 24, 2007, a group of individuals purchasers entered a share
purchase agreement with a group of shareholders of the Company to purchase
12,911,835 shares of Company's common stocks owned by Sellers, $ 0.001 par
value, for an aggregate purchase price of $ 490, 000.00. Purchasers are Guohua
Ku, Hanqiao Zheng, Ping Sun, Qianping Huang, Xiaohong Zhang and Lixia Zhang.
Sellers are Caihua Tai, Ming Mao, Ying Shi, Sixing Fu, Xiaodong Zhang, Tianqi
Huang, Wei Huang, Jing Song, Ruijie Yu, and Weiping Jing, all of whom are
shareholders of Company.

On March 8, 2007, we changed our name from China Digital Wireless, Inc. to
China Recycling Energy Corporation.

Our business is primarily conducted through our wholly-owned subsidiary,
Sifang Holdings and its wholly-owned subsidiary, TCH. TCH was established as a
foreign investment enterprise in Shanghai under the laws of the PRC on May 25,
2004, with registered capital of $7.2 million.

Our current operations were originally a business division of Sifang
Information. Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business to
TCH. As the acquiring entity under common control, TCH initially recognized all
the assets and liabilities transferred at their carrying amounts in the accounts
of Sifang Information at the date of transfer under the guidance of the
Statement of Financial Accounting Standard ("SFAS") No. 141, Appendix D.

On May 26, 2004, Sifang Information exchanged 100% of the equity interest
in TCH for 100% of the equity interest in Sifang Holdings. Since the ultimate
owners of the three entities were the same owners and the three entities
remained under common control, the ownership exchange transaction was accounted
for at historical costs under the guidance of SFAS No. 141, Appendix D. Prior to
May 26, 2004, there were no activities in Sifang Holdings. As a result of the
exchange of ownership between TCH and Sifang Holdings, TCH's historical
financial statements became the historical financial statements of Sifang
Holdings.

Page 4

As a result of the spin-off, TCH engages in the business of mobile phone
distribution and provides pager and mobile phone users with access to certain
value-added information reformatted by TCH. TCH purchases mobile phones from
first tier distributors and sells them to retailers with a mark-up. In the
process of providing value-added information services through monthly
subscription agreements with various users, TCH purchases trading activity
information from stock exchanges, comments and analysis on PRC stock markets
provided by certain reputable security and investment companies, lottery
information, weather forecast, and other value-added products and reformats the
aforementioned information through decoding and recoding and then has the
reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The value-added information is constantly saved on
TCH's server in order for mobile phone users to dial in via China Mobile or
China Unicom. By signing a monthly subscription agreement, wireless receiver
users agree to make advance payments for our services for either three or
six-month subscription periods.

In the spin-off process, the cost of sales included in the Company's
financial statements is directly related to the product revenue and the cost of
services is directly related to different types of service. The business taxes
(similar to sales taxes in the U.S.) are related only to service revenue at a
tax rate of approximately 3.3%. The selling expenses are allocated based on the
relationship between expense and revenue (such as commission) and payroll
records. The general and administrative expenses are allocated based on
management hours spent and payroll records. The income tax provision has been
calculated on a separate company basis and is in line with the historical actual
income tax provision at the Sifang Information level assuming that all income
taxes had been paid by Sifang Information and no income tax liability was in
existence in the periods reported in the accompanying financial statements.
Management believes that the costs, operating expenses, interest expense, and
income tax provision included in the Company's financial statements are a
reasonable representation of the costs and expenses that would have been
incurred if the Company had performed these functions as a stand-alone company.

We launched a new digital media project to move into the media market in
China in 2005. In conjunction with charitable organizations, we have installed
donation boxes with digital TV incorporated on top of them in the main lobbies
of commercial banks, hotels, malls and other public locations to call the
public's attention to the charity and broadcast commercial advertisements.

Value-Added Information Services for Mobile Phone and Pager Users. We
render value-added information services in China by purchasing content from
third-party providers and reformatting that content. Our value-added information
services enable wireless receiver (mobile phone and pager) users in China to
access financial information and various entertainment-related services. We
contract with our affiliated wireless service providers to transmit the
reformatted content to customers of China's various network operators.

The primary focus of our value-added information services is to provide
wireless receiver users in China with access to financial information. We derive
the vast majority of our value-added information services revenue from our
financial information business. Our financial information software, Sifang
Gutong, allows our customers to access stock and currency exchange information
and execute stock trades. We are one of the largest stock information and
trading value-added information service providers in China.

We began providing our entertainment-related services, including icons,
screen savers, multiplayer games, Western horoscopes, jokes, and sports and
entertainment news during the latter part of 2003. These services are ancillary
to our financial information services and they represent only a small portion of
our value-added information services revenue at the present time.

Page 5

Leveraging our experience and understanding of the wireless value-added
services market in China, we have consistently purchased and reformatted
content, applications and technologies that are popular in the Chinese wireless
market. To further enhance and differentiate our services, we have entered into,
and will continue to actively pursue, collaborative relationships with third
parties to customize, market and provide access to their content through various
wireless technologies to Chinese consumers. In addition, all of our services are
promoted by our sales force and supported by our customer service team, each of
which is strategically based in Shanghai.

In order to meet ownership requirements under Chinese law that restrict us,
as a foreign company, from operating in certain industries such as value-added
telecommunication and Internet services, we have entered into information
service and cooperation agreements with two of our affiliates that are
incorporated in the People's Republic of China ("PRC" or "China"): Shanghai
Sifang Information Technology Co. ("Sifang Information") and Tianci. We hold no
ownership interest in Sifang Information or Tianci. Sifang Information and
Tianci contract with China Mobile Communications Corporation, or China Mobile,
and China United Telecommunications Corporation, or China Unicom, respectively,
to provide wireless value-added information services to wireless receiver
customers in China via China Mobile and China Unicom. Sifang Information
transmits those services to customers of China Mobile and China Unicom on behalf
of itself and Tianci pursuant to a signed agreement between Sifang Information
and Tianci.

Mobile Phone Distribution. We distribute various mobile phone brands in the
Shanghai, China region. We distribute mobile phones manufactured primarily by
SAMSUNG Electronics Co., Ltd. ("Samsung") and NOKIA Corporation ("Nokia"), and
to a lesser extent, by Motorola, Inc. ("Motorola"). We began distributing
Motorola mobile phones in early 2002, Samsung mobile phones in November 2002 and
Nokia mobile phones in March 2005. We began discontinuing our Motorola mobile
phone distribution business on June 30, 2004. We are a distributor, for the
Shanghai region, of over ten different mobile phone models manufactured by
Samsung and plan to increase our sales of Samsung mobile phones.

Most of the Samsung models we distribute are compatible with the GSM
network and only a few Samsung models we distribute are compatible with the Code
Division Multiple Access, or CDMA, network.

There are three main first-tier wholesalers of Samsung phones in China:
Shanghai Taili Communication Equipment Co., Ltd., Shenzhen Tianyin Communication
Development Co., Ltd., and Guangzhou Yingtai Data Power Technology Co., Ltd.
These wholesalers contract, through local branches, with sub-wholesalers to
distribute each model in a defined area. We have contracts with Shanghai branch
offices of the three main first-tier wholesalers, making us a sub-wholesaler
distributor of nine Samsung mobile phone models in the Shanghai region.

We have rebate programs with Shanghai Taili Communication Equipment Co.,
Ltd. and Shenzhen Tianyin Communication Development Co., Ltd. whereby we are
credited a certain portion of the sales price we paid to the first-tier
wholesaler if we are able to fulfill certain sales volume prescribed by that
first-tier wholesaler. As a result, we are entitled to receive certain rebates
and credits for the inventory held and sold by us within a specified period of
time as set by the first-tier wholesaler offering the rebate program.

Digital Advertising. We launched a new digital media project to move into
the media market in China in 2005. In conjunction with charitable organizations,
we have installed donation boxes with digital TV incorporated on top of them in
the main lobbies of commercial banks, hotels, malls and other public locations

Page 6

to call the public's attention to the charity and broadcast commercial
advertisements.

We have an agreement with China Charity Foundation ("CCF"), a national
non-profit charitable organization, which enables us to install donation boxes
for CCF in banks and other commercial locations throughout China that will also
have the Company's out-of-home digital television advertising media platform
attached. The completion of this agreement enables us to accelerate the
placement of out-of-home digital television platforms, particularly in banks
across China. We negotiate placement of the donation boxes and digital
television media platform with banks and other commercial entities that wish to
support the national charity. The China Banking Regulatory Commission ("CBRC")
has previously agreed, pending completion of the agreement with CCF, to support
and coordinate this effort with respect to approvals of donation box placements
in banks throughout China. This agreement facilitates the continued placement of
platforms with little or no direct costs. We believe that such costs may
constitute as much as 30% of the direct costs of competitors based upon an
analysis of publicly available information.

We have placed more than 850 multimedia donation boxes in the inbound area
of Shanghai and other arranged spots will be rolled out in the public places
with high traffic flow. Based on Shanghai, our strategy is to expand our network
to penetrate other large and mid-sized developed cities throughout China. We
believe the earnings potential from the advertising service will be a new source
of profit in view of the upcoming Special Olympic World Summer Games in 2007 and
World Exposition in 2010 to be held in Shanghai.

During the year ended December 31, 2005, TCH rendered advertisement
designing and producing services to Shanghai Tianci Real Estate Co. Ltd.
("Tianci Real Estate") for publicity and promoting its apartment. Net
advertising service revenue of $1,738,878 was derived from this service. TCH
performed such services via an agent, Shanghai Sifang Media Co., Ltd. ("Sifang
Media"), which is a related company that granted the license to provide
advertising in China.

In January 2005, Sifang Media and TCH entered into the "Bank Digital TV's
Cooperation Agreement", where TCH will assist in the promotion of TV ads for
various customers, including Tianci Real Estate. TCH received a net fee of
$2,620,044 for providing the service from January 2005 to December 2005. There
was an "Advertisement Agency Contract" between Tianci Real Estate and Sifang
Media, which expired in November 2005. In June and September 2005, Sifang Media,
TCH and two unrelated customers, entered into certain agreements, where TCH will
assist in the promotion of TV ads for these customers.

In the third quarter of 2006, the Ministry of Information Industry of the
People's Republic of China initiated a nation-wide management specific plan as
well as introduced a series of policies and measures to regulate the SP market.
With the introduction of these policies and measures that set very strict rules
on the provisions of information services provided by value-added service
providers, our advertising service business was seriously affected. We generated
only $ 334,844 revenue from the above-mentioned advertising services in 2006.

Energy Saving Products.

Page 7

(approximately $1,363,000). The purchase price for both the equity interests in
Kena and the consideration for purchase of the patent and the right to apply for
registration of the patent shall be paid by Sifang Information on behalf of TCH.
On February 10, 2006, these agreements were amended to impose an additional
condition on Mr. Zhang Naiyao, the transferor of the patent and holder of the
right to make the patent application, that if he fails to provide the necessary
technical assistance services to enable TCH to use the patented technology in
producing products on a large scale that meet the standards set by the Company
within one year, TCH shall have the right to demand the return of the relevant
payment received by him in full and to terminate the agreement for the
assignment of the patent and the right to apply for registration of the patent.
The amendments also set forth the arrangement for payment of the purchase price
between TCH and Sifang Information. The purchase price for both the equity
interests in Kena and the consideration for purchase of the patent and the right
to apply for registration of the patent shall be paid by Sifang Information on
behalf of TCH. According to the amended agreements, the amount of the purchase
consideration paid by Sifang Information on behalf of TCH will be applied to
offset the trade and other receivables owed to TCH by Sifang Information.

Kena was established on April 26, 2005 and it specializes in the research,
development and manufacture of energy-saving products, as well as illumination
projects in China. The patent and patent application mentioned above relate to a
"three phase transformer" which is used in connection with a power supply system
and utilizes technology that allows manufacturers to produce transformers with
high energy transfer efficiency at a low cost. This technology is expected to be
available for mass production within one year.

Mr. Zhang Naiyao failed to meet the condition mentioned-above within the
period prescribed. In 2006, we decided not to pursue the above-mentioned
acquisition of Kena. All the agreements in connection with the Kena acquisition
were terminated by TCH and Kena. We also reviewed the future economic value of
the deposit for the anticipated business acquisition of Kena and determined that
future undiscounted cash flows associated with this deposit were uncertain and
may not be sufficient to recover their carrying values and so was fully written
down as of December 31, 2006.

Other Energy Recycling and Saving Products.

In December 2006, TCH began to engage in other activities in the energy
saving and recycling industry, including purchasing certain equipments, devices,
hardware and software for the construction and installation of top gas recovery
turbine system ("TRT") and other renewable energy products. TRT is an
electricity generating system that utilizes the exhaust pressure and heat
produced in the blast furnace of steel mill to generate electricity. It has
significant commercial value for the steel mills. TCH plans to use the purchased
properties as investment in several TRT projects that TCH expects to pursue with
several large Chinese steel companies in year 2007.

On April 08, 2007, our Board of Directors approves and makes effective a
TRT Project Joint-Operation Agreement ("Joint-Operation Agreement") which is
conditionally entered on February 01, 2007 between Shanghai TCH Data Technology
Co., Ltd. ("TCH") and Xi'an Yingfeng Science and Technology Co.,
Ltd.("Yingfeng"). Yingfeng is a Chinese company that is located in Xi'an,
Shaanxi Province, China, and is engaging in the business of designing, selling,
installing, and operating TRT systems and other renewable energy products.

Page 8

inquiry and assessment, TCH agreed to pursue this project with Yingfeng in the
joint-operation mode. Under the terms of the Joint-Operation Agreement, TCH
provides various forms of investments and properties into the Project including
cash, hardware, software, equipments, major components and devices. In return,
TCH becomes entitled to all the rights, titles, benefits and interests that
Yingfeng originally had under the Project Contract, including but not limited to
the cash payment made by Xingtai on regular basis and other property rights and
interests.

Yingfeng remains liable for providing all the manpower, expertise and
skills to design, construct, install, maintain and operate the TRT system under
the terms of the Project Contract and also takes responsibility to manage the
properties that TCH possesses in this Project. As for consideration, TCH will
make monthly payment of 30,000 RMB Yuan (approximately US $ 3,900) to Yingfeng
as compensation for their effort in managing TCH's properties.

Prior to the approval by the Board of Registrant, TCH and Yingfeng have
taken several preliminary actions in first quarter of 2007 in preparation for
the full pursuit of the Project, including selecting and purchasing necessary
components and software for TRT system, organizing and training the technician
team for the Project and developing the construction and installation plan for
the TRT system.

Financial Services.

Our primary focus with regard to value-added information services is the
provision of financial information services utilizing our Sifang Gutong
software. This software, developed by Chengao, utilizes the JAVA and BREW
platforms. JAVA and BREW utilize the more advanced 2.5G technology standard,
which enables high-capacity wireless data transmissions. As a result, services
offered over these platforms are more sophisticated and offer users higher
quality graphics and richer content and interactivity, commanding a premium
price over our other services. Our Sifang Gutong software enables our mobile
phone and pager customers to access quotes and retrieve customized
investment-related information, as well as access our currency exchange
information.

Sifang Gutong provides our mobile phone and pager customers with the
ability to receive streaming real-time quotes, including stocks, most active
issues, largest gainers and losers, and mutual funds for securities trading on
the Shenzhen and Shanghai stock exchanges. Our Sifang Gutong software available
to mobile phone users includes a stock trading function that enables our mobile
phone customers to directly place orders to buy and sell securities listed on
the two aforementioned stock exchanges. Our trading window corresponds with the
hours that securities markets are open from 9:30 a.m. to 11:30 a.m., and from
1:00 p.m. to 3:00 p.m., Beijing Time.

We receive a continuous direct feed of detailed quote data, market
information and news. Our customers can create customized lists of stocks for
quick access to current trading information. Through our relationships with
financial information companies such as Shanghai Stock Information Company, we
also provide access to breaking news, charts, market commentary and analysis.

The value-added financial information we offer can only be accessed by a
customer on whose mobile phone or pager the end-user portion of our Sifang
Gutong software has been installed. We plan to pre-install the end-user portion
of our Sifang Gutong software in all of the Samsung mobile phones that we
distribute. With regard to mobile phones and pagers not distributed by us, we
will provide installation of our Sifang Gutong software free of charge upon
request.

Pursuant to the request of a Beijing retailer, we entered into an agreement
with Chengao and Sifang Information whereby Chengao installs the end-user

Page 9

portion of our Sifang Gutong software into mobile phones owned by the retailer.
The retailer sells these phones at a premium price to consumers. In return for
the premium price, the consumers receive our value-added information services
for six months free of charge. The retailer passes the premium back to Chengao,
who retains a small installation fee and then passes the remainder on to us.
This relationship helps us market our value-added information services and
enables us to establish relationships with new customers.

Other Services. We also provide icons and screen savers, Western
horoscopes, jokes and event-driven or entertainment news updates. These services
represent only a small portion of our value-added information services revenues
at the present time. However, we believe that providing wireless receiver users
in China access to entertainment-related services increases our ability to
retain our financial information subscribers and expand our subscriber base, and
we expect the entertainment-related services portion of our value-added
information services business will grow over time.

o Horoscopes. With this service, users can obtain daily Western horoscopes
via their mobile phones or pagers.

o Jokes. We send users of this service a variety of jokes on demand or via
automatic daily messages.

o News. We automatically send periodic SMS messages on recent event-driven
news, sports (especially soccer), or entertainment events to subscribers of
this service. Mobile phone users can also download desired information on
demand. We obtain our news content from government affiliated media
companies and other local media.

Content Relationships. Our content collaborators authorize the inclusion of
their content in one or more of our value-added information services for a fixed
fee which we pay directly to the provider. Our agreements with our content
collaborators usually have a one-year term, and are non-exclusive. Currently,
our key content collaborators are:

o Shanghai Stock Information Company.

o Shanghai Wanguo Stock Information Company.

o Shanghai Yibang Stock Information Company.

o Shanghai Shiji Stock Information Company.

Marketing Relationships. Sifang Information and Tianci, our affiliated
value-added mobile phone service providers, have marketing relationships with
China Mobile and China Unicom. We sell and market our services principally
through China Mobile and China Unicom. We also sell and market through Sifang
Information's Web site, www.sifang.net, and promotional events, direct
marketing, media advertising and other activities.

We sell all of our paging value-added information services through our
affiliated value-added paging service provider, Sifang Information. We market
our paging value-added information services through traditional media outlets,
including newspapers and magazines, and directly to end-users.

Operator Channels. General. All of our paging value-added information
services are provided through the paging network owned by Sifang Information. We
contract directly with the pager users to collect all fees generated from our
value-added information services. We have an information service and cooperation
agreement with Sifang Information that provides us exclusive access to their
paging network for ten years. This agreement is automatically renewable for
additional one year terms unless we decide to terminate. All of our mobile phone
value-added information services are provided to mobile phone users by Sifang
Information through the networks of China Mobile and China Unicom. Previously,

Page 10

mobile phone users paid for our services by purchasing pre-paid services cards.
Now, our services are billed to mobile phone customers in one of two ways: (1)
certain of our customers pay for our services in advance when they purchase our
services and a mobile phone together in a premium package (through our
relationship with Chengao and Sifang Information), and (2) our other customers
(who do not purchase our services as part of any such premium package) are
billed by the mobile operators, who collect the fees for our services, including
both our data access and short message services, from their mobile phone
subscribers. The mobile operators then pass those fees (net of fees charged by
the mobile operator) to our affiliated value-added service providers, Sifang
Information and Tianci, who in turn pass those fees to us in return for a small
fee pursuant to the terms of information service and cooperation agreements
between us and each of them.

Our management team utilizes our experience in China to develop close ties
with the key personnel of the mobile operators at the central and provincial
levels. As of December 31, 2006, we had ten sales professionals strategically
located in provinces and municipalities concentrated in the eastern and southern
regions of China to work closely with the mobile operators at the local level,
where pricing and important marketing and operational decisions are made. Our
sales network enables us to work closely with operators to facilitate the
approval required for new service offerings and for related pricing and to enjoy
enhanced marketing and promotional support. We are also able to gain insight
into developments in the local markets and the competitive landscape, as well as
new market opportunities. Our sales professionals are well-incentivized; most of
their compensation is tied to usage of our services in the applicable region.

Coordinated Marketing Campaigns. Our affiliated wireless service providers
cooperate in marketing campaigns with China Mobile and China Unicom. These
network operators distribute literature marketing us and our affiliates.

Non-Operator Channels. We also focus on non-mobile operator sales and
marketing activities, such as:

o promoting Sifang Information's Web site, www.sifang.net, to potential users
as a fun, easy-to-access place to request our wireless content and
applications,

o engaging in direct marketing to mobile phone users by, for example,
including advertising inserts in users' bills from Shanghai Mobile and
Shanghai Unicom,
o engaging in direct marketing to stock market investors by, for
example, including advertising inserts in investors' bills from
brokerage companies such as GF Securities Co., Ltd., Guotai Junan
Securities Co., Ltd., Everbright Securities Co., Ltd. and Guoxin
Securities Co., Ltd.,

o utilizing our database of users to create targeted marketing campaigns,

o advertising in traditional media outlets such as newspapers and magazines,
and

o we plan to pre-install the Samsung mobile phones we distribute with the
end-user portion of our Sifang Gutong software, and place brochures touting
our stock information, stock trading and currency exchange services in the
packaging of those phones, before distributing them to retailers.

Customer Research. Our sales, marketing and product development activities
are supported by our five-member customer research department. This department
focuses our sales efforts in the following three distinct phases:

Page 11

Customer Acquisition. Our customer research department analyzes the success
rates of various national and local marketing campaigns in which we are
involved, including by user segment and cost per user, in order to determine
which campaigns are the most effective. Using phone surveys, focus groups and
analyses of usage patterns, the department also considers demographic and other
market factors to identify product mixes and product categories which are
suitable for the current market environment.

Customer Conversion. To enhance our ability to convert one-time or
occasional customers into regular users of our services, our customer research
department analyzes customer and product churn rates across the market, average
revenue per user data and other information. In this way, it can identify
different customer segments and develop targeted marketing campaigns for those
segments, including cross-selling and up-selling marketing campaigns.

Customer Retention. Our customer research department evaluates ways to
maximize user interest in our services through, for example, providing feedback
to our product developers to improve product features based on customer
information and bundling older services with newly launched services. It also
creates various reward programs designed to enhance customer loyalty.

Customer Services. We pride ourselves in providing high quality customer
service. Our dedicated customer service center based in Shanghai provides our
users real-time support and is staffed by 20 full-time professionals. The center
currently operates everyday from 7:00 a.m. to 10:00 p.m. We strive to achieve
the fastest response times and highest customer satisfaction levels in the
industry.

Competitive Landscape

There are currently three broad categories of wireless service providers in
China:

o Portal service providers, which have established expertise in Internet
content and have subsequently branched into mobile space. The portals serve
as content aggregators offering a variety of wireless value-added services.
These national portal operators include Sohu, NetEase, Sina, and Tom.com.

o Dedicated service providers, whose businesses focus on offering a variety
of wireless content directly to mobile users. These providers include
Linktone, Newpalm and Mtone Wireless.

o Niche service providers, which focus on a particular market segment or
application that often builds on a pre-existing sector competency. These
providers include Tencent, Enorbus, and Solute. We belong in this category
because of our focus on financial information services.

We may also face competition from international wireless service providers.

As the mobile operators are becoming more selective in choosing their
service providers to promote high quality content, ensure high levels of
customer service and limit the number of providers with which they have to deal,
scale is becoming more important, and we believe the industry will likely
experience consolidation with the leading nationwide providers gaining more
market share at the expense of smaller local providers. Nationwide providers may
also acquire some of their smaller competitors to gain access to local
relationships with the mobile operators in China or new product expertise.

We estimate that we compete with between ten to twenty other
sub-wholesalers for the rights to distribute Samsung phones in the Shanghai
region. The three main competitive factors the wholesalers consider in granting
a sub-wholesaler the rights to distribute a particular model include:

Page 12

Available Cash Flow. Sub-wholesalers must be able to pay for the mobile
phones they desire to purchase from first-tier wholesalers. First-tier
wholesalers will be hesitant to grant rights to distribute a particular model to
a sub-wholesaler if that sub-wholesaler does not have sufficient capital to make
large purchases. We believe that having adequate cash flow gives us a
competitive advantage.

Relationships with Retailers. The wholesalers look to the types of
relationships sub-wholesalers have with large retailers when deciding which
sub-wholesaler to utilize. We have strong relationships with three large
retailers in Shanghai and sell approximately 65% of our mobile phones to these
three retailers.

Relationships with Wholesalers. We have relationships with the three major
wholesalers of Samsung phones in China and have been sub-wholesalers for those
three wholesalers for more than a year.

Our Business Strategy

Our main objective is to maintain and strengthen our position as a provider
of wireless value-added information services in the Shanghai region. In order to
achieve this objective, we plan to, among other things, increase the number of
subscribers to our value-added information services by increasing the number of
mobile phones we distribute and pre-installing those phones with the end-user
portion of our Sifang Gutong software.

We launched an "out-of-home" digital television advertising business in
January 2005. However, we have decided to shift our focus away from the digital
advertising business in light of the lack of demand for out-of-home digital
advertising in China. We believe that the lack of demand is caused by several
factors, including the availability of other more traditional advertising
outlets such as television, radio and newspapers, and the reduction of
advertising fees due to the merger of media companies. In addition, there are an
increasing number of competitors in the media industry, resulting in intense
market competition. Key strategies for achieving our goals are to:

o Continue to expand and diversify our portfolio of wireless value-added
information services, including new SMS, 2.5G and other next generation
services such as those compatible with 3G;

o Increase investment in sales, marketing and branding, both in conjunction
with network operators and through independent activities, in order to
promote customer awareness of our wireless value-added information and
advertising services in China;

o Continue to strengthen our relationships with China Mobile and China Unicom
by increasing our sales presence at the national and local levels and
through joint marketing and promotion activities;

o Expand our marketing channels by continuing to develop integrated marketing
campaigns with traditional media outlets and other media companies; and

Employees

The following table summarizes the functional distribution of our employees
as of December 31, 2005 and 2006:

Page 13

December 31
2005 2006
Business Development 10 10
Customer 20 20
Human Resources 2 2
Legal and Administrative 2 2
Products Development 25 25
Customer Research 5 5
Finance 3 3
Investor Relations 2 1
Sales and Marketing 25 20
Technical Support 10 5
Total 109 93

All of our personnel are employed full-time and none of them are represented
under collective bargaining agreements. We consider our relations with our
employees to be good.

Wireless Technology Standards in China

Several different wireless technology standards have been developed which
operate at different frequencies with both analog and digital radio signals.
First generation wireless telephone systems employ analog technology, while
newer systems employ digital technology. Digital wireless technology, commonly
referred to as second generation technology, or 2G, multiplies the number of
users that can be served by the same band of spectrum using analog technology.
The wireless technologies most relevant in China currently include:

o Global System for Mobile Communications, or GSM -- initially developed in
order to facilitate unification and integration of telecommunications
within the European Union has become widespread throughout most Asian
countries. GSM technology breaks audio signals into sequential pieces of
data of a defined length, places each piece into an information conduit at
specific intervals and then reconstructs the pieces at the end of the
conduit. A key component of the GSM system is the SIM card. Data stored on
the card identifies the subscriber to the mobile network as well as the
service authorized for that subscriber. Since the identity of the
subscriber is held on the card, any mobile phone can be used in conjunction
with the SIM card.

o Code Division Multiple Access, or CDMA -- a digital technology standard
which has been used in commercial operation by several operators in certain
countries such as the United States and Korea. Unlike GSM, CDMA technology
is a continuous transmission technology which uses a coding system to mix
discrete audio signals together during transmission and then separates
those signals at the end of transmission.

Prior to the commercial rollout of third generation, or 3G, networks, 2.5G
technology standards have been developed for both the GSM and CDMA technologies
to offer higher data transmission speeds, enabling the use of more data
intensive products. Current 2.5G wireless technologies include:

o General Packet-Switched Radio Service, or GPRS -- offers faster data
transmission with speeds ranging from 56 kilobits per second, or Kbps, to
114 Kbps via a GSM network. GPRS supports a wide range of bandwidths and is
particularly suited for sending and receiving small bursts of data, such as
e-mail and Web browsing, as well as large volumes of data. GPRS also makes
it possible for users to make telephone calls and transmit data
simultaneously.

Page 14

o CDMA 1x RTT -- an advanced CDMA-based technology which allows transmission
of data at speeds of up to 144 Kbps, compared to a maximum of 64 Kbps for
second generation CDMA networks.

3G represents several technology standards developed by The International
Telecommunications Union. Third generation technology has been developed for
both the GSM standard and CDMA standard.

Wireless value-added services can be offered through all of these
technology standards and most commonly include:

o Short Messaging Services, or SMS -- a service that enables a user to send
and receive text messages comprised of words or numbers or an alphanumeric
combination. SMS was created when it was incorporated into the GSM
standard.

o Wireless Application Protocol, or WAP -- a software protocol standard that
defines a standardized means of transmitting Internet-based content and
data to handheld devices such as mobile phones and pagers with secure
access to e-mail and text-based Web pages. WAP supports most wireless
networks including GSM and CDMA.

o Multimedia Messaging Services, or MMS -- a method of transmitting graphics,
video clips, sound files and short text messages over wireless networks
using the WAP protocol. MMS, however, is not the same as e-mail in that MMS
is based on the concept of multimedia messaging. An MMS message is coded so
that the images, sounds and text are displayed in a predetermined order as
one singular message. Furthermore, MMS does not support attachments as
e-mail does.

o JAVA -- a general programming environment that creates applications for the
Internet or any other distributed networks. JAVA applications are intended
to be independent of the hardware platform.

Market Overview

Wireless Value-Added Services as a Revenue Driver for the Mobile Operators

As the wireless market in China continues to develop, an increasing portion
of the mobile operators' users have relatively low per capita incomes. These
subscribers generally yield lower levels of average revenue per user, or ARPU,
because they are primarily users of pre-paid services. In addition, China's
wireless market is becoming increasingly competitive, as demonstrated by the
recent CDMA promotions by China Unicom, as well as the intra-city wireless
offerings by China's two fixed-line operators, China Telecom and China Netcom,
which offer users limited mobile services within a city based on Personal
Handyphone Service or Personal Access System technology. In addition, China
Telecom, China Netcom and possibly other parties are expected to be awarded two
wireless licenses, although the timing of such grants is unclear. Both China
Telecom and China Netcom are large, established companies with significant
assets and the entry by them or other companies into the Chinese wireless market
could lead to further competition among the mobile operators. Due to these
pressures on the traditional voice-related businesses of the mobile operators,
SMS and other wireless value-added services have become a key differentiator and
increasingly important driver for the growth prospects of China Mobile and China
Unicom. We believe wireless value-added services will play a key role in the
mobile operators' competitive positioning when attracting and retaining users as
well as in their efforts to reverse declining ARPU levels.

Against this competitive backdrop, the market for wireless value-added
services in China has expanded significantly and is expected to continue to grow

Page 15

at a fast pace. Currently, SMS services continue to represent the bulk of the
wireless value-added services market in China. This market is increasingly
shifting towards next generation technologies, with mobile operators upgrading
their networks to GPRS and CDMA 1x RTT and users upgrading to next generation
mobile phones that can operate with technologies such as MMS and WAP. China
Mobile and China Unicom have recognized this opportunity and are collaborating
with select service providers, including us, to further develop 2.5G
applications and services.

Operators' Wireless Value-Added Services Initiatives in China

China Mobile was the first to enter the market by introducing a popular
trial SMS program in connection with the Sydney Olympic Games in August 2000.
China Mobile later established its Monternet(TM) platform in November 2000.
China Unicom started its Uni-Info platform in May 2001. Monternet(TM) and
Uni-Info offer mobile phone users a single access point to order and pay for
wireless value-added services.

From the inception of Monternet(TM) and Uni-Info, China Mobile and China
Unicom have outsourced almost all content and applications for their platforms,
meaning that these operators, much like NTT DoCoMo and SK Telecom, rely almost
entirely upon third-party service providers to drive their network traffic,
supply attractive wireless services and increase revenue from their wireless
value-added services. In turn, the operators focus on the operation of their
networks. For their part, wireless value-added service providers in China rely
on the two operators, China Mobile and China Unicom, for the network
distribution of their content and services, billing and collection, and
remittance of revenues. Both operators have established similar fee
arrangements.

In addition to their working relationships with third-party service
providers, China's mobile operators will likely form closer alliances with
mobile phone vendors in order to standardize user friendly access to and
functionality for wireless value-added services in all mobile phones.

Government Regulation

The following is a summary of the principal governmental laws and
regulations that are or may be applicable to wireless service providers like us
in China. The scope and enforcement of many of the laws and regulations
described below are uncertain. We cannot predict the effect of further
developments in the Chinese legal system, including the promulgation of new
laws, changes to existing laws or the interpretation or enforcement of laws,
particularly with regard to wireless value-added services, which is an emerging
industry in China.

Regulation of Telecommunication Services

The telecommunications industry, including certain wireless value-added
services, is highly-regulated in China. Regulations issued or implemented by the
State Council, the Ministry of Information Industries, and other relevant
government authorities cover many aspects of telecommunications network
operation, including entry into the telecommunications industry, the scope of
permissible business activities, interconnection and transmission line
arrangements, tariff policy and foreign investment.

The principal regulations governing the telecommunications services
business in China include:

o Telecommunications Regulations (2000), or the Telecom Regulations. The
Telecom Regulations categorize all telecommunications businesses in China
as either infrastructure telecommunications businesses or value-added
telecommunications businesses. The latter category includes SMS and other

Page 16

wireless value-added services. Under the Telecom Regulations, certain
services are classified as being of a value-added nature and require the
commercial operator of such services to obtain an operating license,
including telecommunication information services, online data processing
and translation processing, call centers and Internet access. The Telecom
Regulations also set forth extensive guidelines with respect to different
aspects of telecommunications operations in China.

o Regulations for the Administration of Foreign-Invested Telecommunications
Enterprises (2002), or the FI Telecom Regulations. The FI Telecom
Regulations set forth detailed requirements with respect to capitalization,
investor qualifications and application procedures in connection with the
establishment of a foreign-invested telecom enterprise. Under the FI
Telecom Regulations, a foreign entity is prohibited from owning more than
50% of the total equity in any value-added telecommunications business in
China, subject to certain geographic limitations.

o Administrative Measures for Telecommunications Business Operating License
(2001), or the Telecom License Measures. Under the Telecom License
Measures, an approved value-added telecommunications service provider must
conduct its business in accordance with the specifications recorded on its
Telecom Business Operating License.

o In the third quarter of 2006, the Ministry of Information Industry of the
People's Republic of China initiated a nation-wide management specific plan
as well as introduced a series of policies and measures to regulate the SP
market. With the introduction of these policies and measures that set very
strict rules on the provisions of information services provided by
value-added service providers, our advertising service business was
seriously affected. We generated only $ 334,844 revenue from the
above-mentioned advertising services in 2006.

In addition to regulations promulgated at the national level by the Chinese
government, the Shanghai municipal government has issued provisional regulations
requiring SMS service providers to obtain licenses from or register with the
local Ministry of Information Industries branch office before providing SMS
service within the city. At this time, it is unclear whether national
regulations will be promulgated regulating SMS services.

Our affiliates, Sifang Information and Tianci, each have a value-added
telecommunication services license issued by the Shanghai Municipal
Telecommunications Administration Bureau, which is the local office of the
Ministry of Information Industries. Each has also been granted an
inter-provincial value-added telecommunication license by the Ministry of
Information Industries.

Other Laws and Their Application

Regulation of Internet Content Services. As a wireless value-added
information services provider, we do not engage in the Internet portal business
which typically involves the provision of extensive Internet content services,
including Chinese language Web navigational and search capabilities, content
channels, web-based communications and community services and a platform for
e-commerce, such as auction houses. Sifang Information registered with the
Shanghai Telecommunication Administration Bureau in January 2001 to provide
commercial services at the www.sifang.net web site.

As a commercial ICP provider, Sifang Information is prohibited from posting
or displaying any content that:
o opposes the fundamental principles determined in China's Constitution;
o compromises state security, divulges state secrets, subverts state power or
damages national unity;
o harms the dignity or interests of the state;
o incites ethnic hatred or racial discrimination or damages inter-ethnic
unity;

Page 17

o sabotages China's religious policy or propagates heretical teachings or
feudal superstitions;
o disseminates rumors, disturbs social order or disrupts social stability;
o propagates obscenity, pornography, gambling, violence, murder or fear or
incites the commission of crimes;
o insults or slanders a third party or infringes upon the lawful rights and
interests of a third party; or
o includes other content prohibited by laws or administrative regulations.

Failure to comply with these prohibitions may result in the closing of
Sifang Information's Web site.

Regulation of News Dissemination through SMS Services. Pursuant to a
circular issued by the Shanghai Communications Administration, distribution of
news content through wireless applications like SMS must be approved by relevant
government agencies. Both Sifang Information and Tianci have all necessary
approvals.

Regulation of Advertisements. The State Administration of Industry and
Commerce, or the SAIC, is the government agency responsible for regulating
advertising activities in China. The SAIC has not promulgated regulations
specifically aimed at wireless advertising through a media other than the
Internet, such as through SMS services. One provisional regulation issued by
Shanghai municipal government prohibits service providers from sending SMS
advertisements without the client's consent.

As part of our non-mobile operator marketing activities, we have developed
integrated marketing campaigns with traditional media outlets such as magazines
and newspapers and multinational corporations through certain cross-selling
efforts with companies, including Motorola and Samsung. If the SAIC were to
treat our integrated marketing campaigns or other activities as being
advertising activities, we would need to apply to the local SAIC for an
advertising license to conduct wireless advertising business (through SMSs, for
example). We can give no assurance that such application would be approved by
the SAIC. Failure to obtain such approval could result in penalties including
being banned from engaging in online advertising activities, confiscation of
illegal earnings and fines.

Foreign Exchange Controls. The principal regulations governing foreign
exchange in China are the Foreign Exchange Control Regulations (1996) and the
Administration of Settlement, Sale and Payment of Foreign Exchange Regulations
(1996), or the Foreign Exchange Regulations. Under the Foreign Exchange
Regulations, Renminbi is freely convertible into foreign currency for current
account items, including the distribution of dividends. Conversion of Renminbi
for capital account items, such as direct investment, loans and security
investment, however, is still subject to the approval of the State
Administration of Foreign Exchange, or SAFE.

Under the Foreign Exchange Regulations, foreign-invested enterprises are
required to open and maintain separate foreign exchange accounts for capital
account items (but not for other items). In addition, foreign-invested
enterprises may only buy, sell and/or remit foreign currencies at those banks
authorized to conduct foreign exchange business after providing valid commercial
documents and, in the case of capital account item transactions, obtaining
approval from SAFE.

Intellectual Property and Proprietary Rights

We rely primarily on a combination of copyright laws and contractual
restrictions to establish and protect our intellectual property rights. We
require our employees to enter into agreements requiring them to keep
confidential all information relating to our customers, methods, business and
trade secrets during and after their employment with us. Our employees are
required to acknowledge and recognize that all inventions, trade secrets, works
of authorship, developments and other processes, whether or not patentable or
copyrightable, made by them during their employment are our property. They also

Page 18

sign agreements to substantiate our sole and exclusive right to those works and
to transfer any ownership that they may claim in those works to us.

While we actively take steps to protect our proprietary rights, such steps
may not be adequate to prevent the infringement or misappropriation of our
intellectual property. This is particularly the case in China where the laws may
not protect our proprietary rights as fully as in the United States.
Infringement or misappropriation of our intellectual property could materially
harm our business. Sifang Information has registered the following Internet and
WAP domain name www.sifang.net.

Shanghai Sifang Communication Company ("Sifang Communication") has
registered one trademark with China's Trademark Office. That trademark is our
logo, a square (the English translation of "Sifang" is "square"). China's
trademark law utilizes a "first-to-file" system for obtaining trademark rights.
As a result, the first applicant to file an application for registration of a
mark will preempt all other applicants. Prior use of unregistered marks, except
"well known" marks, is generally not a basis for legal action in China. We may
not be able to successfully defend or claim any legal rights in any trademarks
for which we apply in the future.

Pursuant to a license agreement between our affiliate, Sifang
Communication, and us, we have the right to use our registered trademark, our
square logo, whenever necessary. We also acquired all of Sifang Information's
interest in the Sifang Gutong software pursuant to the terms of the spin-off of
Sifang Information's business divisions focusing on value-added information
services and distribution of mobile phones. We have the right to use the word
"Sifang" and to market ourselves through www.sifang.net with regard to both of
the spun-off divisions.

Many parties are actively developing and seeking patent protection for
wireless services-related technologies. We expect these parties to continue to
take steps to protect these technologies, including seeking patent protection.
There may be patents issued or pending that are held by others and that cover
significant parts of our technology, business methods or services. Disputes over
rights to these technologies are likely to arise in the future. We cannot be
certain that our products do not or will not infringe valid patents, copyrights
or other intellectual property rights held by third parties. We may be subject
to legal proceedings and claims from time to time relating to the intellectual
property of others.

Terminated 2006 Acquisition

In December 2005, TCH entered into a series of agreements to purchase (i)
95% of the equity interests of Shanghai Kena Energy Saving Electric Co Ltd
("Kena") for an aggregate purchase price of RMB 28,500,000 (approximately
$3,532,000); (ii) a related patent from one of the shareholders of Kena for RMB
11,000,000 (approximately $1,363,000); and (iii) related rights to make a patent
application from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000). The purchase price for both the equity interests in
Kena and the consideration for purchase of the patent and the right to apply for
registration of the patent shall be paid by Sifang Information on behalf of TCH.
On February 10, 2006, these agreements were amended to impose an additional
condition on Mr. Zhang Naiyao, the transferor of the patent and holder of the
right to make the patent application, that if he fails to provide the necessary
technical assistance services to enable TCH to use the patented technology in
producing products on a large scale that meet the standards set by the Company
within one year, TCH shall have the right to demand the return of the relevant
payment received by him in full and to terminate the agreement for the
assignment of the patent and the right to apply for registration of the patent.
The amendments also set forth the arrangement for payment of the purchase price
between TCH and Sifang Information. The purchase price for both the equity
interests in Kena and the consideration for purchase of the patent and the right
to apply for registration of the patent shall be paid by Sifang Information on
behalf of TCH. According to the amended agreements, the amount of the purchase

Page 19

consideration paid by Sifang Information on behalf of TCH will be applied to
offset the trade and other receivables owed to TCH by Sifang Information.

RISK FACTORS

In addition to the other information contained in this annual report,
including the documents we incorporate by reference, you should consider the
following factors that may affect our future results and financial condition
before investing in our securities. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under no
duty to update any of the forward-looking statements after the date of this
report to conform such statements to actual results or to changes in our
expectations.

Risks Related to Our Business

We depend upon contractual arrangements with our affiliated value-added mobile
phone service providers, Sifang Information and Tianci, for the success of our
business. These arrangements may not be as effective in providing operational
control as direct ownership of these businesses and may be difficult to enforce.

Because we conduct our business only in China, and because we are
restricted by the Chinese government from owning telecommunications or Internet
operations in China, we depend on our affiliated value-added mobile phone
service providers, Sifang Information and Tianci, in which we have no direct
ownership interest, but with which we have entered into information service and
cooperation agreements, to provide those services to mobile phone users in China
through contractual agreements with the mobile operators, China Mobile and China
Unicom. These arrangements may not be as effective in providing control over our
value-added information services to mobile phone users in China as would be
direct ownership of these businesses. For example, Sifang Information or Tianci
could fail to take actions required to operate our business, such as entering
into service contracts with China Mobile or China Unicom. Moreover, a portion of
the fees for our services are paid by the mobile operators directly to Sifang
Information and Tianci, which are then obligated to transfer all of those fees
to us, in return for a small fee. If Sifang Information or Tianci fails to
perform their obligations under these agreements, we may have to rely on legal
remedies under Chinese law, which we cannot assure you would be effective or
sufficient.

Page 20

In the opinion of our Chinese counsel, Sifang Information and Tianci each
possess such licenses, permits, certificates, authorities and approvals, issued
by appropriate governmental agencies or bodies in the People's Republic of
China, as are necessary to conduct its business as presently conducted as well
as to perform its obligations under any contracts between it and China Mobile
and China Unicom, respectively. In addition, in the opinion of Chinese Legal
Group (Shanghai), TCH is not in breach of or in default under any laws of the
People's Republic of China or any approval, consent, waiver, authorization,
exemption, permission, endorsement or license granted by any People's Republic
of China governmental agencies. There are, however, substantial uncertainties
regarding the interpretation and application of current and future Chinese laws
and regulations, as discussed below.

We depend on one software developer for a significant portion of our software
development, as well as for important marketing relationships.

We rely on Shanghai Chengao Industrial Co., Ltd., or Chengao, to develop a
significant portion of our software, including our Sifang Gutong software. We
also rely on Chengao to provide us with an important marketing relationship
regarding the mobile phone version of our Sifang Gutong software. If we lose our
relationship with Chengao, we could have a difficult time finding a suitable
replacement in the short term. Our corporate structure could be deemed to be in
violation of current or future Chinese laws and regulations which could
adversely affect our ability to operate our business effectively or at all.

In connection with China's entry into the World Trade Organization, or WTO,
foreign investment in telecommunications and Internet services in China was
liberalized to allow for 30.0% foreign ownership in value-added
telecommunication and Internet services in 2002, 49.0% in 2003, and 50.0%
thereafter. In order to meet these ownership requirements, we have entered into
information service and cooperation agreements with Sifang Information and
Tianci. We do not have any direct ownership interest in Sifang Information or
Tianci. The original shareholder structure of Sifang Holdings was identical to
the current shareholder structure of Sifang Information, and each of Sifang
Information and Tianci are beneficially owned 69% by Tai Caihua, our president
and the chairman of our board of directors. It is possible that the relevant
Chinese authorities could, at any time, assert that any portion or all of TCH's,
Sifang Information's, or Tianci's existing or future ownership structure and
businesses violate existing or future Chinese laws, regulations or policies. It
is also possible that the new laws or regulations governing the
telecommunication or Internet sectors in China that have been adopted or may be
adopted in the future will prohibit or restrict foreign investment in, or other
aspects of, TCH's, Sifang Information's or Tianci's current or proposed
businesses and operations. In addition, these new laws and regulations may be
retroactively applied. In any such case, we could be required to restructure our
operations, which could adversely affect our ability to operate our business
effectively or at all.

We depend on China Mobile and China Unicom for delivery of our value-added
information services to mobile phone users in China, and the termination or
alteration of Sifang Information's and Tianci's various contracts with either of
them or their provincial or local affiliates could materially and adversely
impact our business.

Our affiliated value-added mobile phone service providers, Sifang
Information and Tianci, contract with the two principal mobile phone operators
in China, China Mobile and China Unicom, to offer our wireless value-added
information services to mobile phone users through these mobile phone operators,
which service nearly all of China's approximately 282 million mobile phone
subscribers. Given their dominant market position, our affiliated value-added
mobile phone service providers' negotiating leverage with these operators is
limited. If our affiliated value-added mobile phone service providers' various
contracts with either operator are terminated or adversely altered, it may be
impossible for our affiliated value-added mobile phone service providers to find
appropriate replacement operators with the requisite licenses and permits,

Page 21

infrastructure and customer base to offer our services, and our business would
be significantly impaired.

Our value-added information services are provided to mobile phone users in
China pursuant to contracts Sifang Information and Tianci have with China Mobile
and China Unicom and their provincial or local affiliates. Each of these
contracts is non-exclusive, and has a limited term (generally one year). Our
affiliates usually renew these contracts or enter into new ones when the prior
contracts expire, but on occasion the renewal or new contract can be delayed by
periods of one month or more. The terms of these contracts vary, but the
operators are generally entitled to terminate them in advance for a variety of
reasons or, in some cases, for no reason in their discretion. For example,
several of our affiliates' contracts with the mobile operators can generally be
terminated if:

o our affiliate fails to achieve performance standards which are established
by the applicable operator from time to time,

o our affiliate breaches its obligations under the contracts, which include,
in many cases, the obligation not to deliver content that violates the
operator's policies and applicable law,

o the operator receives high levels of customer complaints about our
affiliate's services, or

o the operator sends written notice to our affiliate that it wishes to
terminate the contract at the end of the applicable notice period.

Our affiliates may also be compelled to alter their arrangements with these
mobile operators in ways which adversely affect our business. China Mobile and
China Unicom have unilaterally changed their policies as applied to third-party
service providers in the past, and may do so again in the future. We may not be
able to adequately respond to negative developments in the contractual
relationships between our affiliates and China Mobile or China Unicom in the
future because we do not have a contractual relationship with China Mobile or
China Unicom.

Our business could be adversely affected if China Mobile or China Unicom or both
begin providing their own wireless value-added services.

Our wireless value-added information services business may be adversely
affected if China Mobile or China Unicom or both decide to begin providing their
own wireless value-added services to mobile phone users. In that case, we would
face enhanced competition, and our services could be fully or partially denied
access to their networks.

We depend in part on China Mobile and China Unicom to maintain accurate records
and to continue to pay our affiliated value-added wireless service providers.

We depend in part on China Mobile and China Unicom to maintain accurate
records of the fees paid by mobile phone users and to pay our affiliated
value-added wireless service providers. Specifically, the mobile operators
provide our affiliates with monthly statements that do not provide itemized
information regarding which of our services are being paid for. Our business and
results of operation could be adversely affected if these mobile phone companies
miscalculate the revenue generated from our services and our affiliates' portion
of that revenue, or refuse to pay our affiliates altogether.

Our revenues and cost of services are affected by billing and transmission
failures which are often beyond our control.

Page 22

Our affiliates do not collect fees for our services owed to them by China
Mobile and China Unicom in a number of circumstances, including if:

o the delivery of our service to a customer is prevented because his or her
phone is turned off for an extended period of time, the customer's prepaid
phone card has run out of value or the customer has ceased to be a customer
of the applicable operator,

o China Mobile or China Unicom experiences technical problems with their
networks which prevent the delivery of our services to the customer,

o we experience technical problems with our technology platform that prevent
delivery of our services,

o our affiliates experience technical problems with their technology
platforms that prevent delivery of our services, or

o the customer refuses to pay for our service due to quality or other
problems.

These situations are known in the industry as billing and transmission
failures, and we do not recognize any revenue for services which are
characterized as billing and transmission failures. The failure rate can vary
among the operators, and by province, and also has fluctuated significantly in
the past. If actual billing and transmission failures exceed our estimates, our
revenues could be materially adversely affected.

China Mobile and China Unicom may impose higher service or network fees on our
affiliated value-added service providers if we are unable to satisfy customer
usage and other performance criteria.

Fees for our wireless value-added information services are charged on a
monthly subscription or per use basis. Based on our contractual arrangement and
those of our wireless value-added service providers, we rely on China Mobile and
China Unicom to bill and collect fees for our services from mobile phone users.

China Mobile and China Unicom generally charge our affiliated value-added
service providers service fees of 15% and 30% of the revenues generated by their
services, respectively. To the extent that the number of messages sent by Sifang
Information over China Mobile's network exceeds the number of messages their
customers send to it, Sifang Information must pay per message network fees,
which decrease in several provinces as the volume of customer usage of our
services increases. The number of messages sent by Sifang Information will
exceed those sent by end-users, for example, if a user sends Sifang Information
a single message to order a game but Sifang Information in turn must send that
user several messages to confirm his or her order and deliver the game itself.
Tianci's service fees owed to China Unicom could also rise if Tianci fails to
meet certain customer usage, revenue and other performance criteria. We cannot
be certain that our affiliates will be able to continue to satisfy these
criteria in the future or that the mobile operators will keep the criteria at
their current levels. Any increase in China Mobile's or China Unicom's network
fees and service charges could reduce our gross margins.

China Mobile and China Unicom may terminate their relationships with our
affiliates if our affiliates fail to achieve minimum customer usage, revenue and
other criteria.

Our business could be adversely affected if our affiliated value-added
mobile phone service providers fail to achieve minimum customer usage, revenue

Page 23

and other criteria imposed or revised by China Mobile and China Unicom at their
discretion from time to time. China Mobile and China Unicom, through their
national and local offices, have historically preferred to work only with a
small group of the best performing wireless value-added service providers, based
upon the uniqueness of the service offered by each provider, total number of
users, usage and revenue generated in the applicable province or municipality,
the rate of customer complaints, and marketing expenditures in the applicable
province or municipality.

The services our affiliated value-added mobile phone service providers offer and
the prices they charge are subject to approval by China Mobile and China Unicom,
and if requested approvals are not granted in a timely manner, our business
could be adversely affected.

Our affiliated value-added mobile phone service providers must obtain
approval from China Mobile and China Unicom with respect to each service that
they propose to offer to their customers and the pricing for each such service.
In addition, any changes in the pricing of our affiliates' existing services
must be approved in advance by these operators. There can be no assurance that
such approvals will be granted in a timely manner or at all. Moreover, under
some of our affiliates' contracts with the operators, prices cannot be changed
more than once every six months and prices must be within fixed parameters,
depending on the service. Any failure of our affiliates to obtain, or any delay
in obtaining, such approvals could place us at a competitive disadvantage in the
market and adversely affect our business.

We operate in a rapidly evolving industry, which makes it difficult for
investors to evaluate our business.

We began commercially offering wireless value-added information services to
mobile phone and pager users in China in January 2002, and since that time, the
technologies and services used in the wireless value-added information services
industry in China have developed rapidly. As a result of this rapid and
continual change in the industry, the prospects of our value-added information
service business should be considered in light of the risks and difficulties
frequently encountered by businesses in an early stage of development. These
risks include our ability to:

o attract and retain users for our wireless value-added information services,

o expand the content and services that we offer and, in particular, develop
and aggregate innovative new content and service offerings,

o respond effectively to rapidly evolving competitive and market dynamics and
address the effects of mergers and acquisitions among our competitors,

o build relationships with strategic partners, and

o increase awareness of our brand and user loyalty.

Due to these factors, there can be no certainty that we will maintain or
increase our current share of the highly competitive wireless value-added
information services market in which we operate.

The success of much of our wireless value-added information services is
significantly dependent on our ability to obtain and reformat desirable content
and technology from third parties.

We obtain much of our content, including financial information, games,
logos, music, news and other information, from third parties. Furthermore, we
expect that we will develop and purchase technology in connection with our
development of next generation services such as MMS, JAVA and BREW. As the

Page 24

market for wireless value-added information services develops, content and
technology providers may attempt to increase their profits from distribution
arrangements by demanding greater fees or a share of revenues, which would
adversely affect our financial performance. Many of our arrangements with
content and technology providers are non-exclusive, have a term of one year, and
are subject to renewal. If our competitors are able to obtain such content in a
similar or superior manner or to develop, purchase or license the same
technologies, it could adversely affect the popularity of our services and our
negotiating leverage with third-party providers.

If we fail to establish and maintain economically attractive relationships
with content and technology providers and to thereafter successfully reformat
their products, we may not be able to attract and retain customers or maintain
or improve our financial performance.

We depend on our Sifang Gutong software continuing to be compatible with new
mobile phone models.

There can be no assurance that our Sifang Gutong software will be
compatible with new mobile phones developed by manufacturers such as Samsung. If
the software is no longer compatible, we will be forced to engage Chengao or an
alternative software developer to develop software that is compatible with the
new mobile phones or we will have to develop the software ourselves. If we are
unable to either engage a software developer or develop software in house that
is compatible with new mobile phones, we will lose a significant portion of our
value-added information services revenue, including all of the pre-charged
subscription fee revenues we receive pursuant to our information services and
cooperation agreement among us, Chengao, and Sifang Information.

We face intense competition from other service providers.

The Chinese markets for wireless value-added and advertising services are
intensely competitive. We believe there were more than 800 wireless value-added
service providers (including the three groups discussed below) as of June 30,
2004. We compete directly or indirectly with three groups of wireless
value-added service providers in China:

o portal service providers, which have established expertise in Internet
content and have subsequently branched into mobile space. The portals serve
as content aggregators offering a variety of wireless value-added services,

o dedicated service providers, whose businesses focus on offering a variety
of wireless content directly to mobile phone users, and

o niche service providers, which focus primarily on a particular market
segment or application that often builds on a pre-existing sector
competency.

We have faced direct or indirect competition from all three groups since
our entry into this market. Moreover, there are low barriers to entry for new
competitors in the wireless value-added services market. As a result, our
existing or potential competitors may in the future achieve greater market
acceptance and gain additional market share, which in turn could reduce our
revenues. There is increasing number of competitors in the media industry and
the reduction of advertising fees, resulting in intense market competition. Our
advertising services have also facing direct or indirect competitions from other
more traditional advertising outlets such as television, radio and newspapers.

Most of our value-added information services revenues are derived from the
Shanghai municipal area and surrounding provinces, and the termination or

Page 25

alteration of our affiliates' contracts with the mobile operators, or a general
economic downturn in those areas, could have a particularly adverse effect on
our business.

Per capita income levels and mobile phone penetration rates (i.e., the
number of mobile subscribers divided by the population of China) in China are
generally higher in the coastal and southern provinces, and most of our revenues
are derived from those areas, including the municipality of Shanghai and the
provinces of Beijing and Jiangsu. If our affiliates' contracts with the mobile
operators with respect to those areas are terminated or adversely modified, or
if there is a general economic downturn in those areas, it could have a
particularly adverse effect on our business.

Rapid growth and a rapidly changing operating environment strain our limited
resources.

As our value-added information services customer base increases, we will
need to increase our investment in our technology infrastructure, facilities and
other areas of operations, in particular our product development, customer
service and sales and marketing departments, which are important to our future
success. If we are unable to manage our growth and expansion effectively, the
quality of our services and our customer support could deteriorate and our
business may suffer. Our future success will depend on, among other things, our
ability to:

o develop and quickly introduce new services, adapt our existing services and
maintain and improve the quality of all of our services, particularly as
new mobile technologies such as 3G are introduced,

o expand the percentage of our value-added information services revenues
which are recurring and are derived from monthly subscription based
services,

o continue to enter into and maintain relationships with desirable content
providers,

o continue training, motivating and retaining our existing employees and
attract and integrate new employees, including our senior management, most
of whom have been with our company for less than one year,

o develop and improve our operational, financial, accounting and other
internal systems and controls, and

o maintain adequate controls and procedures to ensure that our periodic
public disclosure under applicable laws, including U.S. securities laws, is
complete and accurate.

Any failures of the mobile telecommunications network, the Internet or our
technology platform may reduce use of our services.

Both the continual accessibility of China Mobile's and China Unicom's
mobile networks and the performance and reliability of China's Internet
infrastructure are critical to our ability to attract and retain our value-added
information services customers. Moreover, our business depends on our ability to
maintain the satisfactory performance, reliability and availability of our
technology platform. The servers which constitute the principal system hardware
for our operations are located in one location in Shanghai. Any server
interruptions, break-downs or system failures, including failures caused by
sustained power shutdowns, floods or fire causing loss or corruption of data or
malfunctions of software or hardware equipment, or other events outside our
control that could result in a sustained shutdown of all or a material portion
of the mobile networks, the Internet or our technology platform, could adversely
impact our ability to provide our services to our value-added information
services customers and decrease our revenues.

Page 26

Computer viruses and hacking may cause delays or interruptions on our systems
and may reduce use of our services and harm our reputation.

Computer viruses and hacking may cause delays or other service
interruptions on our systems. "Hacking" involves efforts to gain unauthorized
access to information or systems or to cause intentional malfunctions or loss or
corruption of data, software, hardware or other computer equipment. In addition,
the inadvertent transmission of computer viruses could expose us to a material
risk of loss or litigation and possible liability. We may be required to expend
significant capital and other resources to protect our systems against the
threat of such computer viruses and hacking and to rectify any damage to our
systems. Moreover, if a computer virus or hacking which affects our systems is
highly publicized, our reputation could be materially damaged and usage of our
services may decrease.

We may be held liable for information we purchase and reformat.

We may face liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the reformatted content to
which we provide access through our wireless value-added information services.
For example, SMS news updates provided by us could possibly be deemed to contain
state secrets in violation of applicable Chinese law. In addition, third parties
could assert claims against us for losses incurred in reliance on information
distributed by us. We may incur significant costs in investigating and defending
these claims, even if they do not result in liability.

We may not be able to adequately protect our intellectual property, and we may
be exposed to infringement claims by third parties.

We rely on contractual restrictions on disclosure to protect our
intellectual property rights. Monitoring unauthorized use of our information
services is difficult and costly, and we cannot be certain that the steps we
take will effectively prevent misappropriation of our technology and content.
Our management may determine in the future to make application for copyright,
trademark or trade secret protection if management determines that such
protection would be beneficial and cost-effective.

From time to time, we may have to resort to litigation to enforce our
intellectual property rights, which could result in substantial costs and
diversion of our resources. In addition, third parties may initiate litigation
against us for alleged infringement of their proprietary rights. In the event of
a successful claim of infringement and our failure or inability to develop
non-infringing technology or content or license the infringed or similar
technology or content on a timely basis, our business could suffer. Moreover,
even if we are able to license the infringed or similar technology or content,
license fees that we pay to licensors could be substantial or uneconomical.

Our ability to generate revenues could suffer if the Chinese market for wireless
value-added services does not develop as anticipated.

The wireless value-added services market in China has evolved rapidly over
the last four years, with the introduction of new services, development of
consumer preferences, market entry by new competitors and adaptation of
strategies by existing competitors. We expect each of these trends to continue,
and we must continue to adapt our strategy to successfully compete in our
market.

In particular, we currently offer a wide range of wireless value-added
information services for mobile phones using 2.5G technologies. There can be no
assurance, however, that these 2.5G technologies and any services compatible
with them will be accepted by consumers or promoted by the mobile operators.

Page 27

Moreover, there are numerous other technologies in varying stages of
development, such as third generation mobile technologies, which could radically
alter or eliminate the market for SMS or 2.5G services.

Accordingly, it is extremely difficult to accurately predict consumer
acceptance and demand for various existing and potential new offerings and
services, and the future size, composition and growth of this market.
Furthermore, given the limited history and rapidly evolving nature of our
market, we cannot predict the price that wireless subscribers will be willing to
pay for our services or the services of our affiliated value-added service
providers or whether subscribers will have concerns about security, reliability,
cost and quality of service associated with wireless services. If acceptance of
our wireless value-added information services is different than anticipated, our
ability to maintain or increase our revenue and profits could be materially and
adversely affected.

The popularity of our services which operate with next generation technology
standards are necessarily dependent on the market penetration of mobile phones
that are compatible with those standards, which is beyond our control.

Mobile phone users can access our MMS, WAP, JAVA, BREW and other services
which operate with next generation technology standards only if they purchase
mobile phones that are compatible with those standards. In particular, mobile
phones that are 2.5G-compatible have historically been significantly more
expensive in China than mobile phones using older technology such as GSM.
Although the prices of 2.5G-compatible mobile phones have been dropping rapidly
in recent quarters, we cannot be certain whether this trend will continue or the
extent to which existing users will be willing to upgrade their mobile phones to
obtain the latest technology. The pricing, marketing and other factors which
affect the sales of more sophisticated mobile phones are all outside of our
control, and weak sales of mobile phones for which we have developed services
could adversely affect our business.

The telecommunication laws and regulations in China are evolving and subject to
interpretation and will likely change in the near future. If we are found to be
in violation of current or future Chinese laws or regulations, we could be
subject to severe penalties.

Although wireless value-added services are subject to general regulations
regarding telecommunication services, we believe that currently there are no
Chinese laws at the national level explicitly governing wireless value-added
services, such as our services related to MMS, WAP, JAVA, and BREW, and no
Chinese government authority has been specifically designated to regulate these
services. Many providers of wireless value-added services have obtained various
value-added telecommunication services licenses, such as the licenses possessed
by our Chinese affiliates, Sifang Information and Tianci. These value-added
telecommunication licenses were issued by the local Shanghai Municipal
Telecommunications Administration Bureau, and may not be sufficient to offer
wireless value-added services on a national basis. Sifang Information and Tianci
are in the process of applying with the Ministry of Information Industries for
an inter-provincial value-added telecommunication license in accordance with the
Ministry's general regulations regarding telecommunication services. However, we
cannot predict whether either will be granted that license. Moreover, we cannot
be certain that any local or national value-added telecommunication license
requirements will not conflict with one another or that any given license will
be deemed sufficient by the relevant governmental authorities for the provision
of this category of service. It is also possible that new national legislation
might be adopted to regulate such services.

If we or our affiliates are found to be in violation of any existing or
future Chinese laws or regulations regarding wireless value-added services or
Internet access, the relevant Chinese authorities have the power to, among other
things:

Page 28

o levy fines;

o confiscate our income or the income of our affiliated value-added service
providers;

o revoke our business license or the business licenses of our affiliated
value-added service providers;

o shut down our servers or the servers of our affiliated value-added service
providers or block any Web sites that we or our affiliated value-added
service providers may operate;

o require us to discontinue any portion or all of our wireless value-added
information services business; or

o require our affiliated value-added service providers to discontinue any
portion or all of their wireless value-added services business.

The Chinese government, China Mobile or China Unicom may prevent us from
distributing, and we may be subject to liability for, content that any of them
believe is inappropriate.

China has enacted regulations governing telecommunication service
providers, Internet access and the distribution of news and other information.
In the past, the Chinese government has stopped the distribution of information
over the Internet that it believes violates Chinese law, including content that
is obscene, incites violence, endangers national security, is contrary to the
national interest, or is defamatory. In addition, our affiliated value-added
service providers may not publish certain news items, such as news relating to
national security, without permission from the Chinese government. Furthermore,
the Ministry of Public Security has the authority to cause any local Internet
service provider to block any Web site maintained outside China at its sole
discretion.

China Mobile and China Unicom also have their own policies regarding the
distribution of inappropriate content by wireless value-added service providers
and have recently punished certain providers for distributing content deemed by
them to be obscene. Such punishments have included censoring of content,
delaying payments of fees by the mobile operators to the offending service
provider, forfeiture of fees owed by the mobile operators to the offending
service provider and suspension of the service on the mobile operators'
networks. Accordingly, even if our affiliated wireless value-added service
providers comply with Chinese governmental regulations relating to licensing and
foreign investment prohibitions, if the Chinese government, China Mobile or
China Unicom were to take any action to limit or prohibit the distribution of
information or to limit or regulate any current or future content or services
available to users, our revenues could be reduced and our reputation harmed.

The Chinese government is expected to grant licenses to offer wireless
services in China to China Telecom, China Netcom and possibly other parties with
which our affiliated wireless value-added service providers have not yet
developed close relationships. If those parties receive licenses and are
successful in the market but our affiliates are unable to develop cooperative
relationships with them, our business could be adversely affected.

It is also possible that China Telecom, China Netcom and any other parties
receiving wireless licenses may decide to offer wireless value-added services
created by them, rather than by third-party service providers such as our
affiliated wireless value-added service providers. In that case, our business
could be adversely affected.

Page 29

Government regulation of the telecommunications and Internet industries may
become more complex.

Government regulation of the telecommunications and Internet industries is
highly complex. New regulations could increase our costs of doing business and
prevent us from efficiently delivering our services. These regulations may stop
or slow down the expansion of our wireless value-added information services
customer base and limit access to our services. In the third quarter of 2006,
the Ministry of Information Industry of the People's Republic of China initiated
a nation-wide management specific plan as well as introduced a series of
policies and measures to regulate the SP market. With the introduction of these
policies and measures that set very strict rules on the provisions of
information services provided by value-added service providers, the advertising
service business of us was seriously affected. We generated very little revenue
from the value-added advertising services in 2006 and determined that future
undiscounted cash flows associated with the assets involved in the advertisement
services provided to Tianci Real Estate were uncertain, and may not be
sufficient to recover their carrying values and so these assets were written
down to zero as of December 31, 2006.

Also in 2006, we decided not to pursue the acquisition of Kena under a
series of agreements signed in 2005. All the agreements in connection with the
Kena acquisition were terminated by TCH and Kena. We also reviewed the future
economic value of the deposit for the anticipated business acquisition of Kena
and determined that future undiscounted cash flows associated with this deposit
were uncertain and may not be sufficient to recover their carrying values and so
was fully written down as of December 31, 2006.

The above-mentioned situation forced us to take certain actions and
continues to implement changes designed to improve the Company's financial
results and operating cash flows. The action involves change of business
operations from the mobile phone distribution business and provision of
information value-added services to sales of energy-saving products. The place
of business is also going to reallocate from Shanghai to Shaanxi Province.

We are dependent on three main first-tier wholesalers to supply all of our
mobile phones.

Our performance depends on whether we can continue to secure contracts with
the three first-tier wholesalers of Samsung mobile phones on whom we rely. We
have no long-term purchase contracts or other contracts that provide continued
supply, pricing or access to new mobile phone models and any of the first-tier
wholesalers on whom we rely could discontinue selling to us at any time. We may
not be able to acquire new Samsung and Nokia models in the future and we may not
be able to acquire the models that we need in sufficient quantities or on terms
that are acceptable to us in the future. As a result, our revenues may decrease.

Our performance is dependent on the popularity of Samsung's and Nokia's mobile
phone models.

We primarily distribute mobile phones manufactured by Samsung and Nokia.
Thus we are dependant on Samsung's and Nokia's ability to create and deliver
high quality mobile phone models in a cost effective and timely manner. Nokia is
the market leader in worldwide mobile phone industry and rapidly growing mobile
phone market in China. Samsung is a leading world-class competitor of mobile
phones based on both the CDMA network and the GSM network in China. There can be
no assurance that Samsung and Nokia will continue to create high quality mobile
phone models that are popular with consumers. As a result, our revenues may
decrease. In addition, our success depends on our ability to anticipate and
respond to changing mobile phone model trends and consumer demands in a timely
manner. The models we distribute must appeal to a broad range of consumers whose
preferences cannot always be predicted with certainty and may change between
sales seasons. If we misjudge which mobile phone models will be popular or the
market for the models we distribute, our sales may decline or we may be required
to sell our models at lower prices.

Page 30

We rely on cash flow to purchase mobile phones from wholesalers, and any
significant decrease in cash flow could have a negative impact on our ability to
meet customer demand.

It is important that we have sufficient cash flow to purchase enough mobile
phones from the first-tier wholesalers on whom we rely. If our cash flow
decreases significantly, we will not be able to purchase a sufficient quantity
of inventory to meet our customers' demands, which would have a negative impact
on our sales, and may cause the first-tier wholesalers on whom we rely to look
to other sub-wholesalers to distribute their mobile phones. This development
would have a negative impact on our revenues.

Our customers are under no obligation to do business with us, and if they
terminate or materially reduce their relationship with us it would adversely
impact our business.

One of the factors the first-tier wholesalers on whom we rely consider when
determining who they will use as a sub-wholesaler is the sub-wholesaler's
relationship with retailers. Currently approximately 72% of our mobile phone
sales are made to five retailers. We have no long-term sales contracts or other
contracts that provide continued selling or pricing and any of the retailers we
supply could discontinue buying from us at any time. If we lose our
relationships with our five largest retailers, we will have a difficult time
finding new large retailers to purchase our Samsung and Nokia mobile phones and
may lose our relationships with the first-tier wholesalers on whom we rely. This
would have a negative impact on our business.

We face certain risks relating to customer service, and any resulting problems
could adversely affect our sales.

Any material disruption or slowdown in our order processing systems
resulting from labor disputes, mechanical problems, human error or accidents,
fire, natural disasters, or comparable events could cause delays in our ability
to receive and distribute orders and may cause orders to be lost or to be
shipped or delivered late. As a result, customers may cancel orders or refuse to
receive goods on account of late shipments, which would result in a reduction in
our net sales and could result in increased administrative and shipping costs.

We face risks associated with the concentration of our distribution operations
in one location.

We conduct all of our distribution operations from one facility in
Shanghai, China. Any disruption in the operations at our distribution center
could have a negative impact on our business.

We face competition from distributors selling other mobile phone models.

Despite the fact that we distribute nine Samsung mobile phone models and
two Nokia's mobile phone models in the Shanghai, China region, we face
competition from distributors of different models of mobile phones manufactured
by Samsung and Nokia in the Shanghai region and from distributors of phones
manufactured by companies other than these two brands that distribute in the
Shanghai region.

Competition is based on a variety of factors including maintenance of
product quality, competitive pricing, delivery efficiency, customer service and
satisfaction levels and the ability to anticipate technological changes and
changes in customer preferences. The first-tier wholesalers on whom we rely or
Samsung and/ or Nokia may acquire, startup, or expand their own distribution
systems to sell directly to our customers.

Page 31

We are dependent on advertising contracts, some of which are short term. If
these contracts are terminated or completed without replacement, our results of
operations would be materially adversely affected.

We are dependent upon "Bank Digital TV's Cooperation Agreement" and the
Advertisement Agency Contract, where TCH will assist in the promotion of TV ads
for various customers, including Tianci Real Estate, a related party. With the
introduction of the policies and measures adopted by China's Ministry of
Information Industry in 2006 that set very strict rules on the provisions of
information services provided by value-added service providers, our advertising
services was seriously affected. The Advertisement Agency Contract between
Tianci Real Estate and Sifang Media was not renewed after it was terminated in
November 2005. As the result, the Company determined that future undiscounted
cash flows associated with the assets involved in the advertisement services
were uncertain, and may not be sufficient to recover their carrying values and
so these assets were written down to zero as of December 31, 2006. TCH received
a net fee of [$NIL] from Tianci Real Estate during the years ended December 31,
2006, which was a significant decrease compare to the net fee of $1,879,965
received from Tianci Real Estate during the year ended December 31, 2005.

As to the services that TCH provided through Sifang Media to assist in the
promotion of TV ads for the customers of Sifang Media, for the same reason
described above, TCH received a net fee of $334,844 for providing the service
via Sifang Media during the fiscal year of 2006, which is also a significant
decease compared to $881,633 received during the fiscal year of 2005
respectively.

We depend on key personnel for the success of our business. Our business may be
severely disrupted if we lose the services of our key executives and employees
or fail to add new senior and middle managers to our management.

Our future success is heavily dependent upon the continued service of our
key executives, particularly Tai Caihua, our president and chairman of our board
of directors, Fu Sixing, our chief executive officer, Qian Fang, our chief
financial officer, and Huang Tianqi, our chief technology officer. Each of our
executive officers has entered into a non-competition agreement with TCH. We
also rely on a number of key technology staff for the operation of our company.
Our future success is also dependent upon our ability to attract and retain
qualified senior and middle managers to our management team. If one or more of
our current or future key executives or employees are unable or unwilling to
continue in their present positions, we may not be able to easily replace them,
and our business may be severely disrupted. In addition, if any of these key
executives or employees joins a competitor or forms a competing company, we
could lose customers and suppliers and incur additional expenses to recruit and
train personnel. Each of our executive officers has entered into non-competition
agreements with TCH. We do not maintain key-man life insurance for any of our
key executives.

We also rely on a number of key technology staff for the operation of our
company. Given the competitive nature of our industry, the risk of key
technology staff leaving our company is high and could disrupt our operations.

Our management does not devote full-time efforts to the Company and our
management may have potential conflicts of interest.

Our executive officers spend approximately 30% of their time managing
Sifang Information. Thus, they do not devote full-time effort to the Company. In
addition, as discussed in Item 12, "Certain Relationships and Related
Transactions", the Company has had numerous significant transactions with
businesses controlled by, and with people who are related to, the officers and
directors of the Company. Our management may thus have potential conflicts of
interest.

Page 32

We have limited business insurance coverage.

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. As a result, we do
not have any business liability insurance coverage for our operations. Moreover,
while business disruption insurance is available, we have determined that the
risks of disruption and cost of the insurance are such that we do not require it
at this time. Any business disruption, litigation or natural disaster might
result in substantial costs and diversion of resources.

A downturn in the Chinese economy may slow down our growth and profitability.

The growth of the Chinese economy has been uneven across geographic regions
and economic sectors. There can be no assurance that growth of the Chinese
economy will be steady or that any downturn will not have a negative effect on
our business. Our profitability, will decrease if expenditures for wireless
value-added services decrease due to a downturn in the Chinese economy. More
specifically, increased penetration of wireless value-added services in the less
economically developed central and western provinces of China will depend on
those provinces achieving certain income levels so that mobile phones and
related services become affordable to a significant portion of the population.

The uncertain legal environment in China could limit the legal protections
available to you.

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 the late 1970s, the Chinese government began to
promulgate a comprehensive system of laws and regulations governing economic
matters. The overall effect of legislation enacted over the past 20 years has
significantly enhanced the protections afforded to foreign invested enterprises
in China. However, these laws, regulations and legal requirements are relatively
recent and are evolving rapidly, and their interpretation and enforcement
involve uncertainties. These uncertainties could limit the legal protections
available to foreign investors, such as the right of foreign invested
enterprises to hold licenses and permits such as requisite business licenses.

Any recurrence of Avian influenza, or another widespread public health problem,
could adversely affect our business and results of operations.

A renewed outbreak of Avian influenza or another widespread public health
problem in China, where all of our revenue is derived, and in Shanghai, where
our operations are headquartered, could have a negative effect on our
operations. Our operations may be impacted by a number of health-related
factors, including the following:

o quarantines or closures of some of our offices which would severely disrupt
our operations,

o the sickness or death of our key officers and employees, and

o a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health
problems could adversely affect our business and results of operations.

Changes in China's political and economic policies could harm our business.

Page 33

The economy of China has historically been a planned economy subject to
governmental plans and quotas and has, in certain aspects, been transitioning to
a more market-oriented economy. Although we believe that the economic reform and
the macroeconomic measures adopted by the Chinese government have had a positive
effect on the economic development of China, we cannot predict the future
direction of these economic reforms or the effects these measures may have on
our business, financial position or results of operations. In addition, the
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD. These
differences include:

o economic structure;

o level of government involvement in the economy;

o level of development,

o level of capital reinvestment;

o control of foreign exchange;

o methods of allocating resources; and

o balance of payments position.

As a result of these differences, our business may not develop in the same
way or at the same rate as might be expected if the Chinese economy were similar
to those of the OECD member countries.

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

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

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

The value of our common stock will be affected by the foreign exchange rate
between U.S. dollars and Renminbi. For example, to the extent that we need to
convert U.S. dollars into Renminbi for our operational needs and should the
Renminbi appreciate against the U.S. dollar at that time, our financial position
and the price of our common stock may be adversely affected. Conversely, if we
decide to convert our Renminbi into U.S. dollars for the purpose of declaring

Page 34

dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
from our subsidiaries in China would be reduced.

Risks Related to our Common Stock

The market price for our common stock may be volatile.

The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:

o actual or anticipated fluctuations in our quarterly operating results,

o announcements of new services by us or our competitors,

o changes in financial estimates by securities analysts,

o conditions in the wireless value-added services market,

o changes in the economic performance or market valuations of other companies
involved in wireless value-added services or distribution of mobile phones,

o announcements by our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments,

o additions or departures of key personnel,

o potential litigation, or

o conditions in the mobile phone market.

In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.

Shareholders could experience substantial dilution.

We may issue additional shares of our capital stock to raise additional
cash for working capital. If we issue additional shares of our capital stock,
our shareholders will experience dilution in their respective percentage
ownership in the company.

We have no present intention to pay dividends.

Neither during the preceding two fiscal years nor during the year ended
December 31, 2005 did we pay dividends or make other cash distributions on our
common stock, and we do not expect to declare or pay any dividends in the
foreseeable future. We intend to retain any future earnings for working capital
and to finance current operations and expansion of our business.

A large portion of our common stock is controlled by a small number of
shareholders.

A large portion of our common stock is held by a small number of
shareholders. As a result, these shareholders are able to influence the outcome
of shareholder votes on various matters, including the election of directors and

Page 35

extraordinary corporate transactions including business combinations. In
addition, the occurrence of sales of a large number of shares of our common
stock, or the perception that these sales could occur, may affect our stock
price and could impair our ability to obtain capital through an offering of
equity securities. Furthermore, the current ratios of ownership of our common
stock reduce the public float and liquidity of our common stock which can in
turn affect the market price of our common stock.

We may be subject to "penny stock" regulations.

The Securities and Exchange Commission, or SEC, has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of risks of the
penny stock market. A broker-dealer must also provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer, and
our sales person in the transaction, and monthly account statements indicating
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for stock that becomes subject to those penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities. Whenever any of our securities become subject
to the penny stock rules, holders of those securities may have difficulty in
selling those securities.

Where You Can Find More Information

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room in Washington, D.C.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.

ITEM 2. DESCRIPTION OF PROPERTY

We currently occupy two office spaces in the Shanghai region. We lease the
first office space, located at 429 Guangdong Road, Shanghai, People's Republic
of China 200001, for approximately $50,000 a year. This office space contains
our corporate headquarters, and is approximately 250 square meters. We own the
second office space, located at 689 Laoshandong Road, Shanghai, People's
Republic of China 200120, which houses our administration, technical team and
servers, and is approximately 800 square meters. We believe that these two
properties are adequately covered by insurance. In addition, we believe that we
will be able to obtain adequate facilities, principally through the leasing of
appropriate properties, to accommodate our future expansion plans.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material pending legal
proceedings

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Page 36

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is traded on the NASD's Over-the-Counter Bulletin Board
under the symbol "CHDW." ("CREG" after March 8, 2007). On August 6, 2004 we
changed our name from Boulder Acquisitions, Inc. to China Digital Wireless, Inc.
and changed our symbol from "BAQI" to "CHDW." On March 8, 2007, we changed our
name from China Digital Wireless, Inc. to China Recycling Energy Corporation,
and changed our symbol from "CHDW" to "CREG". On March 31, 2007, the last
reported sales price for our common stock was $0.20 per share.

The following table sets forth, for quarters indicated, the range of closing
high and low bid prices for our common stock as reported by NADS
Over-the-Counter Bulletin Board, as adjusted for all previously effected stock
splits.

Common Stock

By Quarter Ended High Low

Fiscal 2005

March 31, 2005 $5.50 $3.42
June 30, 2005 $5.20 $1.40
September 30, 2005 $3.01 $1.41
December 31, 2005 $2.49 $1.60

Fiscal 2006

March 31, 2006 $0.80 $0.70
June 30, 2006 $0.29 $0.22
September 30, 2006 $0.14 $0.12
December 31, 2006 $0.27 $0.25

Fiscal 2007

March 31, 2007 $0.20 $0.20

As of March 31, 2007, there were 17,147,268 shares of our common stock
outstanding held by approximately 2,553 shareholders of record.

We did not pay any cash dividends on our common stock in fiscal 2004, 2005
or 2006. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We currently intend to retain future earnings, if any,
to finance operations and the expansion of our business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Page 37

Overview of Business Background

Sifang Holdings was formed under the laws of the Cayman Islands on February
9, 2004 for the purpose of holding a 100% equity interests in TCH. TCH was
established as a foreign investment enterprise in Shanghai under the laws of the
PRC on May 25, 2004, with a registered capital of $7.2 million.

Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business by
presenting a set of carve-out financial statements for the years ended December
31, 2002 and 2003 and three months ended March 31, 2004 as if the spun-off
business had been a stand-alone company for two years and one quarter. On March
31, 2004, Sifang Information transferred the spun-off business into TCH. Being a
receiving entity under common control, TCH initially recognized all the assets
and liabilities transferred at their carrying amounts in the accounts of Sifang
Information at the date of transfer under the guidance of SFAS No. 141, Appendix
D. On May 26, 2004 Sifang Information exchanged 100% of equity interest in TCH
for a 100% equity interest in Sifang Holdings. Since the ultimate owners of the
three entities were the same owners and the three entities remained under common
control, the ownership exchange transaction was accounted for at historical
costs under the guidance of SFAS No. 141, Appendix D. Prior to May 26, 2004,
there were no activities in Sifang Holdings. As a result of exchanging the
ownership between TCH and Sifang Holdings, TCH's historical financial statements
become the historical financial statements of Sifang Holdings.

Sifang Information operates in a business segment that is subject to
certain restrictions imposed by the government of the PRC. For example, paging
facilities, radio transmitting stations and transmitting equipment owned by
Sifang Information are not allowed to be owned by foreign investment enterprises
in accordance with PRC government regulations. Therefore, Sifang Information
still maintains a small part of its business and paging facilities in order to
stay in compliance with relevant regulations and laws in the PRC.

As a result of the spin-off, TCH engages in the business of mobile phone
distribution and provides access to certain information reformatted by TCH to
pager and mobile phone (collectively "wireless receiver") users. TCH purchases
mobile phones from the first tier distributors and sells them to retailers with
a mark-up. In the process of providing value-added information services through
entering into monthly subscription agreements with various users, TCH purchases
trading activity information from stock exchanges, comments and analysis on PRC
stock markets provided by certain reputable security and investment companies,
lottery information, weather forecast, and other value-added products and
reformats the aforementioned information through decoding and recoding and then
has the reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The information is constantly saved in TCH's server
in order for mobile phone users to dial in via China Mobile or China Unicom. By
signing a monthly subscription agreement, wireless users agree to make advance
payments for either three or six-month subscription periods.

Page 38

Discussion and Analysis of Operating Results

Fiscal Year Ended December 31, 2006 Compared to the Fiscal Year Ended December
31, 2005

Revenue

Total Revenues

Total revenue consists of product sales, product sales to related parties,
and net information and advertising service revenue. Total revenue for the 2006
fiscal year decreased by $17,529,586, representing a decrease of approximately
85.8%, to $2,889,436, as compared to $20,419,022 for the same period of the
prior year. The decrease was mainly due to (1) the significant decline of
products sales to non-related and related third parties and (2) the serious
negative effect on our advertising services imposed by China's more strict
national ruling on advertisement services adopted in 2006. The market for mobile
phones in China is also gradually becoming saturated.

Product Sales

In the year ended December 31, 2005, Samsung and Nokia's mobile phones
accounted for 89% and 8% of our total product sales and other brands accounted
for the balance, compared to the 2004 fiscal year, in which Samsung's mobile
phones accounted for about 97% of our total product sales and other name brands
mobile phones accounted for the remaining 3%. During 2005 market competition for
mobile phone sales intensified, causing us to decrease our overall mark-up ratio
to 2.1% in order to maintain our market position, in comparison with a mark-up
ratio of 6.4% for the same period the prior year.

Revenue from product sales for our 2006 fiscal year decreased by
$5,725,793, representing a decrease of approximately 99.1%, to $ 49, 276 as
compared to $5,775,069 for the prior year. The decrease was mainly due to market
factors. The market for mobile phones in China is becoming saturated along with
intensified competition developing among mobile phone distributors.

We entered an agreement to distribute select Nokia mobile phones
exclusively in the Shanghai region of China in May 2005 and obtained the right
to distribute two popular models of Nokia's mobile phones. Initially, we
believed that this agreement would enhance both our market share and
profitability. However, as a result of the sudden change in the market factors
during the latter half of 2005 and 2006, the sales mark-up of the Nokia mobile
phones to our customers dropped significantly. As a result, the management of
the Company continued to cease the mobile phone distribution business in
December 2006. The continued cease of the said business also contributed to the
significant decline of our product sales.

Product Sales to a Related Party

We distributed Samsung mobile phones to our related party, Shanghai
Shantian Telecommunication Co. Ltd. ("Shantian"), in which Sifang Information
holds a 51% equity interest, for its retail market channel and facility. Revenue
from product sales to related third parties for our 2006 fiscal year decreased
by $ 9,894,763, representing a decrease of approximately 93.2%, to $ 713,524 as
compared to $10,608,287 for the prior year. Accounts receivable includes $nil
and $1,583,512 due from Shantian as of December 31, 2006 and 2005 respectively.
The decrease was also mainly due to market factors. The market for mobile phones
in China is becoming saturated along with intensified competition developing
among mobile phone distributors.

Page 39

There were no mobile phone sales to Tianci Industry and Tianci Group during
the year ended December 31, 2005 and During the year ended December 31, 2006.

Information Service Revenue, Net

Total information service revenue net of related business tax and service
fee for the 2006 fiscal year increased by $517,724, representing a increase of
approximately 40.6%, to $1,791,792 compared to $1,274,068 for the the prior
year.

Advertising Service Revenue, Net

Revenue from advertisement services, net of related business tax and
service fee, for our 2006 fiscal year decreased by $ 2,426,754, representing a
decrease of approximately 87.9%, to $ 334,844 as compared to $2,761,598 for the
prior year. The decrease was mainly because there was no service fee received
from Tianci Real Estate during the year ended December 31, 2006 as the
Advertisement Agency Contract between Tianci Real Estate and Sifang Media was
terminated in November 2005.The decrease was mainly due to the introduction of
the policies and measures adopted by China's Ministry of Information Industry in
2006 that set very strict rules on the provisions of information services
provided by value-added service providers.

In 2005, We launched a new digital media project to move into the media
market. In conjunction with charitable organizations, we have installed donation
boxes with digital TV incorporated on top of them in the main lobbies of
commercial banks, hotels, malls and other public locations to call the public's
attention to the charity and broadcast commercial advertisements. We also
reached an agreement with CCF, a national non-profit charitable organization,
which enables the Company to install donation boxes for CCF in banks and other
commercial locations throughout China that will also have the Company's
out-of-home digital television advertising media platform attached. We believed
the earnings potential from the advertising service will be a new source of
profit in view of the upcoming Special Olympic World Summer Games in 2007 and
World Exposition in 2010 to be held in Shanghai. In addition, during the 2006
fiscal year, TCH rendered advertisement designing and producing services to
Tianci Real Estate, a related party, for publicity and promoting its apartment.

However, in the third quarter of 2006, the Ministry of Information Industry
of the People's Republic of China initiated a nation-wide management specific
plan as well as introduced a series of policies and measures to regulate the SP
market. These policies and measures set very strict rules on the provisions of
information services provided by value-added service providers and started to
show their effects on the industry in December 2006. Our advertising service
business was seriously affected. We generated very little revenue from the above
mentioned projects we launched in 2005. We also determined that future
undiscounted cash flows associated with the assets involved in the advertisement
services provided to Tianci Real Estate were uncertain, and may not be
sufficient to recover their carrying values and so these assets were written
down to zero as of December 31, 2006.

Cost of Goods Sold

The cost of goods sold for the 20065 fiscal year decreased by $15,061,459
to $963,500, compared to $16,024,959 for the prior year, representing a decrease
of approximately 94%. The percentage of decrease, which was lower than the
decrease in revenue from product sales, resulted from the declining product
markup as the Chinese market is gradually becoming saturated.

Cost of Service

Page 40

The cost of service for the 2005 fiscal year increased by $519,724 to
$1,342,902 compared to $823,178 for the prior year, representing a increase of
approximately 63.1%. The increase was mainly due to the increase of information
fees paid to content providers for the value-added service. During the 2006
fiscal year, we continued to maintain current fee structures and to establish
collaborative relationships or partnerships with mobile operators and certain
information content providers in China.

Gross Profit

After taking into account the cost of goods sold and cost of service, our
gross profit for the 2006 fiscal year decreased by $2,987,851 to $583,034,
representing a decrease of approximately 83.7%, compared to gross profit of
$3,570,885 for the prior year. The decrease in gross profit was primarily
attributable to the continuing decline in mobile phone sales to non-related and
related parties and decline in advertising services during the 2006 fiscal year.

The following table summarizes certain information related to the various
components of revenue.

Advertising Sales of Mobile Beep
service mobile phone pagers
2006 revenue phones service service Corporate Total
---- ------- ------ ------- ------- --------- -----

Revenue, net $ 334,844 $ 762,800 $ 1,430,252 $ 361,540 $ - $ 2,889,436
Cost of revenue 110,876 963,500 1,043,204 188,822 - 2,306,402
Gross profit 223,968 (200,700) 387,048 172,718 - 583,034
Gross Profit Ratio
Depreciation - - 110,924 - 78,442 189,366
Interest expense - -- - - - -
Net income (loss) 224,745 (509,518) 102,293 (45,895) (10,349,043) (10,577,418)
Total assets - - - - 4,464,612 4,464,612
Expenditure for
long-lived assets - - - - - -

Sales and Marketing Expenses

Sales and marketing expenses for the 2006 fiscal year increased by $20,088
to $154,727 compared to $134,639 the prior year, representing a increase of
approximately 14.9%. The increase was primarily due to the increase in
commission fees paid to the salesmen for mobile phones and advertising expenses.

General and Administrative Expenses

General and administrative expenses for the 2006 fiscal year decreased by
$283, 209 to $967,957 compared to $1,251,166 for the same period of the prior
year, representing a 22.6% decrease.

Impairment Costs

In 2006, during the course of our strategic review of the assets involved
in the mobile phone sales and information service operations, we determined that
future undiscounted cash flows associated with these assets were uncertain and

Page 41

may not be sufficient to recover their carrying values and so these assets were
written down to zero as of December 31, 2006. Also in 2006, we decided not to
pursue the acquisition of Kena under a series of agreements signed in 2005. All
the agreements in connection with the Kena acquisition were terminated by TCH
and Kena. We also reviewed the future economic value of the deposit for the
anticipated business acquisition of Kena and determined that future undiscounted
cash flows associated with this deposit were uncertain and may not be sufficient
to recover their carrying values and so was fully written down as of December
31, 2006. As the result, the total amount of impairment costs for Fiscal 2006
are $ 7,114,047, including $ 856,457 for property and equipment and $ 6,257,590
for deposit for business acquisition.

Due From Related Parties

The amount due from Sifang Information and Sifang Media as of December 31,
2006 are trade related and relating to the mobile phone distribution business.

During January 2006, the Company entered into an agreement with Sifang
Information for the establishment of a new joint venture entity with a third
party. The purpose of the joint venture entity is to act as a sole advertising
agent of TCH. The Company advanced a total of $2,499,969 to Sifang Information
to contribute to the joint venture. This, together with the trade receivables
related to the mobile phone distribution business, made up a total balance of
$6,446,275 receivable from Sifang Information as of December 31, 2006. As of
December 31, 2006, the Company decided to provide a provision of $3,000,000 for
1) the full amount advance to the joint venture and 2) the long outstanding
portion of the receivable from Sifang Information.

Governmental subsidy

During the year ended December 31, 2006, the Company received a general
government subsidy from the local bureau, which is equivalent to 3.5% of the
taxable income of TCH throughout the period from January 2005 to December 2005.
The subsidy is non-recurring and subject to government approval. The amount of
such government subsidy for the years ended December 31, 2006 and 2005 was
$118,262 and $108,476 respectively.

Interest income (expense)

During our 2006 fiscal year, the interest income derived from bank deposits
was $ 5,135.

Income Tax

The Company's PRC subsidiary, TCH, is registered at Pudong District in
Shanghai and subject to a favorable income tax rate of 15% compared to a normal
income tax rate of 33% (30% for the central government and 3% for the local
government) under current PRC tax laws. Sifang Information is registered in the
Shanghai downtown area and has been treated by the Shanghai Municipal
Administration of Labor as an enterprise that provides unemployed and
handicapped people with jobs. Accordingly, Sifang Information is also entitled
to a favorable income tax rate of 15% and qualified for an income tax exemption
for three years from January 1, 2000 to December 31, 2002, and a 50% income tax
reduction for three years from January 1, 2003 to December 31, 2005. The income
tax provisions presented in the Company's financial statements are based on the
actual income tax rates of TCH at 15% for both years ended December 31, 2006 and
2005. The deferred tax assets are determined based on the income tax rates
applicable at the TCH level.

There is no income tax for companies domiciled in the Cayman Islands.

Page 42

Accordingly, the Company's consolidated financial statements do not present any
income tax provisions related to Cayman Islands tax jurisdiction.

The total income tax for our fiscal 2006 was $ 36,633, compared to $481,743
for the same period of the prior year

Comprehensive Income (Loss)

We recorded comprehensive loss of $ 9,825,415 for the 2006 fiscal year, a
$11,921,918 decrease compared to comprehensive income of $2,096,503 for the
prior year, representing a decrease of approximately 568.7%. The comprehensive
loss was attributable to (i) the decrease in the gross profit generated in the
2006 fiscal year, (ii) the impairment cost in 2006 (iii) the appreciation of
Chinese RMB to US dollars.

Net Earning (Loss) Per Share

We recorded a net loss per share in 2006 fiscal year. The net loss per
share for the 2006 fiscal year was $ 0.62, a $ 0.73 decrease compared to the
$0.10 net earning per share for the prior year. The loss was attributable to (i)
the decrease in the gross profit generated in the 2006 fiscal year, (ii) the
impairment cost in 2006 (iii) the appreciation of Chinese RMB to US dollars.

Liquidity and Capital Resources

Our cash balance decreased from $3,578,367 as of December 31, 2005 to
$252,000 as of December 31, 2006. This decrease in cash and cash equivalents was
primarily due to the decrease in the collection of accounts receivable. At
December 31, 2006 and 2005, our net working capital was $9,877,040 and
$3,346,637 respectively.

Net cash used in operating activities was $ 4,079,333 during our 2006
fiscal year, compared to net cash generated from operating activities of $
5,290,767 during the prior year. The loss of net cash flow from operating
activities was due mainly to the adjustment of $ 10,577,418 to reconcile net
earnings to net cash from operating activities and the non-collection of $
3,351,306 due from related parties in 2006 fiscal year.

Net cash generated in investing activities for the 2006 fiscal year
decreased to $963, compared to net cash used in investing activities of
$3,551,569 for the same period of the prior year.

Net cash provided by financing activities for the 2006 fiscal year was $ 0
compared to $1,500,000 for the same period of the prior year. We did not
generate any cash from financing activities in 2006 fiscal year.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"), which replaces Accounting Principles Board Opinions
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting changes in
Interim Financial Statements--An Amendment of APB Opinion No. 28". SFAS 154
provides guidance on the accounting for and reporting of accounting changes. It
establishes retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the reporting
of a correction of an error. SFAS 154 is effective for accounting changes and

Page 43

corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of this statement did not have a material effect on the Company's
financial position or results of operations.

In September 2005, the FASB's Emerging Issues Task Force ("EITF") reached a
final consensus on Issue 04-13, "Accounting for Purchases and Sales of Inventory
with the Same Counterparty" ("EITF 04-13"). EITF 04-13 requires that two or more
legally separate exchange transactions with the same counterparty be combined
and considered a single arrangement for purposes of applying APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", when the transactions are entered
into in contemplation of one another. EITF 04-13 is effective for new
arrangements entered into, or modifications or renewals of existing
arrangements, in interim or annual periods beginning after March 15, 2006. The
Company does not expect that the adoption of this statement would have a
material effect on the Company's financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Instruments-an amendment of FASB Statements 133 and 140", which is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006. The
statement improves financial reporting by eliminating the exemption from
applying SFAS No. 133 to interests in securitized financial assets so that
similar instruments are accounted for similarly regardless of the form of the
instruments. The Statement also improves financial reporting by allowing a
preparer to elect fair value measurement at acquisition, at issuance, or when a
previously recognized have to bifurcated, if the holder elects to account for
the whole instrument-by-instrument basis, in cases in which a derivative would
otherwise have to bifurcated, if the holder elects to account for the whole
instrument on a fair value basis. The Company does not expect that the adoption
of this statement would have a material effect on the Company's financial
position or results of operations.

In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes--an Interpretation of FASB Statement No. 109", which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires that
the Company recognizes in its consolidated financial statements the impact of a
tax position if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. The provisions of FIN 48
are effective for the Company on January 1, 2007, with the cumulative effect of
the change in accounting principle, if any, recorded as an adjustment to opening
retained earnings. The Company is currently evaluating the impact of adopting
FIN 48 on its consolidated financial statements.

In September 2006, the SEC released SAB No. 108, "Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements" ("SAB 108"). SAB 108 provides interpretive guidance on the
SEC's views on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
The provision of SAB 108 is effective for the Company in the current fiscal year
ended December 31, 2006. The Company is currently evaluating the impact of SAB
108 but does not believe that the application of SAB 108 would have a material
effect on its financial position, cash flows nor results of operations.

In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements"
("SFAS 157"), which defines fair value, establishes guidelines for measuring
fair value and expands disclosures regarding fair value measurements. SFAS 157
does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
SFAS 157 will be effective for the Company starting January 1, 2008. Earlier
adoption is permitted, provided the company has not yet issued financial
statements, including for interim periods, for that fiscal year. The Company is
currently evaluating the impact of SFAS 157 on its consolidated financial
position, cash flows and results of operations.

Page 44

Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed
by management to have a material impact on our present or future consolidated
financial statements.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements of China Digital Wireless, Inc. and
its subsidiaries including the notes thereto, together with the report thereon
of Zhong Yi (Hong Kong ) C.P.A. Company, Ltd. are presented beginning at page
F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES

Prior to the conclusion of the period covered by this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated subsidiary)
required to be included in our periodic SEC filings.

There were no changes in our internal controls over financial reporting
that materially affected, or are reasonably likely to materially affect our
internal control over financial reporting during the fiscal quarter ended
December 31, 2006.

ITEM 8B. OTHER INFORMATION

Not applicable

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table provides information about our executive officers and
directors and their respective ages and positions as of December 31, 2006 and
March 30, 2007:

As of December 31, 2006
Name Age Title
Tai Caihua 49 Director, President, Chairman of the Board
Huang Tianqi 34 Director, Chief Technology Officer
Jing Weiping 42 Director
Mao Ming 44 Director
Song Jing 30 Director
Fu Sixing 45 Director, Chief Executive Officer

Page 45

Yu Ruijie 43 Director
Zhang Xiaodong 38 Director
Huang Wei 43 Director
Qian Fang 47 Chief Financial Officer

As of March 31, 2007
Name Age Title
Ku Guohua 45 Director, President, Chairman of the Board,
Chief Technology Officer
Wu Guangyu 35 Chief Executive Officer
Zheng Hanqiao 49 Director
Mingda Rong 39 Director, Chief Financial Officer

The change of the Board incurred on January 24, 2007, a group of
individuals ("Purchasers") entered a share purchase agreement with a group of
shareholders ("Sellers") of China Digital Wireless, Inc. ("Company") to purchase
12,911,835 shares of Company's common stocks owned by Sellers, $ 0.001 par
value, for an aggregate purchase price of $ 490, 000.00. Purchasers are Guohua
Ku, Hanqiao Zheng, Ping Sun, Qianping Huang, Xiaohong Zhang and Lixia Zhang.
Sellers are Caihua Tai, Ming Mao, Ying Shi, Sixing Fu, Xiaodong Zhang, Tianqi
Huang, Wei Huang, Jing Song, Ruijie Yu, and Weiping Jing, all of whom are
shareholders of Company.

In connection with the share purchase agreement date on January 24, 2007,
Caihhua Tai (Chiarman of the Board and President of the Company), Ming Mao
(Director), Sixing Fu(Director, Chief Executive Officer), Xiaodong
Zhang(Director), Tianqi Huang(Director, Chief Technology Officer), Wei Huang
(Director), Jing Song (Director), Ruijie Yu (Director), and Weiping Jing
(Director) resigned from their positions in the Board and the offices of
Company. Fang Qian also resigned from her position as the Chief Financial
Officer of the Company.

Guohua Ku, Hanqiao Zheng, Guangyu Wu and Mingda Rong become the Directors
of the Board. The Board also appointed the following individuals to the
following offices: Guohua Ku, President and Chairman of the Board of Directors,
Chief Technology Officer Guangyu Wu, Chief Executive Officer, Secretary Mingda
Rong, Chief Financial Officer

Tai Caihua has served as our president, chairman of our board of directors
and a member of our board of directors since June 23, 2004. Mr. Tai has been (i)
the president and sole director of our wholly owned subsidiary, Sifang Holdings,
since February 2004; (ii) chairman of the board of directors of Sifang Holdings'
wholly owned subsidiary, TCH, since our inception in May 2004; (iii) director
and general manager of Shanghai Tianci Industry (Group) Co., Ltd., one of our
affiliates, since January 1994 and (iv) a director of Sifang Information, one of
our affiliates, since December 2001. Mr. Tai holds a Masters of Business
Administration from the Macau University of Science and Technology.

Huang Tianqi has served as our chief technology officer since June 23, 2004
and a member of our board of directors since June 24, 2004. Mr. Huang has served
as chief technology officer of Sifang Holdings and vice-general manager, chief
technology officer and a director of TCH since their inception in February 2004
and May 2004, respectively. Mr. Huang also serves as the vice-general manager
and a member of the board of directors of Sifang Information. Before becoming
vice-general manager, Mr. Huang was the chief technology officer at Sifang
Information for seven years. Mr. Huang graduated from Nanjing University of
Posts and Telecommunications with a Bachelors Degree and from Shanghai Jiao Tong
University with a Masters of Science Degree.

Page 46

Jing Weiping has served as a member of our board of directors since June
24, 2004. Mr. Jing has served as a member of the board of directors of TCH since
our inception in May 2004 and as a Director of Sifang Information since 2001.
Mr. Jing has served as the manager of the technology assurance department of
Sifang Information for the past nine years. Mr. Jing received his Bachelors
Degree from Dong Hua University.

Mao Ming serves as a member of our board of directors. He was elected to
our board of directors June 24, 2004. He has been (i) the general manager and a
member of the board of directors of TCH since our inception in May 2004; and
(ii) the general manager and a director of Sifang Information since January
1998. Mr. Mao graduated from China PLA Measurement College with a Bachelors
Degree and from the Macau University of Science and Technology with a Masters of
Business Administration.

Song Jing has served as a member of our board of directors since June 24,
2004. Mr. Song has served as vice-general manager and a member of the board of
directors of TCH since our inception in May 2004 and as general manager of
Shanghai Shan Tian Telecommunication Co., Ltd., an affiliate of ours, since
November 2003. Previously, Mr. Song served as director and general manager of
Shanghai Zhong Si Hua Hao Co., Ltd. for one year and assistant general manager
of both Shanghai Hua Si Trading Co., Ltd. and Shanghai Qi Shi Trading Co., Ltd
for five years. Mr. Song holds a Masters of Business Administration from Joseph
L. Rotman School of Management, University of Toronto.

Fu Sixing has served as our chief executive officer since June 23, 2004 and
a member of our board of directors since June 24, 2004. Mr. Fu has served as
executive manager of Sifang Holdings and as the head of the research and
development department and a director of TCH since their inception in February
2004 and May 2004, respectively. During the past seven years, Mr. Fu has served
as (i) the assistant to general manager of Shanghai Tianci Industry (Group) Co.,
Ltd.; (ii) a director and the general manager of Shanghai Sifang Health
Technology Co., Ltd. and (iii) directorate secretary of Sifang Information. Mr.
Fu received a Bachelors of Science in Physics from Nanjing University, a Masters
of Social Science in Economics from Huadong Normal University and a Doctorate of
Business Administration from the University of Southern California.

Yu Ruijie has served as a member of our board of directors since June 24,
2004. Mr. Yu has served (i) as head of the Systems Department and a director of
TCH since our inception in May 2004 and (ii) as the head of the Systems
Department of Sifang Information since January 1994. Mr. Yu received a Bachelors
Degree in Computer Science from Shanghai University of Engineering Science.

Zhang Xiaodong has served as a member of our board of directors since June
24, 2004. Mr. Zhang has served as the head of the projection department of TCH
since our inception in May 2004. Mr. Zhang also serves as a director and the
head of the projection department of Sifang Information. For the past nine
years, Mr. Zhang has served as head of the wireless engineering department at
Sifang Information. Mr. Zhang graduated from Shanghai Jiao Tong University with
a Bachelors Degree and received a Masters Degree from the Macao University of
Science and Technology.

Huang Wei has served as a member of our board of directors since June 24,
2004. Mr. Huang has served as (i) the vice-general manager of TCH since our
inception in May 2004 and (ii) vice-general manager and a director of Sifang
Information since 1993. Mr. Huang graduated from Nanjing University of Air Force
and Politics with a Bachelors Degree in Logistics.

Qian Fang has served as our Chief Financial Officer since January 1, 2005.
Ms. Fang has served as Manager of Accounting of TCH since 1999. Ms. Fang
graduated from China Cable-TV University with a Bachelors Degree in Accounting
and is a Certified Public Accountant.

Page 47

Guohua Ku, aged 45, graduated from Northwestern University (China) with the
Master of Business Administration. He had served as the senior technology and
marketing officer for several large Chinese state-owned companies. He gained
tremendous experiences and developed exceptional expertise on the development
and operation of TRT programs and energy recycling systems.

Hanqiao Zheng, aged 49, graduated from Northwestern University of
Agricultural and Forestry Technologies. He worked in the Weinan Municipal
Government from 1982 to 1996 and afterwards served at a management position in
Shaanxi Province Machinery Import/Export Co., Ltd.

Guangyu Wu, aged 35, graduated from the International Finance Program of
Heilongjiang Harbin Investment Institute. He owns the title of Senior Economist
and had worked in several large financial and commercial institutions including
China Construction Bank, SEG Trust, and Sunark Pegasus Group. He is specialized
in financial investment, business administration and strategic planning.

Mingda Rong, aged 39, is a Chinese certified public accountant. He
graduated from the Open University of Hong Kong with the Master of Business
Administration. He served as the accountant in Xi'an Institute of Finance and
Economics from 1989 to 2000. After that he worked in Xi'an Sigma CPA firm.

Family Relationships

Except as set forth herein, there are no family relationships among our
directors or officers. The spouse of Mr. Tai Caihua (the President and Chairman
of our Board of Directors), Ms. Shi Ying, is a sibling of Huang Wei, a member of
our Board of Directors.

Audit Committee and Audit Committee Financial Expert

Our board of directors established our audit committee in April 2005. The
audit committee reviews and recommends to the directors the independent auditors
to be selected to audit our financial statements; meets with the independent
auditors and financial management to review the scope of the proposed audit
procedures to be utilized; reviews with the independent auditors, internal
auditor, and our financial and accounting personnel, the internal accounting and
financial controls, and elicits any recommendations for the improvement thereof;
reviews our financial statements and reports the results of the annual audit to
the board of directors.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and certain other shareholders to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and certain other shareholders are required by regulation to furnish
us with copies of all Section 16(a) forms they file. During 2006, our President
and Chairman Tai Caihua filed a Form 4 . As of March 31, 2007, two of our
directors, Guohua Ku and Hanqiao Zheng have filed a Form 3.

ITEM 10. EXECUTIVE COMPENSATION

None of the executive officers received salary and bonus compensation in excess
of $100,000 during the 2006 fiscal year.

Page 48

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

The following table sets forth, as of December 31, 2006 and March 31, 2007,
the number and percentage of our 17,147,268 outstanding shares of common stock
that were beneficially owned by (i) each director and executive officer of China
Digital, (ii) each person known to China Digital to be the beneficial owner of
five percent or more of the outstanding shares of common stock of China Digital,
and (iii) all directors and officers of China Digital as a group. Unless
otherwise indicated, the person or entity listed in the table is the beneficial
owner of, and has sole voting and investment power with respect to, the shares
indicated.

As of December 31, 2006

Name Amount of Shares Percent of
Voting Shares

Caihua Tai 8,639,220 40.3%
Ying Shi 1,791,743 10.5%
Jing Song 413,480 2.4%
Ming Mao 413,480 2.4%
Ruijie Yu 275,652 1.6%
Tianqi Huang 275,652 1.6%
Sixing Fu 275,652 1.6%
Wei Huang 275,652 1.6%
Weiping Jing 275,652 1.6%
Xiaodong Zhang 275,652 1.6%
Directors and Executive
officers as a group 12,911,835 75.2%

As of March 31, 2007

Name Amount of Shares Percent of
Voting Shares

Guohua Ku 9,073,700 52.9%
Hanqiao Zheng 2,406,365 14.0%
Ping Sun 745,880 4.3%
Qianping Huang 157,755 0.9%
Xiaohong Zhang 72,018 0.4%
Lixia Zhang 456,117 2.7%
Directors and Executive
officers as a group 12,911,835 75.2%

(1) Under applicable rules promulgated by the SEC pursuant to the Securities
Exchange Act of 1934, as amended, or the Exchange Act, a person is deemed the

Page 49

"beneficial owner" of a security with regard to which the person, directly or
indirectly, has or shares (a) the voting power, which includes the power to vote
or direct the voting of the security, or (b) the investment power, which
includes the power to dispose or direct the disposition of the security, in each
case irrespective of the person's economic interest in the security. Under these
SEC rules, a person is deemed to beneficially own securities which the person
has the right to acquire within 60 days through (x) the exercise of any option
or warrant or (y) the conversion of another security. (2) In determining the
percent of our common stock owned by a person (a) the numerator is the number of
shares of our common stock beneficially owned by the person, including shares
the beneficial ownership of which may be acquired within 60 days upon the
exercise of options or warrants or conversion of convertible securities, and (b)
the denominator is the total of (i) the 17,147,268 shares of our common stock
outstanding on March 31, 2007 and (ii) any shares of our common stock which the
person has the right to acquire within 60 days upon the exercise of options or
warrants or conversion of convertible securities. Neither the numerator nor the
denominator include shares which may be issued upon the exercise of any other
options or warrants or the conversion of any other convertible securities.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following related parties are related through common ownership with the
major shareholder of the Company:

Shanghai Sifang Information Technology Co. ("Sifang Information") Shanghai
Tianci Industry Co. Ltd. ("Tianci Industry") Shanghai Tianci Industry Group Co.
Ltd. ("Tianci Group") Shanghai Shantian Telecommunication Co. Ltd. ("Shantian")
Shanghai Sifang Telecommunication Co. Ltd. ("Sifang Telecom") Shanghai Tianci
Real Estate Co. Ltd. ("Tianci Real Estate") Shanghai Sifang Media Co., Ltd.
("Sifang Media").

During the year ended December 31, 2006, TCH sold Samsung GSM mobile phones
valued at $713,524 at a gross profit margin of 4% or $26,531 to Shanghai
Shantian Telecommunication Co. Ltd. ("Shantian"), compared to $10,608,287 at a
gross profit margin of 4% or $382,371 for the year ended December 31, 2005.
Accounts receivable includes $nil and $1,583,512 due from Shantian as of
December 31, 2006 and 2005 respectively.

In January 2005, Sifang Media and TCH entered into the "Bank Digital TV's
Cooperation Agreement", where TCH will assist in the promotion of TV ads for
various customers, including Tianci Real Estate. TCH received a net fee of
$332,239 and $1,879,965 from Tianci Real Estate for providing the service during
the years ended December 31, 2006 and 2005 respectively. The Advertisement
Agency Contract between Tianci Real Estate and Sifang Media was terminated in
November 2005.

TCH, through Sifang Media, entered into certain agreements with customers,
where TCH will assist in the promotion of TV ads for these customers. TCH
received a net fee of $334,844 and $881,633 for providing the service via Sifang
Media during the fiscal year of 2006 and 2005 respectively.

Pursuant to the service agreements between TCH and Sifang Information, TCH
was allowed to use Sifang Information's facility (which may not be owned by
foreign investors at the present time) to transmit the reformatted information
and Sifang Information also provided other management support and marketing
services to TCH.

Sifang Information signed a leasing agreement with the Tianci Real Estate
for leasing its apartment for office use. During the years ended December 31,
2006 and 2005, TCH paid rental expense of $50,378 and $49,565 respectively to
Tianci Real Estate.

Page 50

The amount due from Sifang Information and Sifang Media as of December 31,
2005 are trade related and relating to the mobile phone distribution business.

On February 23, 2004, we sold 987,915 shares of restricted common stock for
gross proceeds of $300,000, pursuant to a subscription agreement, to Halter
Financial Group, Inc., an entity owned by Timothy P. Halter, a former member of
the Board of Directors and the Company's former Chief Executive Officer.
Additionally, in consideration for agreeing to serve as an officer and director
of the Company, Timothy P. Halter was granted a warrant to purchase up to
131,722 shares of common stock of the Company. The warrant was exercised on June
14, 2004, and we received gross proceeds of $40,000 upon exercise.

On February 23, 2004, we agreed to pay Little and Company Investment
Securities, an entity owned by Glenn A. Little, our former controlling
shareholder, officer and director, $30,000 in consulting fees related to the
transaction discussed in the previous paragraph and in consideration for
maintaining the corporate entity. To formalize this obligation, we issued a
$30,000 non-interest bearing promissory note maturing on February 23, 2005.
Concurrent with the transaction discussed in the previous paragraph, we and
Little and Company Investment Securities executed an Exchange Agreement whereby
we issued 98,792 shares of common stock in satisfaction of the outstanding
promissory note.

On June 23, 2004, we entered into a Stock Purchase Agreement with Halter
Financial Group, Inc. pursuant to which we sold 166,667 shares of common stock
of the Company in exchange for $190,000. Timothy P. Halter is the sole
shareholder and President of Halter Financial Group, Inc. Pursuant to the Stock
Purchase Agreement, we granted to Halter Financial Group, Inc. an option to
require the Company to purchase up to 166,667 shares of common stock of the
Company at a price of $1.14 per share, such option being exercisable at any time
after the date that is six months after the Company files a registration
statement on Form SB-2 with the SEC, registering the shares purchased by Halter
Financial Group, Inc., up to and including the earlier of (i) the date that such
registration statement is declared effective by the SEC or (ii) Halter Financial
Group, Inc.'s shares are eligible for resale under Rule 144 under the Securities
Act of 1933.

ITEM 13. EXHIBITS

Exhibit Number Description

3.1 Articles of Incorporation of the Registrant. (1)

3.2 Second Amended and Restated Bylaws of the Registrant. (2)

4.1 Common Stock Specimen. (4)

Page 51

10.1 Securities Exchange Agreement by and among Boulder Acquisitions, Inc.,
Sifang Holdings Co., Ltd. and the stockholders of Sifang Holdings Co., Ltd.
dated effective as of June 23, 2004. (2)

10.2 Information Service and Cooperation Agreement by and among Shanghai Sifang
Information Technology Co. Ltd. and Shanghai TCH Data Technology Co. Ltd.
dated as of June 1, 2004. (3)

10.3 Information Service and Cooperation Agreement by and among Shanghai Sifang
Information Technology Co. Ltd. and Shanghai TCH Data Technology Co. Ltd.
dated as of June 1, 2004. (3)

10.4 Information Service and Cooperation Agreement by and among Shanghai Sifang
Information Technology Co. Ltd., Shanghai Chengao Industrial Co. Ltd. and
Shanghai TCH Data Technology Co. Ltd. dated as of June 1, 2004. (3)

10.5 Information Service and Cooperation Agreement by and among Shanghai Tianci
Industrial (Group), Co. Ltd. and Shanghai TCH Data Technology Co. Ltd.
dated as of June 1, 2004. (3)

10.6 Business and Related Assets Transfer Agreement between Shanghai Sifang
Information Technology Co. Ltd. and Shanghai TCH Data Technology Co. Ltd.
dated as of May 26, 2004. (3)

10.7 Stock Purchase Agreement by and between Halter Financial Group, Inc. and
Boulder Acquisitions, Inc. dated as of June 23, 2004. (2)

10.8 Stock Purchase Agreement by and between Chinamerica Fund, LP and Boulder
Acquisitions, Inc. dated as of June 28, 2004. (2)

10.9 Stock Purchase Agreement by and between Chinamerica Acquisition, LLC and
Boulder Acquisitions, Inc. dated as of June 28, 2004. (2)

10.10 Stock Purchase Agreement by and between Gary Evans and Boulder
Acquisitions, Inc. dated as of June 28, 2004. (2)

10.11 Selling Stockholders Agreement by and among Boulder Acquisitions, Inc. and
the Selling Stockholders listed on Schedule A thereto dated as of June 28,
2004. (5)

10.12 English Summary of the Equity Transfer Termsheet for Shanghai Kena Energy
Saving Electric Co., Ltd. by and among Shanghai TCH Data Technology Co.
Ltd., Mr. Zhang Naiyao, Mr. Tai Yi, and Ms. Zheng Chang dated as of
December 29, 2005. (6)

10.13 English Summary of the Agreement relating to the assignment of debt under
the Equity Transfer Agreement by and among Shanghai TCH Data Technology Co.
Ltd., Mr. Zhang Naiyao, Mr. Tai Yi, Ms. Zheng Chang and Shanghai Sifang
Information Technology Co. Ltd. dated as of December 29, 2005. (6)

10.14 English Summary of an Agreement relating to transfer of patent ownership
by and between Shanghai TCH Data Technology Co. Ltd. and Mr. Zhang Naiyao
dated as of December 29, 2005. (6)

10.15 English Summary of an Agreement relating to transfer of right to make
patent application by and between Shanghai TCH Data Technology Co. Ltd. and
Mr. Zhang Naiyao dated as of December 29, 2005. (6)

10.16 English Summary of an Agreement in relation to assignment of debt under
the Agreements for the transfer of patent rights by and among Shanghai TCH
Data Technology Co. Ltd., Mr. Zhang Naiyao and Shanghai Sifang Information
Technology Co. Ltd. dated as of December 29, 2005 (as amended by the
parties on February 10, 2006). (6)

Page 52

10.17 Share Purchase Agreement Dated on January 24, 2007 between individual
purchasers and shareholders of China Digital Wireless, Inc. (7)

10.18 TRT Joint Operation Agreement between Shanghai TCH Data Technology Co.
Ltd. and Xi'an Yingfeng Science and Technology Co.Ltd. dated February 1,
2007.(8)

14 Code of Ethics.

21.1 Subsidiaries of the Registrant. (4)

31.1 Chief Executive Officer Certification furnished pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

31.2 Chief Financial Officer Certification furnished pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

32.1 Chief Executive Officer Certification furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

32.2 Chief Financial Officer Certification furnished pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

-----------------------------------------
(1) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2001, which was filed with the
Commission on January 28, 2002, and which is incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated July 8, 2004, and which is incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-QSB for the period ended June 30, 2004 as filed with the Commission on August
23, 2004, and which is incorporated herein by reference
(4) Previously filed as an exhibit to the Registrant's Registration Statement on
Form SB-2 as filed with the Commission on November 12, 2004, and which is
incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Post-Effective Amendment
No. 1 on Form SB-2 as filed with the Commission on September 12, 2005, and which
is incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 17, 2006, and which is incorporated herein by reference.
(7) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated January 24, 2007.
(8) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated April 9, 2007.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Paid to Independent Public Accountants for 2006 and 2005

Audit Fees

Page 53

The aggregate audit fees for 2006 were $114,000. The amounts include fees
for professional services rendered by Grobstein, Horwath & Company, LLP in
connection with the audit of our consolidated financial statements as of and for
the 2005 fiscal year and reviews of our unaudited consolidated interim financial
statements for the first, second and third quarters of 2006.

The aggregate audit fees for 2005 were $236,267. The amounts include fees
for professional services rendered by Grobstein, Horwath & Company, LLP in
connection with the audit of our consolidated financial statements for the 2004
fiscal year and reviews of our unaudited consolidated interim financial
statements for the first, second and third quarters of 2005.

Audit-Related Fees

There was $ 9,000 audit-related fee billed by Grobstein, Horwath & Company,
LLP in connection with this Form 10-KSB for fiscal year 2006.

Tax Fees

There were $ 8,000 fees for tax services billed by Grobstein, Horwath &
Company, LLP for tax services rendered to the Company for 2006 fiscal years.

All Other Fees

There were no additional aggregate fees billed by Grobstein, Horwath &
Company, LLP for other services rendered to the Company for the 2005 or 2006
fiscal years.

Policy on audit committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors

The audit committee pre-approves all audit and non-audit services provided
by the independent auditors prior to the engagement of the independent auditors
with respect to such services. The Company's independent auditors may be engaged
to provide non-audit services only after the audit committee has first
considered the proposed engagement and has determined in each instance that the
proposed services are not prohibited by applicable regulations and the auditors'
independence will not be materially impaired as a result of having provided
these services. In making this determination, the audit committee takes into
consideration whether a reasonable investor, knowing all relevant facts and
circumstances, would conclude that the auditors' exercise of objective and
impartial judgment on all issues encompassed within the auditors' engagement
would be materially impaired. The audit committee may delegate its approval
authority to pre-approve services provided by the independent auditors to one or
more of the members of the audit committee, provided that any such approvals are
presented to the audit committee at its next scheduled meeting.

SIGNATURES

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

Page 54

By
/s/Guohua Ku
-----------------------------------------------------------------
Guohu Ku
President and Chairman of the Board
(Principal Executive Officer)

Date: April 12, 2007

By
/s/Guangyu Wu
-----------------------------------------------------------------
Guangyu Wu
Chief Executive Officer
(Principal Executive Officer)

Date: April 12, 2007
By
/sMingda Rong
-----------------------------------------------------------------
Mingda Romg
Chief Financial Officer
(Principal Executive Officer)

Date: April 12, 2007
By
/s/Hanqiao Zheng
-----------------------------------------------------------------
Hanqiao Zheng
Director

Date: April 12, 2007

Page 55

CHINA RECYCLING ENERGY CORPORATION

(KNOWN AS "CHINA DIGITAL WIRELESS, INC." PRIOR TO MARCH 8, 2007)

Consolidated Financial Statements
For The Years Ended December 31, 2006 and 2005

(With Reports of Independent Registered Public Accounting Firm Thereon)

ZHONG YI (HONG KONG) C.P.A. COMPANY LIMITED

Certified Public Accountants

CHINA DIGITAL WIRELESS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm -
Zhong Yi (Hong Kong)C.P.A. Company Limited F-2
Report of Independent Registered Public Accounting Firm -
Grobstein, Horwath &Company LLP F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations And Comprehensive
Income (Loss) F-5 - F-6
Consolidated Statements of
Cash Flows F-7 - F-8
Consolidated Statements of Stockholders' Equity F-9
Notesto Consolidated Financial Statements F-10 - F-30

F- 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
China Digital Wireless, Inc.

We have audited the accompanying consolidated balance sheet of China Digital
Wireless, Inc. and Subsidiaries ("the Company") as of December 31, 2006 and the
related consolidated statements of operations and comprehensive income,
stockholders' equity and cash flows for the year ended December 31, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of the
Company's internal control over financial reporting. Our audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly we express no such
opinion. An audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2006 and the consolidated results of operations and
cash flows for the year ended December 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred substantial losses
which raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Zhong Yi (Hong Kong) C.P.A. Company Limited
Certified Public Accountants

Hong Kong, China
April 12, 2007

F- 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors China Digital Wireless, Inc. and
Subsidiary

We have audited the accompanying consolidated balance sheets of China Digital
Wireless, Inc. and Subsidiary (the "Company") as of December 31, 2004 and 2005
and the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for each of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal controls over financial reporting. Our audits included consideration of
internal controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 consolidated financial position of China
Digital Wireless, Inc. and Subsidiary as of December 31, 2004 and 2005, and the
consolidated results of their operations and cash flows for each of the years
then ended in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 5 to the consolidated financial statements, the Company has
had numerous significant transactions with businesses controlled by, and with
people who are related to, the officers and directors of the Company.

GROBSTEIN, HORWATH & COMPANY LLP
Sherman Oaks, California
March 31, 2006

F- 3

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005
(Currency expressed in United States Dollars ("US$"), except for number of shares)

2006 2005
---- ----

ASSETS
Current assets:
Cash and cash equivalents $ 252,000 $ 3,578,367
Accounts receivable, net -- 844,977
Inventories, net -- 62,386
Advances and deposits to suppliers 755,635 19,970
Deferred tax assets -- 12,846
VAT recoverable 10,702 --
Due from related parties 3,446,275 3,094,969
------------ ------------
Total current assets 4,464,612 7,613,515
------------ ------------
Non current assets:
Property and equipment, net -- 1,105,756
Deposit for business acquisition -- 6,257,590
------------ ------------

-- 7,363,346
------------ ------------
------------ ------------

$ 4,464,612 $ 14,976,861
TOTAL ASSETS
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 881,218
Advance from customers 141,832 6,399
Deferred revenue 33,299 31,598
VAT payable -- 92,649
Income tax payable 437 193,586
Due to related parties -- 223,399
Other current liabilities 942,407 375,960
------------ ------------
Total current liabilities 1,117,975 1,804,809
------------ ------------

Stockholders' equity:
Common stock,
$0.001 par value; 100,000,000 shares authorized;
17,147,268 shares issued and outstanding 17,148 17,148
Additional paid-in capital 4,229,845 4,229,845
Statutory reserves 574,666 554,466
Accumulated other comprehensive income 1,037,674 285,671
(Accumulated deficits) retained earnings (2,512,696) 8,084,922
------------ ------------
Total stockholders' equity 3,346,637 13,172,052
------------ ------------
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,464,612 $ 14,976,861
============ ============

See accompanying notes to consolidated financial statements.

F- 4

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
2006 AND 2005 (Currency expressed in United States
Dollars ("US$"), except for number of shares)

2006 2005
---- ----

Revenues:
Product sales $ 555,961 $ 5,775,069
Product sales - related parties 713,524 10,608,287
Information service, net 1,285,107 1,274,068
Advertising service, net 334,844 2,761,598
------------ ------------

Total revenues 2,889,436 20,419,022
------------ ------------

Cost of revenue
Cost of revenue 504,347 5,800,878
Cost of revenue - related parties 686,993 10,224,081
Cost of information service 1,004,186 681,624
Cost of advertising service 110,876 141,554
------------ ------------

Total cost of revenue 2,306,402 16,848,137
------------ ------------

------------ ------------

Gross profit 583,034 3,570,885
------------ ------------

Operating expenses:
Sales and marketing 154,727 134,639
Allowance for doubtful accounts 10,631 --
Written-off on amounts due from related parties 3,000,000 --
General and administrative 967,957 1,251,166
------------ ------------

4,133,315 1,385,805
Total operating expenses
------------ ------------

------------ ------------

(Loss) income from operations (3,550,281) 2,185,080
------------ ------------

Other income (expense):
Interest income 5,135 --
Government subsidy 118,202 108,476
Other income 206 8,387
Interest expense -- (9,093)
------------ ------------

(Loss) income before income taxes (3,426,738) 2,292,850
Income tax expense (36,633) (481,743)
------------ ------------

Net (loss) income $ (3,463,371) $ 1,811,107
============ ============

Other comprehensive income:
- Foreign currency translation adjustment $ 752,003 $ 285,396
------------ ------------

Comprehensive (loss) income $ (2,711,368) $ 2,096,503
============ ============

F- 5

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
2006 AND 2005 (Currency expressed in United States
Dollars ("US$"), except for number of shares)

2006 2005
---- ----

Net (loss) income per common share -
Basic and diluted
$ (0.20) $ 0.11
================= ==================

Weighted average number of common shares
outstanding - Basic and diluted 17,147,268 17,054,368
================= ==================

See accompanying notes to consolidated financial statements.

F- 6

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(Currency expressed in United States Dollars ("US$"))

2006 2005
---- ----

Cash flows from operating activities:
Net (loss) income $(3,463,371) $ 1,811,107
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation 189,366 239,716
Allowance for doubtful accounts 10,631 (3,450)

Written-off on amount due from related parties 3,000,000 --
Loss (gain) on disposal of property and equipment 58,970 (8,914)
Changes in assets and liabilities:
Accounts receivable 834,346 3,778,282
Inventories 62,386 39,310
Advances and deposits to suppliers (735,665) 130,442
Deferred tax assets 12,846 15,926
Due from related parties (3,351,306) (929,345)
Accounts payable (881,218) 825,379
Advance from customers 135,433 6,399
Deferred revenue 1,701 (586,096)
VAT payable (103,351) (120,886)
Income tax payable (193,149) (119,177)
Due to related parties (223,399) 123,139
Other current liabilities 566,447 88,935
----------- -----------

Net cash (used in) generated from operating activities (4,079,333) 5,290,767
----------- -----------

Cash flows from investing activities:
Purchase of property and equipment -- (425,525)
Proceeds on disposal of property and equipment 963 309,214
Due from related parties -- (3,435,258)
----------- -----------

Net cash generated from (used in) investing activities 963 (3,551,569)
----------- -----------

Cash flows from financing activities:
Common stock proceeds held in escrow -- 1,500,000
----------- -----------

Net cash generated from financing activities -- 1,500,000
----------- -----------

----------- -----------

Foreign currency translation adjustment 752,003 263,658
----------- -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS (3,326,367) 3,502,856

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,578,367 75,511
----------- -----------

CASH AND CASH EQUIVALENTS, END OF YEAR $ 252,000 $ 3,578,367
=========== ===========

F- 7

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(Currency expressed in United States Dollars ("US$"))

2006 2005
---- ----

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes $ 23,582 $ 590,481
=============== ===============

Cash paid for interest expenses $ - $ -
=============== ===============

NON-CASH INVESTING AND FINANCING ACTIVITIES

Impairment on deposit for business acquisition and property and
equipment to additional paid-in capital $ 7,114,047 $ -
=============== ===============
Deposit for business acquisition in exchange for reduction in
accounts receivable $ - $ 6,257,590
=============== ===============

See accompanying notes to consolidated financial statements.

F- 8

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
2006 AND 2005 (Currency expressed in United States
Dollars ("US$"), except for number of shares)

Accumulated
Additional other
Common stock paid-in Statutory comprehensive
No. of share Amount capital reserves income
------------ ------ ------- -------- ------

Balance as of December 31, 2004 17,018,692 $ 17,019 $ 4,229,974 $ - $ 275
Issuance of common stock in exchange for
lock up agreements 128,576 129 (129) - -
Transfer from retained earnings to statutory
reserves - - - 554,466 -
Components of comprehensive income
- Foreign currency translation - - - - 285,396
Net income for the year - - - - -
------------------ -------------- ---------------- -------------- ------------------
17,147,268 $ 17,148 $ 4,229,845 $ 554,466 $ 285,671
Balance as of December 31, 2005

Components of comprehensive income
- Foreign currency translation - - - - 752,003
Transfer from retained earnings to
additional paid-in capital - - 7,114,047 - -
Impairment on deposit for business
acquisition and property and equipment
to additional paid-in capital - - (7,114,047) - -
Transfer from retained earnings to statutory
reserves - - - 20,200 -
Net loss for the year - - - - -
------------------ -------------- ---------------- -------------- ------------------

Balance as of December 31, 2006 17,147,268 $ 17,148 $ 4,229,845 $ 574,666 $ 1,037,674
================== ============== ================ ============== ==================

Retained
earnings
(accumulated
deficits) Total
--------- -----

Balance as of December 31, 2004 6,828,281 $ 11,075,549
Issuance of common stock in exchange for
lock up agreements - -
Transfer from retained earnings to statutory
reserves (554,466) -
Components of comprehensive income
- Foreign currency translation - 285,396
Net income for the year 1,811,107 1,811,107
------------------- -----------------
Balance as of December 31, 2005 8,084,922 $ 13,172,052

Components of comprehensive income
- Foreign currency translation - 752,003
Transfer from retained earnings to
additional paid-in capital (7,114,047) -
Impairment on deposit for business
acquisition and property and equipment
to additional paid-in capital - (7,114,047)
Transfer from retained earnings to statutory
reserves (20,200) -
Net loss for the year (3,463,371) (3,463,371)
------------------- -----------------

Balance as of December 31, 2006 (2,512,696) $ 346,637
=================== =================

See accompanying notes to consolidated financial statements.

F- 9

1. ORGANIZATION AND BUSINESS BACKGROUND

China Digital Wireless, Inc. ("CHDW") through its subsidiary sells mobile phones
to retailers, distributors, and related parties, provides advertising services
and provides information services to users of mobile phones and pagers.
Substantially all of its operations are conducted in Shanghai, People's Republic
of China ("PRC").

In order to meet ownership requirements under Chinese law that restrict a
foreign company from operating in certain industries such as value-added
telecommunication, advertising service and internet services, CHDW's subsidiary
has entered into information service and cooperation agreements with two of
CHDW's affiliates that are incorporated in China: Shanghai Sifang Information
Technology Co. ("Sifang Information") and Shanghai Tianci Industry Co. Ltd
("Tianci Industry"). CHDW holds no ownership interest in Sifang Information or
Tianci Industry. Sifang Information and Tianci Industry contract with China
Mobile Communications Corporation ("China Mobile"), and China United
Telecommunications Corporation ("China Unicom"), to provide wireless value-added
information services to wireless receiver customers in China via China Mobile
and China Unicom. Sifang Information transmits those services to customers of
China Mobile and China Unicom on behalf of itself and Tianci Industry pursuant
to a signed agreement between Sifang Information and Tianci Industry.

Recapitalization and Reorganization

On June 23, 2004, Boulder Acquisitions, Inc. ("Boulder Acquisitions") entered
into a stock exchange agreement with Sifang Holdings Co. Ltd. ("Sifang
Holdings") and certain shareholders. Pursuant to the stock exchange agreement,
Boulder Acquisitions issued 13,782,636 shares of its common stock in exchange
for a 100% equity interest in Sifang Holdings, making Sifang Holdings a wholly
owned subsidiary of Boulder Acquisitions.

Boulder Acquisitions was incorporated under the laws of the State of Colorado on
May 8, 1980 as Boulder Brewing Company ("Boulder Brewing"). Boulder Brewing was
the successor to a general partnership formed in 1979. From the initial
inception of the original partnership through 1990, Boulder Brewing was in the
business of operating a microbrewery in Boulder, Colorado. During 1990, as a
result of various debt defaults, Boulder Brewing's assets were foreclosed upon
and all business operations were ceased. Boulder Brewing has effectively had no
operations, assets or liabilities since its fiscal year ended December 31, 1990.

In September 2001, Boulder Brewing changed its state of incorporation from
Colorado to Nevada by means of a merger with and into Boulder Acquisitions, a
Nevada corporation formed on September 6, 2001 solely for the purpose of
effecting the reincorporation. The Articles of Incorporation and Bylaws of the
Nevada corporation are the Articles of Incorporation and Bylaws of the surviving
corporation. Such Articles of Incorporation eliminated the provision for Boulder
Acquisitions to issue preferred stock.

The above stock exchange transaction resulted in those shareholders of Sifang
Holdings obtaining a majority voting interest in Boulder Acquisitions. Generally
accepted accounting principles in the United States of America require that the
company whose shareholders retain the majority interest in a combined business
be treated as the acquirer for accounting purposes. Consequently, the stock
exchange transaction has been accounted for as a recapitalization of Sifang
Holdings as Sifang Holdings acquired a controlling equity interest in Boulder
Acquisitions, as of June 23, 2004. The reverse acquisition process utilizes the
capital structure of Boulder Acquisitions and the assets and liabilities of
Sifang Holdings recorded at historical cost.

Page 1

Sifang Holdings is the continuing operating entity for financial reporting
purposes, and the financial statements prior to June 23, 2004 represent Sifang
Holdings' financial position and results of operations. As of June 23, 2004,
Boulder Acquisitions had only cash of $310,051, and stockholders' equity of
$310,051 with 1,585,705 shares of common stock outstanding, all of which were
included in the consolidated financial statements of Sifang Holdings. Although
Sifang Holdings is deemed to be the acquiring corporation for financial
accounting and reporting purposes, the legal status of Boulder Acquisitions as
the surviving corporation did not change. Subsequent to June 30, 2004, Boulder
Acquisitions changed its name to China Digital Wireless, Inc.

Business History

CHDW's business is primarily conducted through its wholly-owned subsidiary
Sifang Holdings and Sifang Holdings' wholly-owned subsidiary TCH Data Technology
Co., Ltd. ("TCH"), that collectively with CHDW are referred to as the "Company".
Sifang Holdings was established under the laws of the Cayman Islands on February
9, 2004 for the purpose of holding a 100% equity interest in TCH. TCH was
established as a foreign investment enterprise in Shanghai under the laws of the
PRC on May 25, 2004, with registered capital of $7.2 million.

CHDW's current operations were originally a business division of Sifang
Information. Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business to
TCH. As the acquiring entity under common control, TCH initially recognized all
the assets and liabilities transferred at their carrying amounts in the accounts
of Sifang Information at the date of transfer under the guidance of Statements
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
Appendix D.

On May 26, 2004, Sifang Information exchanged 100% of its equity interest in TCH
for a 100% equity interest in Sifang Holdings. Since the ultimate owners of the
three entities were the same owners and the three entities remained under common
control, the ownership exchange transaction was accounted for at historical
costs under the guidance of SFAS No. 141 Appendix D. Prior to May 26, 2004,
Sifang Holdings conducted no business activities. As a result of the exchange of
ownership between TCH and Sifang Holdings, TCH's historical financial statements
became the historical financial statements of Sifang Holdings.

As a result of the spin-off, the Company now engages in the business of mobile
phone distribution and provides pager and mobile phone users with access to
certain value-added information reformatted by TCH. TCH purchases mobile phones
from first tier distributors and sells them to retailers and distributors with a
mark-up. In the process of providing value-added information services through
entering into monthly subscription agreements with various users, TCH purchases
trading activity information from stock exchanges, comments and analysis on PRC
stock markets provided by certain reputable security and investment companies,
lottery information, weather forecast, and other value-added products and
reformats the aforementioned information through decoding and recoding and then
has the reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The value-added information is constantly saved on
TCH's server in order for mobile phone users to dial in via China Mobile or
China Unicom. By signing a monthly subscription agreement, wireless receiver
users agree to make advance payments for its services for either three or
six-month subscription periods.

Page 2

to sales taxes in the U.S.) are related only to service revenue at a tax rate of
approximately 3.3%. The selling expenses are allocated based on the relationship
between expense and revenue (such as commission) and payroll records. The
general and administrative expenses are allocated based on management hours
spent and payroll records. The income tax provision has been calculated on a
separate company basis and is in line with the historical actual income tax
provision at the Sifang Information level assuming that all income taxes had
been paid by Sifang Information and no income tax liability was in existence in
the periods reported in the accompanying financial statements. Management
believes that the costs, operating expenses, interest expense, and income tax
provision included in the Company's financial statements are a reasonable
representation of the costs and expenses that would have been incurred if the
Company had performed these functions as a stand-alone company.

2. GOING CONCERN UNCERTAINTIES

These consolidated financial statements have been prepared assuming that Company
will continue as a going concern, which contemplates the realization of assets
and the discharge of liabilities in the normal course of business for the
foreseeable future.

As of December 31, 2006, the Company had a working capital of $3,346,637, a
negative operating cash flow of $4,079,333 and the accumulated deficits of
$2,512,696. Management has taken certain actions and continues to implement
changes designed to improve the Company's financial results and operating cash
flows. The action involves change of business operations from the mobile phone
distribution business and provision of information value-added services to sales
of energy-saving products, which is described in Note 19(c). The place of
business is also going to reallocate from Shanghai to Xian Province. Management
believes that these actions will enable the Company to improve future
profitability and cash flow in its continuing operations through December 31,
2007. As a result, the financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of the Company's ability to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

o Basis of Presentation
These accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP") and pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") for annual financial statements.

o Use of Estimates
In preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets and revenues and expenses during the year reported. Actual
results may differ from these estimates.

o Basis of Consolidation
The consolidated financial statements include the accounts CHDW, its wholly
owned subsidiary, Sifang Holdings, and its wholly owned subsidiary TCH.
Substantially all of the Company's revenues are derived from the operations of
TCH, which represents substantially all of the Company's consolidated assets and
liabilities.

Subsidiaries are those entities in which the Company, directly or indirectly,
controls more than one half of the voting power; has the power to govern the
financial and operating policies; to appoint or remove the majority of the
members of the board of directors; or to cast majority of votes at the meeting
of directors.

Page 3

All significant inter-company balances and transactions within the Company have
been eliminated on consolidation.

o Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand
deposits placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.

o Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated risks by performing credit
checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and determined based on managements' assessment of known
requirements, aging of receivables, payment history, the customer's current
credit worthiness and the economic environment. As of December 31, 2006, the
Company recorded an allowance for doubtful accounts of $10,631.

o Inventories
Inventories consist primarily of mobile phones and are stated at the lower of
cost or net realizable value, with cost being determined on a weighted average
basis. Since 2004, the Company's major vendor began providing rebates and
credits if the Company meets certain sales volume levels prescribed by the
vendor. As a result, the Company is entitled to receive certain rebates and
credits for the inventory held and sold by the Company within the specified
period of time as defined by its vendor through submitting the necessary
application forms. In general, once the vendor approves these applications the
amounts of these rebates and credits will be deducted from the Company's
accounts payable to its vendor and decrease the cost of goods sold or inventory
held correspondingly. As of December 31, 2006, the Company recorded no
inventories.

o Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses, if any. Depreciation is calculated on the
straight-line basis over the following expected useful lives from the date on
which they become fully operational:

Depreciable life
Buildings 20 years
Software 2 - 3 years
Office and other equipment 2 - 5 years
Motor vehicles 2 - 5 years

Expenditure for maintenance and repairs is expensed as incurred, whereas
betterment and renewals are generally capitalized in their respective property
accounts. The gain or loss on the disposal of property, plant and equipment is
the difference between the net sales proceeds and the carrying amount of the
relevant assets and is recognized in the consolidated statement of operations.

o Capitalization of Software Costs
The Company's software is developed by an independent third party to enable
pager users to accept certain recoded information which is transmitted by the
Company, through affiliates, and enables mobile phone users to dial into the
Company's server. The software is developed for internal use and gives the
Company the ability to provide value added information services. In accordance
with SOP 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," the Company capitalizes the external cost incurred
to develop this internal-use software by an engineering company at the

Page 4

application development stage and amortizes that cost over the estimated
economic life of the software (two or three years) which is consistent with the
expected life of a particular type of mobile phone.

o Impairment of Long-life Assets
In accordance with SFAS No. 121, "Account ing for the impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of', a long-lived assets and
certain identifiable intangible assets held and used by the Company are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For the purposes of
evaluating the recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows related to the long-lived assets.
The Company reviews long-lived assets, if any, to determine the carrying values
are not impaired, as fully explained in Note 4.

o Revenue Recognition
The Company derives revenues from the sale of mobile phones, advertisement
designing service and the provision of wireless information services that are
used on mobile phones, pagers and prepaid phone cards. The Company additionally
earns commission income ("Agency Income") from the sale of CDMA mobile phones on
the behalf of a related party. The Company recognizes its revenues net of
related business taxes and value-added taxes.

Mobile Phone Sales:
Revenues generated from the sale of mobile phones are recognized upon delivery
to the distributor or retailer and the transfer of title and risk of loss.

Advertising Servicing Revenue, Net:
Advertising revenues are derived from advertisement designing, masterminding and
producing services. The Company recognizes service revenues over the term of the
noted agreement at the time of completion of the services. The Company records
the revenue from Shanghai Sifang Media Co., Ltd. ("Sifang Media") on a net basis
in compliance with EITF 99-19, "Reporting Revenue Gross as a Principle versus
Net as an Agent" because the Company is not the primary obligor in the
arrangement and they receive a fixed fee from Shanghai Sifang Media Co., Ltd.
and they have no latitude in determining prices.

Information Services:
The Company recognizes service revenues over the term of the noted agreement
and/or when the services have been provided to the end user.

i) Information Services - TCH:
By signing a subscription agreement, wireless receiver users agree to make
payments for three to six-month subscriptions in advance. TCH records the
proceeds as deferred revenue and amortizes the deferred revenue over the
subscription period. When customers buy a pre-charged service card, the Company
records the proceeds as deferred revenue. When a customer starts to use this
card to access the Company's server and starts to use a pager to access the
aforementioned information, the Company identifies the subscription period and
amortizes the deferred revenue over the subscription period.

ii) Information Services - Installing Agent:
In response to a retailer's request, the Company has an installing agent who
installs the Company's software on mobile phones, which are owned by the
retailer. The retailer sells these phones for a premium covering a fee to be
paid to the installing agent and pre-charged six-month subscription fees to be
paid to the Company. After a customer using such a phone dials into the server
to access the desired information, the server records a unique identification
number installed on the mobile phone, which indicates that a specific phone user
starts his or her subscription period. After the Company receives a detailed

Page 5

list from the installing agent regarding the number of phones that have been
installed with the Company's software, the Company matches this information with
a detailed list from the retailer setting forth how many such phones have been
sold. Based on the number of such phones sold, the Company records accounts
receivable and deferred revenue accordingly. At the date on which a customer
starts to dial into the server, the six-month subscription period begins and the
Company amortizes deferred revenue accordingly.

iii) Information Services - China Mobile and/or Unicom: The Company's
affiliates, Sifang Information and Shanghai Tianci Industrial Group Co., Ltd.
("Tianci Group"), contract with China Mobile and/or China Unicom (collectively,
"Mobile Operators") for the transmission of the Company's value-added
information services. The Mobile Operators bill and collect from customers and
then pass those fees (net of billing and collection service fees charged by the
Mobile Operators) to Sifang Information and Tianci Group who in turn pass those
fees to the Company. The Company recognizes net revenues based on the total
amount paid by its customers, for which the Mobile Operators bill and collect on
behalf of the Company. There is a time lag ranging from 10 days to 45 days
between the end of the service period and the date the Mobile Operators send out
their billing statements due to the segregated billing systems of each of the
provincial subsidiaries of the Mobile Operators. The Company has not recognized
service revenue based on the records provided by its own server but has
performed a reconciliation on a monthly basis of the revenues recognized by the
Company's server to the Mobile Operator's billing statement. In addition, the
Mobile Operators charge a network usage fee based on a fixed per message fee
multiplied by the excess of messages sent over messages received. (This type of
service is not covered by a monthly service subscription and the Company has no
control over whether it will occur or not.) Network usage fees charged by the
Mobile Operators are reduced for messages received by the Company because the
Mobile Operators separately charge the sender a fee for these transmissions.

The Company records the revenue from the Mobile Operators on a net basis in
compliance with EITF 99-19, "Reporting Revenues Gross as a Principle versus Net
as an Agent" because the Company:
- Is not the primary obligor in the arrangement, as it relies on Sifang
Information to transmit the information services to the end user,
- Has limited ability to adjust the cost of services by adjusting the design
or marketing of the service,
- Has limited ability to determine prices, the Company must follow the price
policy within ranges prescribed by Mobile Operators, and
- Has limited ability to assume risk of non-payment by customers.

The Company's dependence on the substance and timing of the billing systems of
the mobile telecommunications operators may require the Company to estimate
portions of its reported revenue for information services from time to time. As
a result, subsequent adjustments may be made to the information service revenue
in the Company's consolidated financial statements. As the Company does not bill
its information services users directly, the Company depends on the billing
systems and records of the mobile telecommunications operators to record the
volume of its information services provided, to charge its users through mobile
telephone bills, to collect payments from its users, and to pay the Company.

o Cost of Sales
Cost of sales consists primarily of purchase costs of mobile phones,
subscription costs of certain value-added information services such as trading
activity information from stock exchanges, comments and analysis on the PRC
stock markets provided by certain reputable security and investment companies,
lottery information, and weather forecast.

o Deferred Revenue

Page 6

Deferred revenue consists of primarily of payments received in advance from
customers.

o Value-Added Tax
TCH is subject to value-added tax ("VAT") imposed by the PRC on TCH's domestic
product sales. The output VAT is charged to customers who purchase mobile phones
from TCH and the input VAT is paid when TCH purchases mobile phones from its
vendors. The VAT rate applied for TCH is 17%. The input VAT can be offset
against the output VAT.

o Advertising Expenses
The Company expenses advertising costs as incurred in accordance with the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 93-7, "Reporting for Advertising Costs". Advertising expenses totaled
$353 and $17,468 during the years ended December 31, 2006 and 2005,
respectively.

o Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income as defined includes all changes in equity during
a period from non-owner sources. Accumulated comprehensive income, as presented
in the accompanying statement of changes in stockholders' equity consists of
changes in unrealized gains and losses on foreign currency translation. This
comprehensive income is not included in the computation of income tax expense or
benefit.

o Income Taxes
The Company accounts for income tax using SFAS No. 109 "Accounting for Income
Taxes", which requires the asset and liability approach for financial accounting
and reporting for income taxes. Under this approach, deferred income taxes are
provided for the estimated future tax effects attributable to temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax assets
and liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is recognized
in the statement of operations and comprehensive (loss) income in the period of
enactment. 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.

o Net (Loss) Income Per Share
The Company calculates net (loss) income per share in accordance with SFAS No.
128, "Earnings per Share". Basic net (loss) income per share is computed by
dividing the net (loss) income by the weighted-average number of common shares
outstanding. Diluted net (loss) income per share is computed similar to basic
net (loss) income per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if the
potential common stock equivalents had been issued and if the additional common
shares were dilutive. The Company did not have any potentially dilutive common
share equivalents as of December 31, 2006 and 2005.

o Foreign Currencies Translation
The functional and reporting currency of the Company is the United States
dollars ("U.S. dollars"). The accompanying consolidated financial statements
have been expressed in U.S. dollars.

The functional currency of the Company's foreign subsidiaries is the Renminbi
Yuan ("RMB"). The balance sheet is translated into United States dollars based
on the rates of exchange ruling at the balance sheet date. The statement of
operations is translated using a weighted average rate for the year. Translation
adjustments are reflected as cumulative translation adjustments in stockholders'
equity.

Page 7

o Segment Reporting
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments on a basis consistent with the Company's internal organization
structure as well as information about geographical areas, business segments and
major customers in financial statements. The Company operates in four principal
reportable segment, as more fully explained in Note 14.

o Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, which include cash
and cash equivalents, accounts receivables, inventories, advances and deposits
to suppliers, accounts payable, other current liabilities, approximate their
fair values due to the short-term maturity of these instruments.

o Related Parties
Parties, which can be a corporation or individual, are considered to be related
if the Company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial
and operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.

All material related party transactions have been disclosed in the note 13 to
consolidated financial statements.

o Recently Issued Accounting Standard
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"), which replaces Accounting Principles Board Opinions
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting changes in
Interim Financial Statements--An Amendment of APB Opinion No. 28". SFAS 154
provides guidance on the accounting for and reporting of accounting changes. It
establishes retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the reporting
of a correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of this statement did not have a material effect on the Company's
financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Instruments-an amendment of FASB Statements 133 and 140", which is effective for
all financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006. The statement improves
financial reporting by eliminating the exemption from applying SFAS No. 133 to
interests in securitized financial assets so that similar instruments are
accounted for similarly regardless of the form of the instruments. The Statement
also improves financial reporting by allowing a preparer to elect fair value
measurement at acquisition, at issuance, or when a previously recognized have to
bifurcated, if the holder elects to account for the whole
instrument-by-instrument basis, in cases in which a derivative would otherwise

Page 8

have to bifurcated, if the holder elects to account for the whole instrument on
a fair value basis. The Company does not expect that the adoption of this
statement would have a material effect on the Company's financial position or
results of operations.

In September 2006, the SEC released SAB No. 108, "Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements" ("SAB 108"). SAB 108 provides interpretive guidance on the
SEC's views on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
The provision of SAB 108 is effective for the Company in the current fiscal year
ended December 31, 2006. The Company is currently evaluating the impact of SAB
108 but does not believe that the application of SAB 108 would have a material
effect on its financial position, cash flows nor results of operations.

In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements" ("SFAS
157"), which defines fair value, establishes guidelines for measuring fair value
and expands disclosures regarding fair value measurements. SFAS 157 does not
require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 will be
effective for the Company starting January 1, 2008. Earlier adoption is
permitted, provided the company has not yet issued financial statements,
including for interim periods, for that fiscal year. The Company is currently
evaluating the impact of SFAS 157 on its financial position, cash flows and
results of operations.

4. IMPAIRMENT WRITE DOWN RECOGNISED AS A RESULT OF STRATEGIC REVIEW OF CERTAIN
OPERATIONS

In 2006, during the course of the Company's strategic review of the assets
involved in the mobile phone sales and information service operations, the
Company determined that the carrying values of these property and equipment were
impaired after recoverability test using future undiscounted cash flows. The
carrying values of these assets were not recovered sufficiently and so were
fully written down to additional paid-in capital as of December 31, 2006.

Also, the Company reviewed the future economic value of the deposit for business
acquisition, as more fully mentioned in Note 13(h), and determined that future
undiscounted cash flows associated with this deposit were uncertain and may not
be sufficient to recover their carrying values and so was fully written down to
additional paid-in capital as of December 31, 2006.

Impairment charge to
Net book value at additional Net book value after
Assets December 31, 2006 paid-in capital the impairment charge
------ ----------------- --------------- ---------------------

Property and equipment $ 856,457 $ (856,457) $ -
Deposit for business acquisition
acquisition 6,257,590 (6,257,590) -
------------------------ ------------------------ -------------------------
$ 7,114,047 $ (7,114,047) $ -
======================== ======================== =========================

Page 9

5. ACCOUNTS RECEIVABLE, NET

2006 2005
---- ----

Accounts receivable $ 10,631 $ 844,977
Less: allowance for doubtful accounts (10,631) -
----------------- -------------------

Accounts receivable, net $ - $ 844,977
================= ===================

6. ADVANCES AND DEPOSITS TO SUPPLIERS

In December 2006, the Company via TCH began to engage in other activities in the
energy saving and recycling industry, including purchasing certain equipments,
devices, hardware and software for the construction and installation of top gas
recovery turbine system ("TRT") and other renewable energy products. As of
December 31, 2006, TCH paid an amount of $755,635 as a deposit to purchase
software for the TRT project.

7. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
2006 2005
---- ----
Buildings $ 999,997 $ 967,507
Software -- 568,704
Office and other equipment -- 488,984
Motor vehicles 92,225 89,229
----------- -----------
1,092,222 2,114,424
Less: accumulated depreciation (235,765) (1,008,668)

impairment charge to additional paid-in capital (856,457) --

----------- -----------
Property and equipment, net $ -- $ 1,105,756
=========== ===========

Depreciation expenses for the years ended December 31, 2006 and 2005 were
$189,366 and $239,716, respectively.

As of December 31, 2005, in accordance with the "Business and Related Assets
Transfer Agreement" signed by TCH and Sifang Information, the ownership of the
building suite and two motor vehicles, (collectively known as "Assets") are
recorded on TCH's books of record. The net book value of the pledged assets was
$829,637. The property is pledged as security for a $2.5 million line of credit
held under the credit facility agreement between Sifang Information and the
bank. The line of credit is recorded on Sifang Information's books and has a
balance of $2,478,253 as of December 31, 2005. However, the two parties have
declared that the ownership of the "Assets" should be TCH's as of the balance
sheet date and have signed a legal agreement, as noted above. Sifang Information

Page 10

is expected to pay off the line of credit balance in April 2008 and at that
point they will transfer the legal title of the property and the motor vehicles
within one week after the pledge is to be released by the bank.

8. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

2006 2005
---- ----

Other payables $ 448,714 $ 118,058
Employee welfare payable 213,870 206,462
Accruals 279,823 51,440
--------------------- ----------------------
--------------------- ----------------------
$ 375,960
$ 942,407
===================== ======================

9. GOVERNMENT SUBSIDY

During the year ended 31 December 2006, the Company received a general
government subsidy from the local bureau, which is equivalent to 3.5% of the
taxable income of TCH throughout the period from January 2005 to December 2005.
The subsidy is non-recurring and subject to government approval. The amount of
such government subsidy for the years ended December 31, 2006 and 2005 was
$118,202 and $108,476 respectively.

10. INCOME TAXES

The Company's PRC subsidiary, TCH, is registered at Pudong District in Shanghai
and subject to a favorable income tax rate of 15% compared to a normal income
tax rate of 33% (30% for the central government and 3% for the local government)
under current PRC tax laws. Sifang Information is registered in the Shanghai
downtown area and has been treated by the Shanghai Municipal Administration of
Labor as an enterprise that provides unemployed and handicapped people with
jobs. Accordingly, Sifang Information is also entitled to a favorable income tax
rate of 15% and qualified for an income tax exemption for three years from
January 1, 2000 to December 31, 2002, and a 50% income tax reduction for three
years from January 1, 2003 to December 31, 2005. The income tax provisions
presented in the Company's financial statements are based on the actual income
tax rates of TCH at 15% for both years ended December 31, 2006 and 2005. The
deferred tax assets are determined based on the income tax rates applicable at
the TCH level.

There is no income tax for companies domiciled in the Cayman Islands.
Accordingly, the Company's consolidated financial statements do not present any
income tax provisions related to Cayman Islands tax jurisdiction.

Page 11

The income tax provision for the years ended December 31, 2006 and 2005 are as
follows:

2006 2005
---- ----

Current tax expense $ 23,787 $ 465,343
Deferred tax 12,846 16,400
----------------- -----------------
----------------- -----------------
Income tax expense $ 36,633 $ 481,743
================= =================

The components of (loss) income before income taxes are as follows:

2006 2005
---- ----

Loss subject to Cayman Islands $ (250,995) $ (737,758)
(Loss) income subject to the PRC (3,175,743) 3,030,608
--------------- ---------------
--------------- ---------------
(Loss) income before income taxes $(3,426,738) $ 2,292,850
=============== ===============
=============== ===============
Income tax expense $ 36,633 $ 481,743
=============== ===============

The reconciliation of income tax rate to the effective income tax rate based on
(loss) income before income taxes stated in the consolidated statement of
operations for the years ended December 31, 2006 and 2005 are as follows:

Year ended December 31,
-------------------------------

2006 2005
---- ----

(Loss) income before income taxes $ (3,175,743) $ 3,030,608
Statutory income tax rate 33% 33%
--------------- ----------------

(1,047,995) 1,000,101
Add: Adjustments
Income tax holiday (21,964) (545,509)
Allowance for doubtful accounts 993,508 27,151

Change in deferred tax assets 12,846 -
Others 100,238 -
--------------- ----------------
Income tax expense $ 36,633 $ 481,743
=============== ================

Page 12

The following table sets forth the significant components of the aggregate
deferred tax assets of the Company as of December 31, 2006 and 2005:

Year ended December 31,
---------------------------------
2006 2005
---- ----
Deferred tax assets:
- Allowance for doubtful accounts $ 451,595 $ 6,670
- Accrued liabilities - 6,176
---------------- ----------------
Total deferred tax assets 451,595 12,846
Less: valuation allowance (451,595) -
---------------- ----------------
Deferred tax assets $ - $ 12,846
================ ================

11. NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed using the weighted average number
of the ordinary shares outstanding during the year. Diluted net (loss) income
per share is computed using the weighted average number of ordinary shares and
ordinary share equivalents outstanding during the year.

The following table sets forth the computation of basic and diluted net (loss)
income per share for the year indicated:

Year ended
December 31,
------------------------------------
2006 2005
---- ----
Basic and diluted net (loss) income
per share calculation:
Numerator:
Net (loss) income used in computing
basic net (loss) income per share $ (3,463,371) $ 1,811,107
================= ==================

Denominator:
Weighted average ordinary shares
outstanding 17,147,268 17,054,368
================= ==================

Basic and diluted net (loss) income
per share $ (0.20) $ 0.11
================= ==================

12. CAPITAL TRANSACTIONS

On June 23, 2004, the Company issued 167,895 shares of its common stock to a
consultant for services relating to the reverse merger that was completed in
fiscal 2004. The trading price of the Company's common stock on June 23, 2004
was $3.60 per share, accordingly, the fair value of 167,895 shares was $604,422.

On June 23, 2004, the Company issued 166,667 shares of its common stock in
exchange for services performed by an existing major shareholder of Boulder
Acquisitions for his consulting services involved with the reverse merge. The
common stock was issued at a price of $1.14 per share in exchange for gross

Page 13

proceeds of $190,000 based on a stock purchase agreement. The $1.14 per share
price was pre-negotiated between the Company and the shareholder before the
reverse merger had been completed. Pursuant to the stock purchase agreement, the
Company granted the existing shareholder an option which required the Company to
purchase up to the aforementioned 166,667 shares of common stock at a price of
$1.14 per share, such option being exercisable at any time after the date that
is nine months after the Company files a registration statement on Form SB-2
with the SEC, registering the shares purchased by the existing shareholder, up
to and including the earlier of the date that such registration statement is
declared effective by the SEC or the existing shareholder's shares are eligible
for resale under Rule 144 under the Securities Act of 1933. According to Topic
D-98 from the SEC, "Classification and Measurement of Redeemable Securities,"
these shares should be presented outside the permanent equity section. However,
on November 12, 2004, the Company filed a Registration Statement on Form SB-2
with the SEC, for registration of these securities to be sold to the public by
small business issuers. On February 8, 2005, the SEC approved the registration
filing and accordingly, the Company has recorded these shares in stockholders'
equity as the contingency surrounding these shares expired as of February 8,
2005. On June 23, 2004, the trading price of the Company's stock at the end of
the day was $3.60 per share. Due to the relationship between the parties, the
difference between the price of $1.14 per share and the price of $3.60 per share
was recorded as compensation by presenting $410,001 in additional paid-in
capital and in general and administrative expenses.

On June 28, 2004, the Company issued, in aggregate, 1,315,789 shares of its
common stock to three investors at a price of $1.14 per share in exchange for
gross proceeds of $1,500,000 based on a stock purchase agreement. The $1.14 per
share price was pre-negotiated between the Company and the investors before the
reverse merger had been completed. Pursuant to the signed stock purchase
agreement, the Company granted to each of the three investors an option which
requires the Company to purchase up to the aforementioned 1,315,789 shares, in
aggregate, of common stock at a price of $1.14 per share, such option being
exercisable at any time after the date that is nine months after the Company
files a Registration Statement on Form SB-2 with the SEC, registering the shares
purchased by the existing shareholder, up to and including the earlier of the
date that such registration statement is declared effective by the SEC or the
existing shareholder's shares are eligible for resale under Rule 144 under the
Securities Act of 1933. As of December 31, 2004, the proceeds of $1.5 million
were held in an escrow account with an agent who is related to a shareholder. As
of December 31, 2004, the Company has treated the proceeds held in escrow as a
current asset as the entire amount was released from escrow in March 2005 and
paid to the Company. According to Topic D-98 from SEC, "Classification and
Measurement of Redeemable Securities," these shares should be presented outside
the permanent equity section. However, on November 12, 2004, the Company filed a
Registration Statement on Form SB-2 with the SEC, for registration of these
securities to be sold to the public by small business issuers. On February 8,
2005, the SEC declared the registration statement effective. Accordingly, the
Company has recorded these shares in stockholders' equity as the contingency
surrounding these shares expired as of February 8, 2005.

In connection with the June 28, 2004 issuance of common stock, the Company
incurred share issue costs of $217,481 and accounted for it as a reduction of
additional paid-in capital.

Pursuant to a resolution in December 2006, the Company transferred its retained
earnings of $7,114,047 to additional paid-in capital for the purpose of
impairment charge on deposit for business acquisition and property and
equipment. Descriptive details of deposit for business acquisition and property
and equipment are mentioned in Note 13(h) and Note 7 and the Company determined
that both items are non-trading nature. Also the Company reviewed the future
economic value of both deposit and assets and determined that future
undiscounted cash flows associated with these deposit and assets were uncertain

Page 14

and may not be sufficient to recover their carrying values and so was fully
written down to additional paid-in capital.

13. RELATED PARTY TRANSACTIONS

(a) Related Party Relationships

The following related parties are related through common ownership with the
major shareholder of the Company:

(b) Merchandise Sold to Related Parties

During the year ended December 31, 2006, TCH sold Samsung GSM mobile phones
valued at $713,524 at a gross profit margin of 4% or $26,531 to Shanghai
Shantian Telecommunication Co. Ltd. ("Shantian"), compared to $10,608,287 at a
gross profit margin of 4% or $382,371 for the year ended December 31, 2005.
There was no accounts receivable due from Shantian as of December 31, 2006 and
2005.

Year ended December 31,
-----------------------------------------
2006 2005
---- ----
Tianci Real Estate $ - $ 1,879,965
==================== ====================

In January 2005, Sifang Media and TCH entered into the "Bank Digital TV's
Cooperation Agreement", where TCH will assist in the promotion of TV ads for
various customers, including Tianci Real Estate. TCH received a net fee of $nil
and $1,879,965 from Tianci Real Estate for providing the service during the
years ended December 31, 2006 and 2005 respectively. The Advertisement Agency
Contract between Tianci Real Estate and Sifang Media was terminated in November
2005.

TCH, through Sifang Media, entered into certain agreements with customers, where
TCH will assist in the promotion of TV ads for these customers. TCH received a
net fee of $334,844 and $881,633 for providing the service via Sifang Media
during the fiscal year of 2006 and 2005 respectively.

(d) Service Provided by Related Party

Year ended December 31,
-----------------------------------------
-----------------------------------------
2006 2005
---- ----
Sifang Information $ 473,534 $ 426,009
==================== ====================

Pursuant to the service agreements between TCH and Sifang Information, TCH was
allowed to use Sifang Information's facility (which may not be owned by foreign

Page 15

investors at the present time) to transmit the reformatted information and
Sifang Information also provided other management support and marketing services
to TCH.

(e) Leasing From Related Parties

Sifang Information signed a leasing agreement with the Tianci Real Estate for
leasing its apartment for office use. During the years ended December 31, 2006
and 2005, TCH paid rental expense of $50,378 and $49,565 respectively to Tianci
Real Estate.

(f) Amount Due From Related Parties

As of December 31,
-----------------------------------------
2006 2005
---- ----

Sifang Information $6,446,275 $ 2,165,624
Sifang Media - 929,345
-------------------- --------------------
6,446,275 3,094,969
Less: Amount written-off (3,000,000) -
-------------------- --------------------
$ 3,446,275 $ 3,094,969
==================== ====================

The amount due from Sifang Information and Sifang Media as of December 31, 2005
are trade related and relating to the mobile phone distribution business.

During January 2006, the Company entered into an agreement with Sifang
Information for the establishment of a new joint venture entity with a third
party. The purpose of the joint venture entity is to act as a sole advertising
agent of TCH. The Company advanced a total of $2,499,969 to Sifang Information
to contribute to the joint venture. This, together with the trade receivables
related to the mobile phone distribution business, made up a total balance of
$6,446,275 receivable from Sifang Information as of December 31, 2006. As of
December 31, 2006, Sifang Information was informed of the non-continuous of the
formation of the joint venture by the third party and it was determined that the
amount is not to be recovered in the foreseeable future. As a result, the
Companyprovided a provision of $3,000,000 for 1) the full amount advance to the
joint venture and 2) the long outstanding portion of the receivable from Sifang
Information.

(g) Amount Due To Related Parties

As of December 31,
-----------------------------------------
-----------------------------------------
2006 2005
---- ----

Tianci Real Estate $ - $ 123,467
Shantian - 99,932
-------------------- --------------------
$ - $ 223,399
==================== ====================

The balance owed to Tianci Real Estate represented the expenses paid by Tianci
Real Estate on behalf of the Company during the year ended December 31, 2005.

Page 16

The balance owed to Shantian represents the advances received from Shantian for
mobile phone sales. All of the above amounts due to related parties are
unsecured, non-interest bearing and due on demand.

(h) Deposit for Business Acquisition

In December 2005, TCH entered into a series of agreements to purchase (i) 95% of
the equity interests of Shanghai Kena Energy Saving Electric Co Ltd ("Kena") for
an aggregate purchase price of RMB 28,500,000 (approximately $3,532,000); (ii) a
related patent from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000); and (iii) related rights to make a patent
application from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000). The purchase price for both the equity interests in
Kena and the consideration for purchase of the patent and the right to apply for
registration of the patent shall be paid by Sifang Information on behalf of TCH.
On February 10, 2006, these agreements were amended to impose an additional
condition on Mr. Zhang Naiyao, the transferor of the patent and holder of the
right to make the patent application, that if he fails to provide the necessary
technical assistance services to enable TCH to use the patented technology in
producing products on a large scale that meet the standards set by the Company
within one year, TCH shall have the right to demand the return of the relevant
payment received by him in full and to terminate the agreement for the
assignment of the patent and the right to apply for registration of the patent.
The amendments also set forth the arrangement for payment of the purchase price
between TCH and Sifang Information. The purchase price for both the equity
interests in Kena and the consideration for purchase of the patent and the right
to apply for registration of the patent shall be paid by Sifang Information on
behalf of TCH. According to the amended agreements, the amount of the purchase
consideration paid by Sifang Information on behalf of TCH will be applied to
offset the trade and other receivables owed to TCH by Sifang Information.

As Mr. Zhang Naiyao failed to meet the condition mentioned-above within the
period prescribed, the Company decided not to pursue the above-mentioned
acquisition of Kena. All the agreements in connection with the Kena acquisition
were terminated by TCH and Kena. Consequently, the Company reviewed the future
economic value of the deposit for the anticipated business acquisition of Kena
and determined that future undiscounted cash flows associated with this deposit
were uncertain and may not be sufficient to recover their carrying values and so
was fully written down as of December 31, 2006.

14. SEGMENT INFORMATION

The Company currently operates in four principal business segments: (i)
advertising service, (ii) sales of mobile phones, (iii) mobile phone services,
and (iv) beep pagers service. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (see
Note 3). The Company had no inter-segment sales for the years ended December 31,
2006 and 2005. The Company's reportable segments are strategic business units
that offer different products and services. The Company evaluates the
performance of its operating segments based on income from operations, before
income taxes, accounting changes, non-recurring items and interest income and
expense.

Page 17

Summarized financial information concerning the Company's reportable segments is
shown in the following table for the years ended December 31, 2006 and 2005:

Advertising Sales of Mobile Beep
service mobile phone pagers
2006 revenue phones service service Corporate Total
---- ------- ------ ------- ------- --------- -----

Revenue, net $ 334,844 $ 1,269,485 $ 736,742 $ 548,365 $ - $ 2,889,436
Cost of revenue 110,876 1,191,340 815,364 188,822 - 2,306,402
Gross profit (loss) 223,968 78,145 (78,622) 359,543 - 583,034
Depreciation - - 110,924 - 78,442 189,366
Interest expense - -- - - - -
Net income (loss) 224,746 (250,082) (385,372) 121,202 (3,173,865) (3,463,371)
Total assets - - - - 4,464,612 4,464,612
Expenditure for
long-lived assets $ - $ - $ - $ - $ - $ -

Advertising Sales of Mobile Beep
service mobile phone pagers
2005 revenue phones service service Corporate Total
---- ------- ------ ------- ------- --------- -----

Revenue, net $ 2,761,598 $16,383,356 $ 634,728 $ 639,340 $ - $ 20,419,022
Cost of revenue 141,554 16,024,959 410,898 270,726 - 16,848,137
Gross profit 2,620,044 358,397 223,830 368,614 - 3,570,885
Depreciation - - 191,773 - 47,943 239,716
Interest expense - - - - 9,093 9,093
Net income (loss) 1,940,596 154,136 47,843 162,207 (493,675) 1,811,107
Total assets - 913,957 139,055 - 13,923,849 14,976,861
Expenditure for
long-lived assets $ - $ - $ 71,542 $ - $ 353,983 $ 425,525

15. CHINA CONTRIBUTION PLAN

The PRC has been undergoing significant reforms with regard to its employee
welfare and fringe benefits administration. Any enterprise operating in the PRC
is subject to government-mandated employee welfare and retirement benefit
contributions. In accordance with PRC laws and regulations, TCH participates in
a multi-employer defined contribution plan pursuant to which TCH is required to
provide employees with certain retirement, medical and other fringe benefits.
PRC regulations require TCH to pay the local labor administration bureau a
monthly contribution at a stated contribution rate based on the monthly basic
compensation of qualified employees. The local labor administration bureau,
which manages various investment funds, will take care of employee retirement,
medical and other fringe benefits. TCH has no further commitments beyond its
monthly contribution. TCH contributed a total of $45,122 and $54,430 for the
years ended December 31, 2006 and 2005 respectively.

16. STATUTORY RESERVES

The Company's PRC subsidiary, TCH, is required to make appropriations to three
reserve funds, comprised of the statutory surplus fund, the staff bonus and
welfare fund, and the company expansion fund, based on after-tax net income
determined in accordance with generally accepted accounting principles of the
People's Republic of China (the "PRC GAAP"). Appropriation to the statutory
surplus fund should be at least 10% of the after tax net income determined in

Page 18

accordance with the PRC GAAP. Appropriations to the company expansion fund and
the staff bonus and welfare fund are made at the discretion of the Board of
Directors. The company expansion fund is established for the purpose of
providing employee facilities and other collective benefits to the employees and
is non-distributable other than in liquidation. Appropriation to the statutory
surplus fund is suspended when the accumulated balances of the fund reached 50%
of the registered capital of TCH.

For the years ended December 31, 2006 and 2005, TCH appropriated $20,200 and
$554,466 respectively, to the reserves based on its net income under PRC GAAP.

17. CONCENTRATION OF RISK

(a) Major Customers and Vendors

For the years ended December 31, 2006 and 2005, 100% of the Company's
assets were located in the PRC and 100% of the Company's revenues and
purchases were derived from customers and vendors located in the PRC.

For the years ended December 31, 2006 and 2005, customers and vendors who
account for 10% or more of revenues and purchases are presented as follows:

Customers Revenues Accounts receivable
---------
------------------------------------------------
2006 2005 2006 2005
---- ---- ---- ----

Customer A 25% 52% - -
Customer B 17% 3% - 27%
Customer C - 3% - -
Customer D - 12% - -
Customer E - 2% - 64%
-------- ------------- --------- ----------
42% 72% - 91%
======== ============= ========= ==========
Vendors Purchases Accounts payable
-------
----------------------------------------------

2006 2005 2006 2005
---- ---- ---- ----

Vendor A 23% 34% - -
Vendor B 14% 8% - 12%
Vendor C - 9% - 87%
Vendor D - 31% - -
-------- ------------- --------- ----------

37% 82% - 99%
======== ============= ========= ==========

(b) Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. The Company performs ongoing credit evaluations of its
customers' financial condition, but does not require collateral to support
such receivables.

Page 19

18. COMMITMENTS

As of December 31, 2005, the Company has entered into commitments for consulting
services amounting to a total of $450,000 to be rendered in 2005 and 2006. As of
December 31, 2005, the Company has paid $200,000 and, therefore, has outstanding
commitments of $250,000 for consulting services in 2006. Subsequently, the
consultancy services was cancelled and the Company made no payment during the
year ended December 31, 2006.

The Company did not have any commitment as of December 31, 2006.

19. SUBSEQUENT EVENTS

(a) On January 24, 2007, a group of individuals ("Purchasers") entered a share
purchase agreement with a group of shareholders of the Company to purchase
12,911,835 shares of the Company's common stocks with $0.001 par value for
an aggregate consideration of $490,000. Purchasers are Guohua Ku, Hanqiao
Zheng, Ping Sun, Qianping Huang, Xiaohong Zhang and Lixia Zhang. Among
them, Guohua Ku and Hanqiao Zheng acquired 9,073,700 shares and 2,406,365
shares respectively. As a result, they became the beneficial owners of the
majority voting shares of the Company and gained control of the Company.

(b) On March 8, 2007, the name of the Company was changed to "China Recycling
Energy Corporation" and engages in recycling energy business, providing
energy saving and recycling products and services.

(c) On April 8, 2007, the Company's Board of Directors approves and makes
effective a TRT Project Joint-Operation Agreement ("Joint-Operation
Agreement") which is conditionally entered on February 1, 2007 between
Shanghai TCH Data Technology Co., Ltd. ("TCH") and Xi'an Yingfeng Science
and Technology Co., Ltd.("Yingfeng"). Yingfeng is a Chinese company that is
located in Xi'an, Shaanxi Province, China, and is engaging in the business
of designing, selling, installing, and operating TRT systems and other
renewable energy products.

Under the Joint-Operation Agreement, TCH and Yingfeng will jointly pursue a
top gas recovery turbine project ("Project") which is to design, construct,
install and operate a TRT system in Xingtai Iron and Steel Company, Ltd.
("Xingtai"). This project was originally initiated by a Contract to Design
and Construct TRT System ("Project Contract") entered by Yingfeng and
Xingtai on September 26, 2006. TCH provides various forms of investments
and properties into the Project including cash, hardware, software,
equipments, major components and devices. In return, TCH becomes entitled
to all the rights, titles, benefits and interests that Yingfeng originally
had under the Project Contract, including but not limited to the cash
payment made by Xingtai on regular basis and other property rights and
interests.

Yingfeng remains liable for providing all the manpower, expertise and
skills to design, construct, install, maintain and operate the TRT system
under the terms of the Project Contract and also takes responsibility to
manage the properties that TCH possesses in this Project. As for
consideration, TCH will make monthly payment of RMB30,000 (approximately

Page 20

$3,900) to Yingfeng as compensation for their effort in managing TCH's
properties.

Prior to the approval by the Board of the Company, TCH and Yingfeng have
taken several preliminary actions in first quarter of 2007 in preparation
for the full pursuit of the Project, including selecting and purchasing
necessary components and software for TRT system, organizing and training
the technician team for the Project and developing the construction and
installation plan for the TRT system.

Page 21