U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended _____________

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

        For the transition period from March 1, 2004 to December 31, 2004

                        Commission File Number: 333-61286


                               CITY NETWORK, INC.
        (Exact name of small business issuer as specified in its charter)

          Nevada                                                 88-0467944
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                    6F-3, No. 16, Jian Ba Road, Jhonghe City
                       Taipei County 235, Taiwan, ROC N/A
               (Address of principal executive offices) (Zip Code)

                 Issuer's Telephone Number: 011-886-2-8226-5566

              Securities Registered Under Section 12(b) of the Act:

                               $0.001 Common Stock
                                (Title of Class)

              Securities Registered Under Section 12(g) of the Act:

                                      None

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or  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 disclosure of delinquent  filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained,  to the best of registrant's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in Part II of this Form 10-K or any amendments to this Form 10-K. [X]

The issuer's revenues for the ten months ended December 31, 2004:  $15,674,613.

As of April 14, 2005, there were 27,500,000  shares of the  registrant's  common
stock, $0.001 par value,  outstanding.  The aggregate market value of the common
stock held by non-affiliates of the issuer was approximately $7,038,860 based on
the  closing  price of $.31 per  share on April 14,  2005,  as  reported  by the
American Stock Exchange.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format (Check one): Yes [X]; No [ ]
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I ....................................................................... 2
   Item 1.  Description of Business........................................... 2
   Item 2.  Description of Property...........................................18
   Item 3.  Legal Proceedings.................................................18
   Item 4.  Submission of Matters to a Vote of Security Holders...............19


PART II    20
   Item 5.  Market for Common Equity and Related Stockholder Matter Market
            Information and Market Price......................................20
   Item 6.  Management's Discussion and Analysis or Plan of Operation.........21
   Item 7.  Financial Statements..............................................24
   Item 8.  Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..........................................24
   Item 8A  Controls and Procedures...........................................24


PART III   24
   Item 9.  Directors, Executive Officers, Promoters and Control Persons,
            Compliance with Section 16(A) of the Exchange Act.................24
   Item 10. Executive Compensation............................................28
   Item 11. Security Ownership of Certain Beneficial Owners and Management....29
   Item 12. Certain Relationships and Related Transactions....................30
   Item 13. Exhibits and Reports on Form 8-K..................................30
   Item 14. Principal Accountant and Fees.....................................31

                                       1
<PAGE>
                     FACTORS THAT MAY AFFECT FUTURE RESULTS

     Certain   statements   in  this   annual   report   on  Form   10-KSB   are
"forward-looking  statements." These forward-looking statements include, but are
not  limited  to,  statements  about the  plans,  objectives,  expectations  and
intentions of City Network,  Inc., a Nevada  corporation,  and other  statements
contained in this annual report that are not historical  facts.  Forward-looking
statements  in this  annual  report  or  hereafter  included  in other  publicly
available  documents  filed with the  Securities  and Exchange  Commission  (the
"SEC"),  reports to our  stockholders  and other publicly  available  statements
issued or released  by us involve  known and unknown  risks,  uncertainties  and
other factors which could cause our actual  results,  performance  (financial or
operating)  or  achievements  to differ  from the  future  results,  performance
(financial  or  operating)  or   achievements   expressed  or  implied  by  such
forward-looking statements. Such future results are based upon management's best
estimates  based  upon  current  conditions  and  the  most  recent  results  of
operations.  When used in this annual report, the words "expect,"  "anticipate,"
"intend,"  "plan,"  "believe,"  "seek,"  "estimate" and similar  expressions are
generally  intended  to  identify  forward-looking  statements,   because  these
forward-looking statements involve risks and uncertainties.  There are important
factors  that  could  cause  actual  results  to differ  materially  from  those
expressed or implied by these forward-looking  statements,  including our plans,
objectives,  expectations and intentions and other factors discussed under "Risk
Factors."

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

                                   OUR COMPANY

     City Network,  Inc. ("City  Network," "we," "our" or "us") was incorporated
in 1996 and develops  hardware  and  software  (total  solution)  for  broadband
communication   solutions.  We  provide  Internet  broadband  communication  and
wireless  infrastructure  equipment  and  services  for  the  rapidly  expanding
broadband  marketplace.  We are dedicated to delivering the most  user-friendly,
cost-effective,   and  customer-tailored,   high-speed  Internet  broadband  and
communication  access  equipment  to meet  the  growing  business  needs  of the
International  Telecoms,  ISP,  SI  and  to a  lesser  degree  the  hospitality,
residential   property,   telecommunication  and  Small  and  Medium  Enterprise
marketplace  to solve the "last mile"  problems  worldwide.  We also created the
Hotspot solution,  NGL (Next Generation  Loops) solution,  which helps companies
extend their business to the carrier's  solution to meet people's  communication
inquires.

OUR HISTORY

     Our company was incorporated on August 8, 1996 as Investment  Agents,  Inc.
under the laws of the State of Nevada. City Network  Technology,  Inc. (formerly
Gelcrest  Investments  Limited,  "CNT") was  incorporated  under the laws of the
British  Virgin  Islands on March 1, 2002.  On November 14,  2002,  CNT became a
wholly owned  subsidiary  of our company  through an Exchange  Agreement,  dated
November 14, 2002 and amended on December 11, 2002, whereby our company acquired
all of the  issued  and  outstanding  capital  stock  of  CNT  in  exchange  for
12,000,000  shares of common stock of our company,  which represented 49% of our
issued and  outstanding  stock at that time. In connection with the exchange and
change in control,  the name of our company was changed from Investment  Agents,
Inc. to City Network,  Inc., the officers and directors of City Network resigned
and new officers and directors  were  appointed.  Upon the effective date of the
exchange and change in control,  our company  ceased its  relationship  with the
company for whom we previously  acted as referral agent,  which was our business
prior the exchange and change in control.

     CNT owns all of the issued and  outstanding  common  stock of City  Network
Inc. - Taiwan, formerly City Engineering, Inc., which was incorporated under the
laws of the Republic of China on September  6, 1994  ("CNT-Taiwan").  CNT-Taiwan
owns  all of the  issued  and  outstanding  common  stock  of  company  of  City
Construction,  which was  incorporated  under the laws of  Republic  of China on
October 10, 2003.

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<PAGE>
OUR BUSINESS

     With the  continuous  expansion  of the  Internet  worldwide,  we intend to
capitalize on what we believe to be vast  underdeveloped  and overlooked new and
emerging  growth  Internet  markets.  Together with a combination  of technical,
sales, design and manufacturing experience, we believe that we are poised to tap
the potential of new clients throughout the globe. Our customers have the choice
to source what we believe to be one of the most convenient, low-cost and diverse
product  packages  combined  with  the  best  personal  service  to  make  up  a
comprehensive business solution.

     We  design,  manufacture  and  market  a  comprehensive  line of  broadband
communication and wireless  Internet access  solutions.  Our product line ranges
from our device for the blooming worldwide  residential building and hospitality
market to the simple DSL  bridge/modem for the home and small business user. All
of our broadband  access  equipment  includes  GUI-based  remote  management and
routing  technology  software packages for simplified  setup,  extensive network
management and global network connectivity capabilities. Currently, our Home PNA
and xDSL  broadband  access  equipment  is deployed  by major  telecommunication
carriers,  ISPs, and system  integrators  worldwide.  With the  development  and
production of our complete series of Internet products, we are able to provide a
"total  solution" for any customers needs. Our motto is "Establish the Broadband
Highway, Innovate A Bright New Life."

     In November 2004 we obtained a new project with Chunghwa  Telecom Co., Ltd,
Taiwan's  largest  telecommunications  company  listed  as  American  Depository
Receipts on the New York Stock  Exchange.  We obtained this  important  business
contract  via an open bid  process  among  competition  from  several  very well
established  and  highly  qualified  local  market  competitors.   The  contract
represents  the  largest of a series of orders we have  obtained  from the local
telecom giant.  The total value of this current contract is nearly $1.0 million.
In the  contract,  the service is provided  with  shipping our ADSL  solution to
China Telecom & China Netcom Corp, and we received approval from the Malaysia TM
NET for  shipment  of total  value at $4.5  million,  which we  believe  will be
shipped in the second  quarter of 2005.  Also our new ADSL 2+ router  passed the
Korea  Telecom  BMT  testing  and we  believe  it will be  shipped in the second
quarter of 2005.

     From 2003 our research and development center has focused on developing the
games content and mobile platform  software  designs in connection with Internet
broadband  communication ISPs. We intend to expand our business in the future to
include providing software as well as hardware.

PRODUCT AREAS

     Our  product   repertoire   contains  items   compatible   with  all  major
distribution platforms. We believe that our product packages and selections give
clients a one-stop shop for all their broadband Internet needs.

VOIP

     In September 2004 we launched a wireless voice over Internet  protocol,  or
VoIP,  product.  There are two models available for the market. One provides one
VoIP and one public  switched  telephone  network,  or PSTN port,  and the other
model provides two VoIP and two PSTN ports.  Both of them have two DECT (digital
enhanced cordless telecommunications) Base Stations, and can be registered up to
sixteen DECT phones set.  User could choose H.323 or SIP mode,  which is easy to
add on to the environment where co-existence with old VoIP equipments is needed.

     Despite  building up a  value-added  network  environment,  we aligned with
Easy-Up Corporation,  who created the Hotspot service in Taiwan with our company
from 2002 and is one of Taiwan's largest IP phone service  provider,  to provide
low cost VoIP service to end users.  By connecting to the partner's  network,  a
user is  able  to  save on its  phone  bill  on GSM  cellular  phone  calls  and
international calls to China, the United States,  Canada and Asia, by up to 50%.
Our VoIP products were tested at both the VoIP service  provider's  site, and we
believe  we are in a  position  to sell the IP phone ISP total  solution  to the
Malaysia, Indonesia and Philippines markets.

                                       3
<PAGE>
ADSL/VDSL ACCESS DEVICES

     Our ADSL/VDSL  devices provide  broadband  access based on leading Internet
technologies.  The ADSL 2+ and 20Mbps VDSL over Ethernet  equipment  allows both
developing   businesses   as  well  as  home  users  to  meet  their  media  and
communication needs quickly and in a cost-effective  manner. It can also provide
high speed Internet  without  influencing  quality over a larger  distance for a
cost-effective and efficient method of broadband access. We believe that the low
level of maintenance  required and high level of connectivity  should be able to
meet market demand for many years into the future.

HPNA ACCESS DEVICES

     HPNA is a broadband  network access system based on the HomePNA  technology
originally  invented in the United  States.  This  system can provide  1M/10Mbps
broadband data access through existing  telephone lines.  This technology allows
both voice and data to be shared by the same telephone  line.  Furthermore,  our
HPNA technology  extends  Internet  transmission  distance,  allows for multiple
single-line users (up to 25), and is compatible with cable, fiber,  wireless and
xDSL.  Combined  with  our  ADSL and VDSL  access  devices,  HomePNA  is a great
solution  to  "the  last  mile   problem."  We  believe  that  the  quality  and
affordability makes the product ideal for residences,  schools,  cafes and hotel
resorts.

WIRELESS COMMUNICATION PRODUCTS

     Our  wireless   networking  products  allow  computers  and  appliances  to
communicate  through radio signals,  providing  added mobility and  convenience.
With the development of our IEEE802.11 and IEEE802.lx wireless  solutions,  both
individual and corporate  clients can enjoy work  environments free of cords and
wires.  Furthermore,  customers  can enjoy the stability and security of our LAN
products.  All wireless solutions are equipped with a user verification function
to maximize security and reduce outside interference.

     We were one of the first companies in Taiwan to develop  wireless  products
with IEEE902.1x in May 2002. Together with Easy-Up Corporation,  one of Taiwan's
leading  wireless  ISP  companies,  we have  provided  solutions  to Korea  Life
Insurance in connection  with their 1600  Enterprise  Hotspot  Project.  Easy-Up
Corporation  established  Taiwan  McDonald's 365 stores Hotspot solution and the
Mobile Taiwan project.  We also extended our Wireless Hotspot solution  business
with China Putian.  Also,  as a result of our  relationship  with  International
Telecoms,  we expanded  our  business to mobile  handsets,  including  GSM/GPRS,
CEDMA/CDMA  2000 1x mobile  handsets.  We also cooperated with Korean and Taiwan
partners  to develop  and  expand  our  business  into  Africa  and other  Asian
countries.

     In June 2004,  we received a purchase  order of 10,000  units of ODM mobile
phones  from South  Africa.  More than half of the order came from Edcon  Group,
which owns over 660 stores  throughout  South Africa and is also a stock listing
company in the Johannesburg Stock Exchange. The remainder of the order came from
MTN, which is the second-largest cellular network operator in South Africa.

FIBER AND OTHER IMPORTANT ACCESS EQUIPMENT

     FTTB (Fiber to the  Building)  and FTTH (Fiber to the Home),  optical fiber
installed directly into a home or enterprise, was a new growth market for us. To
meet our customer's needs we began  outsourcing the Fiber solutions in 2003, and
have created our own Fiber  products  since 2004. We have already  shipped these
solutions to customers in Korea, Malaysia and Indonesia.

     With our access  equipment,  bandwidth can be  distributed  efficiently  to
multiple end users.  For  developing  countries  such as China,  our solution of
integrating  wireless with existing  telephone lines or cable is often much more
attractive  than building new  infrastructure.  From routers and hubs, to PCMCIA
cards and USB  adapters,  we provide  customers  with a wide range of networking
products to meet all customer needs.

                                       4
<PAGE>
GPS MODULE

     The Global  Positioning  System, or GPS, solution is another new market for
us. We began outsourcing our GPS solution in 2003 and have shipped this solution
to Korea.  From 2004 we  cooperated  with  JuYoung  Electronics  Co. in Korea to
design the GPS total mobile data terminal  solution.  To accompany the growth in
perceived GPS demand,  we have  aggressively  concentrated  on the marketing and
distribution of electronic appliances related to this trend. We intend to target
markets in China, Japan and other Asian countries.

     In the  summer of 2004,  we  received  an  official  purchase  order of GPS
modules,  amounting to around 50,000 units, from JuYoung Electronics, a customer
who had previously placed the order in March 2004. In December 2004, we shipped,
for a separate order, 65,000 advanced, high performance GPS modules and wireless
blue tooth receiver units to JuYoung Electronics. The ongoing development of the
cooperative  venture between our company and JuYoung  Electronics  over the past
two years has primarily  involved a host of GPS products and  accessories  which
are  subsequently  marketed  and sold to  numerous  large  manufacturers  and IT
companies across Korea.

CORPORATE PROFILE

     We  believe  that we deliver a very  comprehensive  solution  for  Taiwan's
broadband market for broadband  qualification,  installation and support.  It is
our  goal to  simplify  how  people  access  the  Internet  through  easy-to-use
broadband  connectivity  products  and  solutions.  Our  product  offerings  and
development  efforts are focused on increasing  the speed and  efficiency of the
"last  mile"  portion  of  communications  networks.  Through a  combination  of
fixed-wire  and  wireless  products,  our network  equipment  connects  Internet
service providers to their end users.

     We are growing  fast and are one of the leading  technology  developers  of
broadband and wireless  networking  products in Taiwan.  We have gained industry
recognition for developing high  performance  broadband access  solutions.  City
Network's range of products provide a complete solution for providing high speed
broadband Internet access in homes,  airports,  convention  centers,  hotels and
other public  establishments.  Simplicity  of use,  ease of  implementation  and
cost-effectiveness are the cornerstones of our solution. We are quickly evolving
into a global  company  with rapid  expansion  of our  distribution  network and
marketing offices in North and South America,  Europe, Japan and the entire Asia
Pacific region.

PRODUCTS

     We believe that the core technology of current  communications  networks is
enhancing  the speed,  bandwidth and quality of  Internet/data,  video and voice
transmissions.  Our fiber, copper, and wireless connectivity components serve as
the critical junction and connection points that link one network to another. We
believe  that we have both the agility and depth to deliver  tailored  and exact
solutions to meet  customers'  needs.  We offer products for several  technology
platforms.  We believe we have the capability of delivering high speed broadband
access to the end user whether they are at home, in the office or on the road.

CABLE/OPTICAL NETWORKING PRODUCTS

     *    Our cable and optical products multiply bandwidth among all users over
          tree-based topology coax or optical cables.
     *    We are able to  custom  design  this  product  to meet  large  systems
          integrators and telecommunications companies' needs.
     *    Our  products  are  designed  to  be  easily  set-up,  integrated  and
          maintained  to meet the needs of  multi-dwelling  unit  buildings  and
          large office complexes.

                                       5
<PAGE>
XDSL PRODUCTS

     *    xDSL is an  alternate  and lower  cost  technology  to  connect to the
          Internet.   xDSL  is   substantially   cheaper  than  other  broadband
          solutions,  especially with the ADSL solution is becoming more popular
          throughout the world.
     *    xDSL does not require a high-level  technical support  structure.  Per
          port ADSL can often cost under $50 to install and implement, making it
          most  suitable  to home  users,  and the VDSL (at 13-54 Mbs) can often
          cost under $100 to install and  implement,  making it most suitable to
          small businesses and telecommuters who cannot afford a T1 line.
     *    Our xDSL  standard  can  achieve  13-54 Mbps and higher  rates of data
          transfer.  We are able to provide the QAM or DMT solution with what we
          believe is high quality at low cost.
     *    Our ADSL  solution has  received  certification  by China  Telecom and
          China Network Communication Corp., Korea Telecom, Malaysia Telecom and
          Turkey Telecom.

HOME PHONE LINE WIRING (HPNA)

     *    Our HPNA products allow for networking a home using the existing phone
          wiring.
     *    Our HPNA 2.0 standard can achieve  10-16Mbps  and higher rates of data
          transfer.
     *    HPNA  technology  allows  up  to  twenty-five   computers  to  connect
          simultaneously using the same Internet source.
     *    Compatible with POTS telephony and ADSL signaling on the same wire.

WIRELESS

     *    Wireless  broadband  eliminates  the need for phone lines,  cables and
          electrical outlets.
     *    Supports bandwidth-intensive  applications such as graphic rich media,
          animation,  Internet  phone  calls  and  video  conferencing  (without
          breaking up),  sending and receiving of large email messages or files,
          online banking,  investing or online  shopping.  Our total solution of
          wireless  access devices allow users to access their LAN or VPN, as if
          the remote office was connected  directly to our backbone network.  It
          also lets business  customers  raise the level of worker  productivity
          and allow companies to offer highly efficient work-at-home programs to
          their employees.
     *    Using  authentication  and  verification  technology,  we are  able to
          ensure the security of a wireless network.

     *    Our Public Hotspot Wireless Solution (PWLAN) has what we believe to be
          a good  security  function.  We have  already  established  successful
          projects in Korea and Taiwan.
     *    Our  wireless  products  are not only  for  indoor  use,  but also for
          outdoor use, to establish Hot-Zone services, a technology for wireless
          Internet  access.  They  feature  special  functions  needed  for such
          products,  such as security  protections,  load  balance for  avoiding
          network  bottlenecks  and repeat  functions  for transmit data without
          missing parts.

GPS

     *    We have  GPS  Modules  come  in two  types.  GPS  9543  has  potential
          applications in car navigation,  marine navigation,  fleet management,
          automatic  vehicle location (AVL) and other  location-based  services,

                                       6
<PAGE>
          auto pilot systems,  personal navigation or touring devices,  tracking
          devices and mapping  devices.  GPS 9547 has possible  applications  in
          PDA, pocket PC and other  computing  devices,  car navigation,  marine
          navigation,  fleet management,  AVL and other location-based services,
          and hand-held devices for personal positioning and navigation.
     *    We have end user accessories for GPS products, including compact flash
          cards,  smart  antennae,  and Bluetooth  accessories for PDA, cars and
          notebooks.  Our GPS 9532 smart antenna & 9534 compact flash cards have
          potential  applications in car navigation,  marine  navigation,  fleet
          management,   AVL  and  other  location-based  services,  auto  pilot,
          personal  navigation or touring  devices,  tracking  devices,  mapping
          devices and land  management  systems.  Bluetooth GPS  receivers  have
          potential  applications in vehicle  tracking and other  location-based
          services,  personal/portable  navigation,  car  navigation  and marine
          navigation.
     *    We are also a system  provider,  including for telematics that combine
          wireless  telecommunication and information  technology networks,  and
          for mobile data terminals.

VOIP

     *    For the IP  phone  service  provider,  our IP phone  carrier  solution
          already meets the standard H.323 & Sip modes.
     *    For the enterprise our VoIP can choice the H.323 or Sip mode, and also
          provide PSTN ports. Those VoIP products have digital enhanced cordless
          telecommunications, or DECT, base stations.
     *    For customer premises equipment,  our products include a USB IP phone,
          a wireless fidelity IP phone, and an Integrated Access Device (IAD).

RECENT DEVELOPMENTS

     Our subsidiary,  City  Construction,  has been planning a new  construction
project  in  Keelong  City,  Taiwan  since the end of 2004.  We  entered  into a
contract in the first  quarter of 2005 for  construction  of a 581 square  meter
residential  building and expect work to begin in the second quarter of 2005 for
a period of one to two years.  Upon completion,  we will split the building with
the property owner,  who will take 40% of the building.  We anticipate that this
project will generate sales of $3 to $4 million once completed.  This project is
subject to risks involving the cost of construction materials over the course of
its construction  and our ability to sell this project to customers,  as well as
changes in the political and overall  economic  conditions of Taiwan,  which are
outside the control of management.  We cannot assure you that adverse changes in
these  factors  will not  occur  or,  if they  occur,  that they will not have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition.

MARKET OVERVIEW

     Information is proliferating worldwide, and demand for that information, by
businesses,  governments,  universities  and  individuals  is exploding,  driven
primarily by the exponential increase in use of the Internet for communications,
information gathering and electronic commerce.

     As business becomes more complex and geographically diverse, the demand for
information,  delivered to the  "transaction  point," wherever in the world that
point might be, has fueled the increase in networks  and  computer  connectivity
systems.  These trends have created an  ever-increasing  demand for bandwidth to
accommodate both Internet and network traffic.  However,  we do not believe that
the growth and technological advancement of the hardware backbone for networking
and computer  connectivity  has kept pace with that demand.  We believe that the
worldwide struggle to bring networking and computer  connectivity hardware up to
the level of demand  represents  a business  opportunity  for us. Our  strategic
objective is to become a leading designer and manufacturer in the networking and
computer connectivity equipment industry.

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<PAGE>
BUSINESS STRATEGY

     The networking and computer connectivity industry is characterized by rapid
technological  change.  To maintain  and enhance our  competitive  position,  we
constantly adapt to technological changes by upgrading and expanding our product
line, and eliminating obsolete products within that line.

     We believe that the networking and computer  connectivity  industry is also
characterized  by inevitable price erosion across the life cycle of products and
technologies.  To maintain  profitability  in the face of  constantly  shrinking
gross  margins,  our  strategy  is  to  seek  out  low  cost  producers  without
sacrificing  quality and to develop and maintain efficient  internal  operations
which would allow us to control our expenses.

     We are  constantly  expanding  and changing  product  lines to increase the
total number of products  offered to attract new  customers,  to  penetrate  new
geographic and vertical  markets and to increase  gross sales.  By expanding our
product line to include  products for different  technologies,  frequencies  and
connection  configuration,  we have been able to expand sales  activities into a
number of new markets.

     Eight years ago CNT-Taiwan developed and expanded the Home PNA business. In
order to establish good business relationships with telecommunication  companies
we prepared a variety of solutions for them,  including  project  proposals.  We
believe that because of our  willingness to assist these  companies in the past,
we will be  successful  in  expanding  our  business  relationships  with  these
companies.

INDUSTRY GROWTH DRIVERS

GROWING NEED FOR ADDITIONAL BANDWIDTH

     We believe that the computer  networking  industry is  witnessing a growing
demand for  additional  bandwidth as a result of the  popularity of the Internet
and global need for rapid, current information.  We believe that many people who
use the Internet cannot access  information/download pages quickly because their
ISP's  hardware is  out-dated or  low-quality  and  therefore  unable to process
hundreds of thousands of requests  simultaneously.  This is a particularly acute
problem during peak hours and in markets with little infrastructure.  Therefore,
we are is focused on improving the quality of Internet  connectivity  in systems
worldwide.

IN-HOME NETWORKING SYSTEMS

     We  believe  that an  emerging  market  opportunity  exists  in  connecting
household  appliances and computers in homes. With our HPNA networking products,
we believe  numerous  applications  can be  developed  to  program,  control and
interact with home  heating,  lighting,  security,  and  appliances.  We believe
advances such as these will spur growth and encourage  innovation  worldwide and
we believe that we are in a position to help make these technologies accessible.

PROLIFERATION OF HANDHELD/COMMUNICATION DEVICES

     We believe  that the  cornerstone  on which the new economy is built is the
timely  delivery and access to information at any location.  We believe that the
growth  and  productivity  of  today's  business  economy  is  reliant  upon the
accuracy,  efficiency  and  accessibility  to data and  communication.  With the
growth  in  popularity  of   handheld/communication   devices  and  their  great
functional  complexity,  consumers  will be  able  to  access  a wide  array  of
multimedia content wherever they may be located.  We believe that in the future,
mobile phones and PDA's will enjoy unhindered access to rich multimedia  content
via  the  Internet  and it is our  intention  to  play a role  in  this  type of
transaction.

EXPANSION OF PC'S INTO DEVELOPING COUNTRIES

     As PC's become  ubiquitous  throughout the world's emerging  economies,  we
believe  the  number  of high  capacity  PC's with  added  features  and  better
voice/image quality will increase  exponentially.  We believe that the spread of

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the information  economy will continue to drive and enable developing  countries
to utilize Internet technology.

GROWTH OF THE INTERNET

     The  growth of the  Internet  has  forced  many  telecommunication  service
providers to replace  their voice  networks with more  efficient,  data-oriented
packet networks. We believe that the increased demand for services and data over
the Internet  will require  companies to upgrade  their  infrastructure  to meet
demand.  We are partnering  with local  telecommunications  companies to develop
new, cost effective and complete  solutions for broadband Internet access in new
markets.

GROWTH/EXPANSION STRATEGY

     It is our  strategic  objective  to  become a leader  in the  computer  and
network  connectivity  equipment  market,  and to make our name  synonymous with
excellence and state-of-the-art hardware in this segment.

PROVIDING INTEGRATED SOLUTIONS

     We provide voice,  data and Internet  solutions  which are capable of being
integrated into one seamless IP-based communications network. We believe that an
integrated  solution  will cost  effectively  connect  an  unlimited  variety of
applications  and  services,  enabling  broader  choice of devices for  customer
services provided over a common platform.

EXPLORE ADDITIONAL REVENUE GENERATING SERVICES

     We believe that unlocking  content (voice,  data,  video,  text,  commerce,
etc.) so it can flow unfettered  among  applications  will have the potential to
provide a future revenue source. We believe that the creation of content and the
precision delivery to targeted clients and markets will also become increasingly
important. Some examples include news, online shopping,  gaming, video, security
and other relevant content.

BUILDING INTERNATIONAL PRESENCE

     We  believe  that  the  low  penetration  rate  of  broadband  Internet  in
developing  countries has created an enormous opportunity for us. The demand for
Internet  throughout  the world  creates  opportunity  in  otherwise  unexpected
venues.  Particularly in new and emerging growth markets,  we intend to continue
partnering with individuals, companies and governments in these areas as part of
our growth strategy.

PARTNERING, ACQUIRING AND COOPERATING WITH THIRD PARTIES

     We believe  that our success has been  largely due to the fact that we have
established  long  term  relationships  with  system  integrators,   electronics
manufacturers and  telecommunication  companies.  Joint ventures and cooperative
efforts have been the hallmark of our development into new areas. In the future,
we intend to continue expanding through mergers and other cooperative synergies.
We believe that the blending of manufacturing expertise,  market savvy and local
know-how will contribute to our growth in the future.

CUSTOMERS

     We develop  market and focus our sales  efforts to  broadband  and wireless
Internet  services  providers that provide wireless  solutions such as Phoneline
solution,   HomePNA,  xDSL,  Ethernet  solution,  fiber  solution  and  wireless
solutions.  We also focus our sales efforts on the service  provider and systems
integrator  for WLAN  systems and to system  integrators  for private  broadband
systems.

     We  also  focus  our  sales  efforts  in  service   providers  and  systems
integrators  for WLAN  systems  and  private  broadband  systems.  We have  also
expanded our sales efforts to the mobile  handset  market and the 3G market.  We
believe that we provide the best service to our existing  customers and partners

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such as Korea Telecom,  China Telecom,  Malaysia  Telecom,  and those located in
Finland,  Japan, Asia and Africa. We do our best to expand our business with our
existing customers and to develop new partners and customers through the quality
of our product solutions and service and cost.

SERVICE PROVIDERS

     Over 120 independent  operating  companies in over 24 countries now use our
products to deliver  Internet  service over  HomePNA,  xDSL and other  broadband
networks.  Our  customers  include a  cross-section  of small,  medium and large
telecommunications  companies in the United States,  Asia, Europe and Africa. We
have established  business  relationships  with companies such as Korea Telecom,
OCC  Communications  in Japan and nSTREAMS in the United  States as well as with
other companies in Mainland China, Finland,  Malaysia,  Singapore, South Africa,
Indonesia and the Philippines,  of which Singapore uses our HomePNA solution and
launched HomePNA Internet services on its network.  Korea Life Insurance ("KLI")
has contracted with us to establish over 1,600 branches of WLAN Internet service
for KLI in Korea.  In addition,  we were also  appointed by McDonald's to set up
WLAN services in approximately 360 McDonald's stores in Taiwan.

SYSTEM INTEGRATORS

     We market our private  broadband data systems to domestic and international
system  integrators  who in turn market and sell our products to educational and
government institutions,  small to large commercial enterprises, and to regional
competitive  service  providers and national  carriers.  Our system  integrators
range  from  small  local  companies  to  volume  distributors  such as  Easy-Up
Corporation,  to country-specific  integrators such as Terton  Communications in
Finland,  and to  international  integrators  such as KWON C&C Ltd. in Korea and
China Telecom in China.

MARKETING, SALES AND CUSTOMER SUPPORT

MARKETING

     We seek to  increase  demand  for  our  products  and to  expand  both  the
visibility  of our  company  and our  products  in the  market.  In  addition to
customer-specific  sales efforts, our marketing activities include attendance at
major industry tradeshows and conferences, the distribution of sales and product
literature, operation of a web site, direct marketing and ongoing communications
with our customers,  the press, and industry analysts. As appropriate,  we enter
into cooperative marketing and/or development agreements with strategic partners
that may include  key  customers,  application  manufacturers,  fiber,  or video
equipment manufacturers, set-top box manufacturers, and others.

SALES

     We sell our products through  multiple sales channels in overseas  markets,
including a select group of regional value added resellers,  system  integrators
and distributors,  data networking  catalogs and directly to service  providers.
Internationally,  we sell and market our products through sales agents,  systems
integrators and distributors.  In 1999, we opened a sales office in Shanghai and
partnered  with  Shanghai  Telecom to establish  their  HomePNA + xDSL  Internet
service project. We now have a sales presence in China. For the ten months ended
December 31, 2004, we derived  approximately  90% of our revenue from  customers
outside  of the  United  States.  We  believe  that  our  products  can  serve a
substantial  market for digital and high-speed data access  products  outside of
the United States.

CUSTOMER SUPPORT

     We believe that consistent high-quality service and support is a key factor
in attracting  and  retaining  customers.  Service and technical  support of our
products  is  coordinated  by our  customer  support  organization.  Our Systems
Application Engineers,  located in each of our sales regions,  support pre-sales
and post-sales  activities.  Customers can also access technical information and
receive  technical support via our web site. We train our sales support to solve
the problem at the customer's first call.

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RESEARCH AND DEVELOPMENT

     Our research and development  efforts are focused on enhancing our existing
products and developing new products  through our emphasis on early stage system
engineering.  The  product  development  process  begins  with  a  comprehensive
functional  product  specification  based on input from the sales and  marketing
organizations. We incorporate feedback from end users and distribution channels,
and  through  participation  in  industry  events,  industry  organizations  and
standards  development bodies, such as the FS-VDSL Committee and MPEG-4 Industry
Forum.  Key elements of our research and development  strategy  include:

     *    CORE  DESIGNS.  We seek to develop  and/or  acquire  core designs that
          allow for  cost-effective  deployment and flexible  upgrades that meet
          the needs of multiple  markets and  applications.  These designs place
          emphasis  on  the  following  characteristics  of our  products:  user
          friendly,  high performance,  robustness,  standardization,  and value
          adding.
     *    PRODUCT LINE EXTENSIONS.  We seek to extend our existing product lines
          through  product  modifications  and updating  chipsets to provide for
          greater  bandwidth in order to meet the needs of particular  customers
          and  markets.  Products  resulting  from our  product  line  extension
          efforts  include  the  Phoneline  solution,  HomeHPNA,  xDSL and Fiber
          solution.  We also focus on updating the Wireless  solution to the new
          generation    including    WIRELESS    IEEE802.11G,     a    worldwide
          specification/standard.
     *    MINIMIZE COST OF GOODS.  Our design  philosophy  emphasizes the use of
          industry standard hardware and software  components  whenever possible
          to reduce  time to market,  decrease  the cost of goods and reduce the
          risks  inherent in new design.  In order to maintain  low costs of our
          services,  we  established a Components  Sales  Department  whose main
          goals are to process our current  customer's  business and to seek out
          secondary  sources of  components  and spare product parts in order to
          continually lower the cost of manufacturing and assembly.
     *    NEW   TECHNOLOGIES.   We  seek  to  enhance  our   product   lines  by
          incorporating  emerging  technologies,  such as  IEEE802.1x  Security,
          higher speed interfaces and new network management  software features.
          Our wireless solution with IEEE802.1x Security was the first ever such
          solution  used in the  wireless  channel in Taiwan.  We are now in the
          process of developing the 54M , 4-Band VDSL systems.
     *    EXTEND  PRODUCT LINE BY PARTNERING  WITH OTHER  COMPANIES.  Due to the
          expanding  mobile phone market,  we extended our product line in 2003.
          First, we are cooperating with Korea Startel to develop a new model of
          the GPRS mobile phone.  The planned release date is in 2003 where mass
          production will likely begin in June 2003. Furthermore,  we have plans
          to develop the CDMA  2001.1x GSM public  phone to meet the high demand
          of such phone in the  Mainland  China  market.  In  addition,  we have
          extended our product line by cooperating  with our main Korean partner
          K-WON, a company which recently  developed a Bluetooth Headset and has
          granted  us  distribution  and sales  rights to this  product  for any
          country outside of Korea.
     *    EXTEND  PRODUCT LINE BY PARTNERING  WITH OTHER  COMPANIES.  Due to the
          expanding mobile phone market,  we extended our mobile product line in
          2003.  First,  we cooperated with Korea Startel to develop a new model
          of the GPRS  mobile  phone,  and began mass  production  in June 2003.
          Furthermore,  we have plans to develop the CDMA  2001.1x in 2004,  and
          have already had it approved with China Unicom.  For the increasing 3G
          market,  CDMA  2000.1x  public  phones meets the high demands for such
          phones in mainland  China and the US markets.  We have  developed  the
          CDMA  2000.1x  Internet  PCMCIA  card and USB  adapter  and have begun
          selling them in 2004.

     We have plans to join forces with a local Taiwanese university in an effort
to encourage  rapid product growth and to facilitate the continuous  training of
future  technical  personnel.  We have formally  established an educational  and
development  center at Tamkang  University in Taiwan, the primary focus of which
is on the technology and information industry. We believe that the establishment
of  this  type  of  partnership  will  have a  profound  effect  on our  product
competitiveness  and marketing ability in the long term. In 2004 our educational

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<PAGE>
and  development  center at Tamkang  University in Taiwan  developed  mobile and
online  games,  and entered  into an  agreement  with Chung Hwa Telecom on their
online games ASP (Active Server Pages, a program code for online games).

      In  fiscal  year  2002,  we  spent  approximately  $1,000,000  to buy  the
exclusive  rights to A Best Home PNA Technology,  which allowed us to expand our
broadband  business  quickly,  including into the Korean market.  In 2004 we had
over $3 million in revenues from Korea. We also had the opportunity to cooperate
with China Putian to establish a joint venture  company,  Beijing  Putian Hexin,
which was named one of the top ten ADSL best  vendors  of China  Telecom in 2003
and one of the top five ADSL best venders in 2004,  named by Beijing CCID, Media
Investments Co. (China Netcom Group).

     We are  responsible  for providing  funding for expenses such as salary and
stipends  for  the  center's  staff,  as  well as  other  general  expenditures.
Expenditures  for research and  development in the ten months ended December 31,
2004 totaled  $12,000  compared to $1,500,000  in the same period for 2003.  The
reason  for the  reduction  in these  expenditures  is due to the fact that some
third party  development  corporation  projects  were not finished in 2003,  and
needed to be modified in 2004. However, the new project has not started yet.

MANUFACTURING

     We do  not  manufacture  any of our  own  products.  We  rely  on  contract
manufacturers   to  assemble,   test  and  package  our  products.   We  require
International Organization for Standardization (ISO) 9002 registration for these
contract  manufacturers  as  a  condition  of  qualification.  We  monitor  each
contractor's  manufacturing  process  performance  through  audits,  testing and
inspections.  Each  contractor's  quality is also  rigorously  assessed  through
incoming  testing  and  inspection  of  packaged  products  received  from  each
contractor.  In addition,  we monitor the  reliability  of our products  through
in-house repair, reliability audit testing and field data analysis.

     The  manufacturers'  warranty  for  each  of our  products  is  two  years.
Typically we offer the same warranty on these  products to our customers but for
a shorter  time  period,  generally 12 to 18 months.  We have  implemented  this
practice  to protect  ourselves  against  risk and  financial  loss on  products
shipped to customers which break, need repair or are defective. Depending on the
situation,  we can extend the warranty  period  enhancing the quality of service
and strengthening  relationships with our customers. In order to decrease costs,
we have established joint venture projects with product  manufacturers in China.
This allows us to save transport costs and forwarding  charges when distributing
products to customers in China.  We have  established  a rigid system of quality
control with these manufacturing partners.

     We currently  purchase a  substantially  portion of the raw  materials  and
components used in our products through contract manufacturers.  We forecast our
product  requirements to maintain sufficient product inventory to ensure that we
can meet the  required  delivery  times  demanded by our  customers.  Our future
success will depend in significant  part on our ability to obtain  manufacturing
on time, at low costs and in sufficient quantities to meet demand.

INTELLECTUAL PROPERTY

     Our trademarks,  service marks, trade secrets,  proprietary  technology and
other  intellectual  property rights  distinguish our products and services from
those of our  competitors,  and contribute to our  competitive  advantage in its
target markets. To protect the our brand,  products and services and the systems
that  deliver  those  products  and  services  to our  customers  we  rely  on a
combination  of  trademark  and  trade  secret  laws as well as  confidentiality
agreements and licensing arrangements with its employees, customers, independent
contractors, sponsors and others.

     We  strategically  pursue the  registration  of our  intellectual  property
rights. However, effective patent, trademark,  service mark, copyright and trade
secret  protection  may not always be  available.  Existing  laws do not provide
complete  protection,  and monitoring the  unauthorized  use of our intellectual
property requires significant  resources.  We cannot be sure that our efforts to
protect our intellectual  property rights will be adequate or that third parties
will not infringe or misappropriate  these rights. In addition,  there can be no
assurance that competitors will not independently  develop similar  intellectual
property.  If others are able to copy and use our products and delivery systems,

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<PAGE>
we may not be able to  maintain  our  competitive  position.  If  litigation  is
necessary to enforce our intellectual  property rights or determine the scope of
the  proprietary  rights of others,  we may have to incur  substantial  costs or
divert other  resources,  which could harm our business,  operating  results and
financial condition. We presently have no patents or patent applications granted
or pending in the United States.

     In order to develop, improve, market and deliver new products and services,
we may be required to obtain  licenses  from  others.  There can be no assurance
that we will be able to obtain licenses on commercially  reasonable  terms or at
all or that rights granted under any licenses will be valid and enforceable.

EMPLOYEES

     As of December 31, 2004, we had a total of 70 employees.  Of these,  13 are
in administration, eight are in finance, 13 are in research and development, six
are in software  research  and  development,  ten are in  international  partner
cooperation and 20 are in sales and marketing. None of our employees are covered
by any collective bargaining  agreement.  We generally consider our relationship
with  our  employees  to be  satisfactory  and  have  never  experienced  a work
stoppage.

REGULATIONS

     We have not been materially impacted by existing government  regulation and
are not aware of any  potential  government  regulation  that  would  materially
affect our operations.

                                  RISK FACTORS

     In addition to the other information in this annual report, our business is
subject to numerous risks which should be considered carefully in evaluating our
business,  operating results,  financial condition and prospects.  The following
matters,  among  others,  may have a material  adverse  effect on our  business,
operating  results,  financial  condition,  liquidity,  results or operations or
prospects, financial or otherwise. Reference to this cautionary statement in the
context of a  forward-looking  statement or  statements  shall be deemed to be a
statement that any one or more of the following factors may cause actual results
to differ materially from those in such forward-looking statement or statements.

RISKS ASSOCIATED WITH OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY

     We have a limited operating history upon which potential investors may base
an  evaluation  of its  prospects  and  there can be no  assurance  that we will
achieve our objectives.  Our prospects must be considered in light of the risks,
expenses and  difficulties  frequently  encountered  by companies in their early
stages of development,  particularly companies in a rapidly evolving market such
as the market for Internet broadband and wireless  infrastructure  equipment and
services.  Such risks include, but are not limited to: our ability to obtain and
retain customers and attract a significant  number of new customers,  the growth
of the  satellite,  wireless,  broadband  and Internet  markets,  our ability to
implement  our growth  strategy,  especially  the sales and  marketing  efforts,
intense  competition  from  providers  of broadband  products,  services and the
telecommunication   industry  in  general,   and  other  risks  associated  with
financing,  liquidity  requirements,  rapidly changing customer requirements and
the volatility of the public markets.

OUR GROWTH AND ABILITY TO GENERATE  REVENUE  COULD BE CURTAILED IF WE ARE UNABLE
TO OBTAIN REQUIRED ADDITIONAL FINANCING.

     We currently  anticipate that our available funds and resources,  including
product  sales will be  sufficient  to meet our  anticipated  needs for  working
capital and capital  expenditures for the next 12 months.  We will need to raise
additional  funds in the future in order to fund more aggressive brand promotion
and more rapid  expansion,  to develop new or enhanced  products,  to respond to
competitive pressures or to acquire complementary businesses or technologies. If
additional  funds are raised through the issuance of equity or convertible  debt

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<PAGE>
securities,  the  current  stockholders  may  experience  dilution  and any such
securities  may have rights,  preferences  or privileges  senior to those of the
rights of our common stock. There can be no assurance that additional  financing
will be available on terms favorable to us, or at all. If adequate funds are not
available or not available on acceptable  terms,  we may not be able to fund our
expansion,  promote our brand name as we desire, take advantage of unanticipated
acquisition opportunities, develop or enhance products or respond to competitive
pressures.  Any such  inability  could  have a  material  adverse  effect on our
business, results of operations and financial condition.

     We will need to raise  additional  funds in the  future  through  public or
private financing, which may include the sale of equity securities. The issuance
of these equity securities could result in dilution to our  stockholders.  If we
are unable to raise capital when needed, our business strategy will be affected,
which  could  severely  limit our ability to grow the company and our ability to
generate revenue.

WE  MAY  INCREASE  OUR  INDEBTEDNESS  TO  FUND  OUR  OPERATIONS  AND  INVESTMENT
OBJECTIVES, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.

     To fund  our  operations,  we may need to raise  additional  funds  through
public or private  financing,  including taking on additional  indebtedness.  We
cannot assure you that we will incur  indebtedness  on  commercially  reasonable
terms or at all. Additional  indebtedness we take on may make us more vulnerable
to general adverse  economic and industry  conditions;  require us to dedicate a
substantial  portion  of our  cash  flow  from  operations  to  payments  on our
indebtedness, thereby reducing the availability of our cash flow to fund working
capital,  future investments,  capital  expenditures and other general corporate
purposes;  limit our flexibility in planning for, or reacting to, changes in our
business  and the  industry  in which  we  operate;  place  us at a  competitive
disadvantage  compared  to our  competitors  that have less debt;  and limit our
ability to borrow additional funds. Additionally,  the instruments or agreements
for indebtedness  that we may incur may limit our ability to operate,  change or
expand  our  business,   make  future   investments   and  make   dividends  and
distributions to our stockholders.

OUR QUARTERLY OPERATING RESULTS HAVE IN THE PAST AND MAY CONTINUE TO FLUCTUATE

     We may experience  significant  fluctuations in future quarterly  operating
results that may be caused by many factors,  including,  among others: delays in
our  introduction  of products or product  enhancements;  costs  associated with
product or technology  acquisitions;  the size and timing of individual  orders;
competition and pricing in the broadband  Internet access industry;  seasonality
of revenues;  customer order deferrals in  anticipation of new products;  market
acceptance  of new  products;  reductions  in demand for  existing  products and
shortening  of product  life  cycles as a result of new  product  introductions;
changes in operating expenses;  changes in our personnel;  changes in regulatory
requirements;  mix of products  sold;  and  general  economic  conditions.  As a
result,  we  believe  that  period-to-period   comparisons  of  its  results  of
operations  are not  necessarily  meaningful  and should  not be relied  upon as
indications of future performance.

     Certain  conditions  may exist as of the date the financial  statements are
issued,  which may result in a loss to us but which will only be  resolved  when
one or more  future  events  occur or fail to occur.  Our  management  and legal
counsel  assess such  contingent  liabilities,  and such  assessment  inherently
involves an exercise of judgment.  In assessing  loss  contingencies  related to
legal  proceedings  that are pending  against us or  unasserted  claims that may
result in such proceedings,  our legal counsel evaluates the perceived merits of
any legal  proceedings or unasserted  claims as well as the perceived  merits of
the amount of relief sought or expected to be sought.

     If the  assessment  of a contingency  indicates  that it is probable that a
material  loss  has  been  incurred  and  the  amount  of the  liability  can be
estimated,  then the  estimated  liability  would be  accrued  in our  financial
statements.   If  the  assessment  indicates  that  a  potential  material  loss
contingency  is not  probable  but is  reasonably  possible,  or is probable but
cannot be estimated, then the nature of the contingent liability,  together with
an estimate of the range of possible loss if determinable  and material would be
disclosed.

     Loss contingencies  considered to be remote by management are generally not
disclosed unless they involve  guarantees,  in which case the guarantee would be
disclosed.

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OUR FAILURE TO MANAGE GROWTH WILL ADVERSELY AFFECT OPERATIONS

     We  plan  to  significantly  expand  our  sales,  marketing,  research  and
development activities,  hire a number of additional employees,  expand internal
information,   accounting   and  billing   systems  and   establish   additional
distribution  outlets  throughout the world. In addition,  we plan to expand our
infrastructure  by investing in additional  research and development  talent. In
order  to  successfully  manage  growth,  management  must  identify,   attract,
motivate,  train and retain highly skilled managerial,  financial,  engineering,
business development,  sales and marketing and other personnel.  Competition for
this type of personnel is intense. If management fails to effectively manage our
growth, our business and viability will be materially and adversely impacted.

WE MAY FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES

     The market segments we are targeting are  characterized by rapidly changing
technology,  evolving  industry  standards  and frequent new product and service
introductions.  These  factors  require  management to  continually  improve the
performance,  features and reliability of the array of our products.  Management
may not  successfully  respond  quickly enough or on a  cost-effective  basis to
these  developments.  We may not achieve  widespread  acceptance of our services
before our  competitors  offer  products and services  with speed,  performance,
features  and quality  similar to or better  than our  products or that are more
cost-effective than our services.

IF OUR  CUSTOMERS  DO NOT ACCEPT  OUR  PROPOSED  DESIGNS,  OUR  REVENUE  WILL BE
ADVERSELY AFFECTED.

     We dedicate personnel, management and financial resources to developing and
designing new products for our customers.  We have modified new products such as
VoIP and upgraded  software for GPS products.  It takes about one year to modify
the software,  and the salaries for our research and development  staff is about
$35,000 annually.  If our customers do not accept our proposed designs,  we will
fail to capitalize on the invested  resources,  time and effort that we expended
on a project and our revenue would be adversely affected.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY

     The market for Internet broadband and wireless infrastructure equipment and
services is rapidly evolving and highly competitive. Many of our competitors and
potential  competitors have  substantially  greater  financial,  technical,  and
managerial and marketing  resources,  longer operating  histories,  greater name
recognition and more  established  relationships  than us. Since our business is
partially  dependent on the overall  success of the Internet as a  communication
medium,  it also competes with  traditional  hardware based access and equipment
providers.  Management  expects  competition  from  these  and  other  types  of
competitors to increase significantly.

WE MAY EXPERIENCE  DIFFICULTIES  IN  INTEGRATING  THE  BUSINESSES,  PRODUCTS AND
TECHNOLOGIES WE MAY ACQUIRE INTO OUR BUSINESS

     We may acquire  businesses,  products and technologies and enter into joint
ventures  and  strategic  relationships  with  other  companies.  Any  of  these
transactions  exposes us to  additional  risks,  including:  the  difficulty  of
assimilating and integrating the operations of the combined companies; retaining
key personnel;  the potential disruption of our core business; and the potential
additional  expenses associated with amortization of acquired intangible assets,
integration costs and unanticipated liabilities or contingencies.

LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS

     Given the early stage of development  of our business,  we depend highly on
the  performance and efforts of our Chief  Executive  Officer and Chairman,  Mr.
Tiao-Tsan  "Andy" Lai,  staff and our board of directors.  If we should lose the
service  of any  members  of our  management  team or other key  personnel,  our
business, operating results and financial condition may be materially impacted.

                                       15
<PAGE>
ENACTMENT  OF NEW LAWS OR  CHANGES IN  GOVERNMENT  REGULATIONS  COULD  ADVERSELY
AFFECT OUR BUSINESS

     We are not  currently  required  to comply with  direct  regulation  by any
domestic or foreign governmental  agency,  other than regulations  applicable to
businesses  generally  and  laws  or  regulations  directly  applicable  to  the
Internet.  However,  due to the  increasing  popularity of the  Internet,  it is
possible that  additional  laws may be adopted  regarding  the Internet,  any of
which could  materially  harm our  business,  operating  results  and  financial
condition.  The  adoption  of any  additional  laws may  decrease  the growth of
Internet  use,  which could lead to a decrease in the demand for our services or
increase the cost of doing business.

OUR INABILITY TO OBTAIN PATENT AND COPYRIGHT  PROTECTION  FOR OUR  TECHNOLOGY OR
MISAPPROPRIATION  OF  OUR  INTELLECTUAL  PROPERTY  COULD  ADVERSELY  AFFECT  OUR
COMPETITIVE POSITION

     Our  success  depends  on  internally  developed  technologies,   know-how,
trademarks  and  related   intellectual   properties.   Management  regards  the
technology  as  proprietary  and will attempt to protect it by seeking  patents,
copyrights or trademarks,  and by invoking trade secret laws and confidentiality
and nondisclosure agreements.  Despite these precautions, it may be possible for
a  third  party  to  obtain  and  use  our   services  or   technology   without
authorization.

     We intend to apply for  registration of certain  copyrights and a number of
key  trademarks  and service marks and intends to introduce new  trademarks  and
service marks.  Management may not be successful in obtaining  registration  for
one or more of these trademarks.  Management may need to resort to litigation in
the  future to enforce or to protect  intellectual  property  rights,  including
patent and trademark rights. In addition, our technologies and trademarks may be
claimed  to  conflict  with or  infringe  upon the  patent,  trademark  or other
proprietary rights of third parties.  If this occurred,  we would have to defend
ourselves  against such challenges,  which could result in substantial costs and
the  diversion of resources.  Any of these events could have a material  adverse
effect on our business, operating results and financial condition.

RISKS ASSOCIATED WITH DOING BUSINESS IN ASIA

     There are  substantial  risks  associated  with our Asian  operations.  The
establishment  and expansion of international  operations  requires  significant
management  attention and resources.  All of our current and anticipated  future
revenues  are or  are  expected  to be  derived  from  Asia.  Our  international
operations are subject to additional risks,  including the following,  which, if
not planned and managed  properly,  could have a material  adverse effect on our
business, financial condition and operating results, language barriers and other
difficulties in staffing and managing foreign operations:

     *    legal  uncertainties or  unanticipated  changes  regarding  regulatory
          requirements,  liability, export and import restrictions,  tariffs and
          other trade barriers;
     *    longer customer payment cycles and greater  difficulties in collecting
          accounts receivable;
     *    uncertainties  of laws and  enforcement  relating to the protection of
          intellectual property;
     *    seasonal reductions in business activity; and
     *    potentially uncertain or adverse tax consequences.

     In addition,  changes in the political and overall  economic  conditions of
the Asian  region,  which are outside the  control of  management,  could have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition.

FLUCTUATIONS  IN THE  VALUE  OF  THE  TAIWANESE  CURRENCY  RELATIVE  TO  FOREIGN
CURRENCIES COULD AFFECT OUR OPERATING RESULTS.

     We have historically  conducted  transactions with customers,  paid payroll
and other costs of operations in the Taiwanese national currency, the New Taiwan
Dollar.  To the  extent  our  future  revenue  may  be  denominated  in  foreign

                                       16
<PAGE>
currencies,  we would be subject to increased risks relating to foreign currency
exchange rate  fluctuations  which could have a material  adverse  affect on our
financial  condition and operating results.  To date, we have not engaged in any
hedging transactions in connection with our international operations.

FAILURE TO COMPLY WITH THE UNITED  STATES  FOREIGN  CORRUPT  PRACTICES ACT COULD
ADVERSELY IMPACT OUR COMPETITIVE  POSITION AND SUBJECT US TO PENALTIES AND OTHER
ADVERSE CONSEQUENCES.

     We are subject to the United States  Foreign  Corrupt  Practices Act, which
generally  prohibits  United States  companies from engaging in bribery or other
prohibited  payments  to  foreign  officials  for the  purpose of  obtaining  or
retaining business. Foreign companies,  including some that may compete with us,
are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
theft and other  fraudulent  practices  occur from  time-to-time in the non-U.S.
countries  in  which  we  conduct  business.  We  have  attempted  to  implement
safeguards to prevent and discourage such practices by our employees and agents.
We can make no assurance,  however,  that our employees or other agents will not
engage in such conduct for which we might be held responsible.  If our employees
or other  agents are found to have  engaged in such  practices,  we could suffer
severe penalties and other  consequences that may have a material adverse effect
on our business, financial condition and results of operations.

RISKS ASSOCIATED WITH INVESTING IN OUR COMMON STOCK

EFFORTS  TO  COMPLY  WITH  RECENTLY  ENACTED  CHANGES  IN  SECURITIES  LAWS  AND
REGULATIONS WILL INCREASE OUR COSTS AND REQUIRE ADDITIONAL MANAGEMENT RESOURCES,
AND WE STILL MAY FAIL TO COMPLY.

     As  directed  by Section  404 of the  Sarbanes-Oxley  Act of 2002,  the SEC
adopted rules  requiring  public  companies to include a report of management on
the company's internal controls over financial reporting in their annual reports
on Form 10-K.  In addition,  the public  accounting  firm auditing the company's
financial statements must attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting.  This
requirement  will first apply to our annual report on Form 10-KSB for our fiscal
year  ending  December  31,  2006.  If we are  unable to  conclude  that we have
effective  internal  controls  over  financial  reporting or if our  independent
auditors  are  unable  to  provide  us  with  an  unqualified  report  as to the
effectiveness of our internal  controls over financial  reporting as of December
31, 2006 and future  year ends as required by Section 404 of the  Sarbanes-Oxley
Act of 2002, investors could lose confidence in the reliability of our financial
statements,  which could result in a decrease in the value of our securities. We
have not yet begun a formal  process to  evaluate  our  internal  controls  over
financial reporting. Given the status of our efforts, coupled with the fact that
guidance from regulatory  authorities in the area of internal controls continues
to evolve,  substantial  uncertainty  exists  regarding our ability to comply by
applicable deadlines.

OUR STOCK PRICE IS HIGHLY VOLATILE.

     Our stock price has fluctuated  dramatically.  There is a significant  risk
that the  market  price of our  common  stock  will  decrease  in the  future in
response to any of the following factors,  some of which are beyond our control:

     *    variations in our quarterly operating results;
     *    announcements   that  our  revenue  or  income  are  below   analysts'
          expectations;
     *    general economic slowdowns;
     *    changes in market valuations of similar companies;
     *    sales of large blocks of our common stock;
     *    announcements  by us or  our  competitors  of  significant  contracts,
          acquisitions,   strategic  partnerships,  joint  ventures  or  capital
          commitments;
     *    fluctuations   in  stock  market   prices  and   volumes,   which  are
          particularly    common   among   highly    volatile    securities   of
          internationally-based companies.

                                       17
<PAGE>
THERE IS A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK.

     There is currently a limited public market for our common stock. Holders of
our common stock may,  therefore,  have  difficulty  selling their common stock,
should they decide to do so. In addition,  there can be no assurances  that such
markets will continue or that any shares of common stock, which may be purchased
may be sold without  incurring a loss. Any such market price of the common stock
may not  necessarily  bear any  relationship  to our book  value,  assets,  past
operating  results,  financial  condition or any other  established  criteria of
value, and may not be indicative of the market price for the common stock in the
future. Further, the market price for the common stock may be volatile depending
on a number of factors, including business performance,  industry dynamics, news
announcements or changes in general economic conditions.

OUR COMMON  STOCK IS SUBJECT TO  REGULATIONS  PRESCRIBED  BY THE SEC RELATING TO
"PENNY STOCKS".

     The SEC has adopted  regulations  that generally define a penny stock to be
any equity security that has a market price (as defined in such  regulations) of
less than $5.00 per share, subject to certain exceptions. Our common stock meets
the  definition  of a penny  stock and is  subject to these  regulations,  which
impose additional sales practice  requirements on  broker-dealers  who sell such
securities to persons other than established  customers and accredited investor,
generally  institutions with assets in excess of $5,000,000 and individuals with
a net  worth in  excess  of  $1,000,000  or  annual  income  exceeding  $200,000
(individually) or $300,000 (jointly with their spouse).

WE DO NOT ANTICIPATE PAYING DIVIDENDS IN THE FORESEEABLE FUTURE.

     We have never declared or paid any cash dividends or  distributions  on our
common  stock.  We  currently  intend to retain our future  earnings  to support
operations and to finance  expansion and therefore do not anticipate  paying any
cash  dividends  on  our  common  stock  in  the  foreseeable  future.  ITEM  2.
DESCRIPTION OF PROPERTY.

     Our main  office is located at 6F-3,  NO. 16, Jian Ba Road,  Jhongue  City,
Taipei County,  Taiwan,  consisting of approximately  557.72 square meters.  The
landlord is Goang Dyi Shing  Industrial  Co. Ltd.  The rent is  NTD$135,000  per
month and the lease expires on May 31, 2005.

     We own a property  at 13F,  No. 77,  Hsin Tai Wu Road,  Sec.  J,  Hsi-Chih,
Taipei County, Taiwan, R.O.C., consisting of approximately 370.68 square meters.
We purchased  this facility in April 2001. We entered into a loan agreement with
the  Fubon  Bank  in the  amount  of  NTD$10,500,000  for the  purchase  of this
facility.  The term of the loan is 15 years  that  began on May 29,  2001 and is
schedule to  terminate  on May 29,  2016.  The monthly  principal  payments  are
NTD$187,500  every three  months.  The monthly  interest  payment on the loan is
approximately  NTD$26,293.  The annual interest rate is 3.175%.  Our office were
formerly at the Hsin Tai Wu Road space, but we have moved to the larger space at
Jian Ba Road and now rent the Hsin Tai Wu Road property to another company.

ITEM 3. LEGAL PROCEEDINGS.

     We are not presently involved in litigation that we expect  individually or
in the aggregate to have a material  adverse effect on our financial  condition,
results of operation or  liquidity.

                                       18
<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On December 31, 2004, an annual meeting of our stockholders was held at our
main corporate offices in Taipei, Taiwan. There were 27,500,000 shares of common
stock outstanding on the record date and entitled to vote at the annual meeting.

     The following directors were elected:

       Name of Director                     Vote For           Votes Withheld
       ----------------                     --------           --------------
     Tiao-Tsan "Andy" Lai                  10,425,717              1,000
     Yun-Yi "Stella" Tseng                 10,425,717              1,000
     Alice Chen                            10,425,717              1,000
     I-Min Ou                              10,425,717              1,000
     Chin-Yuan Liao                        10,425,717              1,000
     Mei-Chu Lai                           10,425,717              1,000
     Kao-Yu Hung                           10,425,717              1,000
     Chung-Chieh "Kevin" Lin               10,425,717              1,000
     Yong Su                               10,425,717              1,000
     Pi-Liang Liu                          10,425,717              1,000

     The amendment and restatement of our bylaws to provide for terms we believe
are  more  appropriate  to our  current  and  future  needs  was  ratified  with
10,426,717 votes for, zero votes against and 17,074,283  abstentions.  Our prior
bylaws were a legacy of our predecessor company, Investment Agents, Inc. Certain
provisions  in our prior  bylaws may have been  tailored  to  specific  needs of
Investment  Agents,  Inc. and were not  necessarily  useful or desirable for our
future needs.

     The  appointment  of Lichter,  Yu & Associates  (formerly  Lichter,  Weil &
Associates)  as our  Independent  Public  Accountants  for the ten months ending
December 31, 2004 was ratified with 10,426,717 votes for, zero votes against and
17,074,283 abstentions.

                                       19
<PAGE>
                                    PART II

ITEM 5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED   STOCKHOLDER  MATTER  MARKET
         INFORMATION AND MARKET PRICE

     Our common stock began  trading on the American  Stock  Exchange on January
14, 2004 under the symbol "CSN". Previously,  on June 25, 2002, our common stock
was initially  traded on the OTC Bulletin Board under the symbol "IVAG",  and on
January 17, 2003 our symbol changed to "CYNW". Prior to June 25, 2002, there was
no public market for our stock. The following table sets forth, (i) the high and
low bids as  reported on the OTC BB during the fiscal  year ended  February  28,
2003 and the quarters ended through  January 13, 2004, and (ii) the high and low
sales  quotations  for the partial  period in the fiscal year ended February 29,
2004 from  January 14, 2004  through  February  29,  2004,  the ten months ended
December 31, 2004 (including partial period) and the partial period in the first
quarter of the  current  fiscal  year,  based upon  information  supplied by the
American Stock Exchange.


                                                  Price Range of Common Stock
                                                  ---------------------------
                                                      High            Low
                                                      ----            ---
     2003
     March 1, 2003 - May 30, 2003                     $3.95         $2.00
     June 1, 2003 - August 31, 2003                   $3.00         $2.00
     September 1, 2003 - November 30, 2003            $2.90         $2.40
     December 1, 2003 - January 13, 2004              $3.00         $2.30

     2004
     January 14, 2004 - February 29, 2004             $2.74         $2.10
     March 1, 2004 - May 30, 2004                     $2.38         $0.73
     June 1, 2004 - August 31, 2004                   $0.99         $0.42
     September 1 - November 30, 2004                  $1.00         $0.46
     December 1, 2004 - December 31, 2004             $1.23         $0.64

     2005
     January 1, 2005 - March 31, 2005                 $0.86         $0.30

     As of March 31, 2005, there were approximately 2,600 shareholders of record
of our common stock.

DIVIDEND POLICY

     All shares of common stock are entitled to  participate  proportionally  in
dividends  if our board of  directors  declares  them out of the  funds  legally
available. These dividends may be paid in cash, property or additional shares of
common stock.  We have not paid any dividends  since our inception and presently

                                       20
<PAGE>
anticipate  that all earnings,  if any, will be retained for  development of our
business.  Any  future  dividends  will be at the  discretion  of our  board  of
directors  and will  depend  upon,  among  other  things,  our future  earnings,
operating and financial condition,  capital requirements,  and other factors. We
currently  intend to retain our future  earnings  to support  operations  and to
finance  expansion and therefore do not anticipate  paying any cash dividends on
our common stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     On January 15, 2004, we issued  500,000 shares of our common stock at $1.44
per share pursuant to a private placement exempt from  registration  pursuant to
Regulation S of the  Securities  Act. We received  proceeds of $720,000 for this
private  placement.  The  shares  are  restricted  and do not have  registration
rights.  The offering price was negotiated with the  shareholders at the time of
the  offering.   Of  the  shareholders  in  this  offering,   Yun-Yi  Tseng  was
subsequently appointed CFO and a director of our company.

     On June 14,  1004,  we  issued  2,500,000  shares  of our  common  stock in
exchange for the  conversion  in full of a note and short term debt  payables to
third  parties  in the  aggregate  of  $1,680,329.  The note and short term debt
payables were converted into shares of common stock at a price of  approximately
$0.672 per share. The shares are restricted and do not have registration rights.
The  conversion  rate was fixed in the  agreements  governing the note and short
term debt payables.  Of the  shareholders in this exchange,  Yi-Min Ou, Mei-Ling
Chen,  and  Ching-Yuan  Liao were  directors  of the Company at the time of such
exchange,  and Yun-Yi Tseng was subsequently appointed CFO and a director of our
company.

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

     Our company was incorporated on August 8, 1996 as Investment  Agents,  Inc.
under the laws of the State of Nevada.  CNT was  incorporated  under the laws of
the British  Virgin Islands on March 1, 2002. On November 14, 2002, CNT became a
wholly owned  subsidiary  of our company  through an Exchange  Agreement,  dated
November 14, 2002 and amended on December 11, 2002, whereby our company acquired
all of the  issued  and  outstanding  capital  stock  of  CNT  in  exchange  for
12,000,000  shares of common stock of our company,  which represented 49% of our
issued and  outstanding  stock at that time. In connection with the exchange and
change in control,  the name of our company was changed from Investment  Agents,
Inc. to City Network,  Inc. the officers and directors of City Network  resigned
and new officers and directors  were  appointed.  Upon the effective date of the
exchange and change in control,  our company  ceased its  relationship  with the
company for whom it previously acted as referral agent for.

     CNT owns all of the  issued and  outstanding  common  stock of  CNT-Taiwan,
which was  incorporated  under the laws of the Republic of China on September 6,
1994.  CNT-Taiwan owns all of the issued and outstanding common stock of company
of City Construction, which was incorporated under the laws of Republic of China
on October, 10, 2003.

     On December  16,  2004,  our board of  directors  determined  to change our
fiscal year end from February 28 to December 31.

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Form 10-KSB. The following discussion contains forward-looking  statements.  Our
actual   results  may  differ   significantly   from  those   projected  in  the
forward-looking  statements.  Factors  that may cause  future  results to differ
materially from those projected in the forward-looking  statements include,  but
are not limited to, those discussed in "Risk Factors" and elsewhere in this Form
10-KSB.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The  discussion  and analysis of our  financial  conditions  and results of
operations is based upon our financial  statements,  which have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("GAAP").  The preparation of these financial  statements requires us to

                                       21
<PAGE>
make  estimates  and  judgments  that  affect  the  reported  amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and liabilities.  See "Summary of Significant  Accounting Policies" in the Notes
to  Consolidated  Financial  Statements  in Item to this Report for our critical
accounting policies.  No significant changes in our critical accounting policies
have occurred since December 31, 2004.

REVENUE RECOGNITION

     Revenue  generated  from sales of products is  recognized  upon shipment or
when title passes to customers  based on terms of sales,  and is recorded net of
returns,  discounts and allowances.  Service income is recognized as the related
services are provided per terms of the service agreement.

ACCOUNTS RECEIVABLE

     Accounts  receivables  are  reported  as the  outstanding  unpaid  balances
reduced by an allowance for doubtful  accounts.  We estimate  doubtful  accounts
based on historical bad debts, factors related to specific customer's ability to
pay, and current economic trends. We write off accounts  receivable  against the
allowance when a balance is determined to be uncollectible.

NOTES RECEIVABLE

     Our subsidiary,  CNT-Taiwan usually receives post-dated checks as permitted
by Taiwanese  law.  CNT-Taiwan  will  typically  send an invoice to the customer
after which the customer will issue a check dated two to three months, sometimes
longer,  from the date of the invoice.  On  CNT-Taiwan's  books,  the post dated
checks are categorized as notes receivables and the invoice is then taken off on
the accounts receivables side.

OVERVIEW - RESULTS OF OPERATIONS

AUDITED TEN MONTHS  ENDED  DECEMBER 31, 2004  COMPARED TO  UNAUDITED  TEN MONTHS
ENDED DECEMBER 31, 2003

     NET  REVENUE.  Net sales for ten months  ended  December  31, 2004  totaled
$15,674,613, compared to $16,119,649 for ten months ended December 31, 2003. The
decrease in revenues  for ten months  ended  December 31, 2004 was due to timing
issues as a result of a decrease in demand and market price for our old products
while our new products were beginning to be introduced.

     COST OF SALES.  Cost of revenue  for ten months  ended  December  31,  2004
totaled  $14,924,938,  compared to $14,798,578 for the ten months ended December
31,  2003.  The  increase in cost of revenues was due to the higher cost for our
old  products.  Also,  our gross  profit  decreased  due to the  higher  cost of
revenues for the ten months ended December 31, 2004.

     GENERAL AND ADMINISTRATIVE.  Selling,  general and administrative  expenses
for ten months ended December 31, 2004 totaled $1,395,388,  compared to $758,032
for ten months ended  December  31, 2003.  The increase was due to our number of
employees increasing and for the introduction of out new product line.

     INTEREST  EXPENSE.  Interest expense for ten months ended December 31, 2004
totaled  $112,922,  compared to $55,655 for ten months ended  December 31, 2003.
The increase in interest  expense was due to the  increase of financing  sources
for funds.

     As a result of the  foregoing,  Income  (loss)  Before Income Taxes totaled
$(854,770)  for ten months  ended  December 31, 2004 and $160,023 for ten months
ended December 31, 2003. Provision for income taxes expenses is $109,890 for ten
months ended  December  31, 2004 and $137,095 for ten months ended  December 31,
2003.  The  result of the above tax  calculations  resulted  in that net loss is
$(964,660) and net income $22,928,  respectively,  for ten months ended December
31, 2004 and 2003.

                                       22
<PAGE>
INCOME TAXES

     Provisions  of  $109,890  for taxes have been  recorded  for the ten months
ended December 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  and  cash  equivalents  were  $2,010,644  at  December  31,  2004 and
$2,723,573 at December 31, 2003. The Company's current assets totaled $6,186,420
at December  31,  2004 as compared to  $11,491,307  at December  31,  2003.  The
Company's  total  current  liabilities  were  $6,656,116 at December 31, 2004 as
compared to  $11,435,319 at December 31, 2003.  Working  capital at December 31,
2004 was  $(469,696)  and $55,988 at December  31,  2003.  During the year ended
December 31, 2004, net cash (used in) operating  activities was  $(1,293,162) as
compared to net cash  provided by operating  activities  of $125,703  during the
same period in 2003. Net cash provided by financing  activities was $627,153 and
$3,208,675 for the year ended December 31, 2004 and 2003, respectively.  The net
change in cash and cash  equivalents  was $(712,929) and $2,103,309 for the year
ended 2004 and 2003, respectively.

CAPITAL EXPENDITURES

     Total capital  expenditures  during the ten months ended  December 31, 2004
was $5,008 for purchase of fixed assets.

WORKING CAPITAL REQUIREMENTS

     Our  operations  and short term  financing does not currently meet our cash
needs.  We believe  we will be able to  generate  revenues  from sales and raise
capital through private placement  offerings of its equity securities to provide
the necessary cash flow to meet anticipated  working capital  requirements.  Our
actual  working  capital  needs for the long and short  term  will  depend  upon
numerous  factors,  including  our  operating  results,   competition,  and  the
availability  of  credit  facilities,  none  of  which  can  be  predicted  with
certainty.  Our future  expansion  will depend on operating  results and will be
limited by its ability to enter into financings and raise capital.

     We  currently  are  engaged  in  discussions  with a  number  of  companies
regarding strategic acquisitions or investments.  Although these discussions are
ongoing,  there can be no assurance that any of these discussions will result in
actual  acquisitions  or investment.  Several  potential  investors have already
shown their  interest to invest in our  company.  As of May 2003,  the amount of
committed funds was $2,400,000. An additional $1,800,000 is still required.

FACTORS THAT INTERRUPT OUR OPERATIONS

     Our major risk is incurring a large amount of bad debt.  Our short-term and
long-term liquidity may be influenced by uncollected account receivables. If the
amount of bad debt is high,  it will  severely  affect our  ability to  continue
operations.  Therefore,  we are taking  precautions to manage this risk. We will
try to diversify our customer  base and control  credit risk related to accounts
receivable  through credit approvals,  credit limits and monitoring  procedures.
Although we have already taken these  measures,  it is still possible to incur a
large amount of bad debt.

     Financial  instruments that  potentially  subject us to  concentrations  of
credit risk are cash, accounts receivable and other receivables arising from its
normal  business  activities.  We  place  our  cash  in what  we  believe  to be
credit-worthy financial  institutions.  However, cash balances have exceeded the
FDIC insured levels at various times during the year and at year-end.  We have a
diversified  customer base, most of which are related parties. We control credit
risk related to accounts receivable through credit approvals,  credit limits and
monitoring  procedures.  We  routinely  assess  the  financial  strength  of its
customers  and,  based upon factors  surrounding  the credit risk,  establish an
allowance,  if required,  for  un-collectible  accounts  and, as a  consequence,
believe that our accounts  receivable credit risk exposure beyond such allowance
is limited.

                                       23
<PAGE>
OFF-BALANCE SHEET TRANSACTIONS

     We do not have any off-balance sheet transactions.

ITEM 7. FINANCIAL STATEMENTS

     Our Financial  Statements  together with the independent  auditor's  report
thereon are included on pages F-1 through F-20 hereof.

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

     There have been no changes nor any  disagreements  with the  accountants or
the accountant's findings.

ITEM 8A. CONTROLS AND PROCEDURES

     Under  the  supervision  and  with  the  participation  of our  management,
including  our chief  executive  officer  and the chief  financial  officer,  we
conducted an evaluation of the  effectiveness of the design and operation of its
disclosure controls and procedures,  as defined in Rules 13a-15(e) and 15d-15(e)
under the  Securities  Exchange Act of 1934, as of the end of the period covered
by this report (the  "Evaluation  Date").  Based on this  evaluation,  our chief
executive  officer and chief  financial  officer  concluded as of the Evaluation
Date that our disclosure  controls and  procedures  were effective such that the
material  information  required to be  included in our SEC reports is  recorded,
processed,  summarized  and reported  within the time  periods  specified in SEC
rules  and  forms   relating  to  our  company,   including  our   consolidating
subsidiaries,  and was  made  known to them by  others  within  those  entities,
particularly during the period when this report was being prepared.

     Additionally, there were no significant changes in our internal controls or
in other factors that could  significantly  affect these controls  subsequent to
the  Evaluation  Date. We have not identified any  significant  deficiencies  or
material  weaknesses  in our  internal  controls,  and  therefore  there were no
corrective actions taken.

ITEM 8B. OTHER INFORMATION

     None.

                                    PART III

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

DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS.

     Set forth below are the names of our directors,  executive officers and key
employees of as of December 31, 2004.

       Name                  Age                    Title
       ----                  ---                    -----
Tiao-Tsan "Andy" Lai         42       Chairman, Director, President and Chief
                                      Executive Officer
Yun-Yi "Stella" Tseng        44       Chief Financial Officer and Director
Alice Chen                   41       Vice President and Director
I-Min Ou                     35       Director, Manager - Technology Department
Chin-Yuan Liao               32       Director, Manager - Engineering Department
Mei-Chu Lai                  37       Independent Director
Kao-Yu Hung                  46       Independent Director
Chung-Chieh "Kevin" Lin      44       Independent Director
Yong Su                      49       Independent Director
Pi-Liang Liu                 49       Independent Director

                                       24
<PAGE>
     Set forth  below is certain  information  with  respect  to each  director,
executive officer, key employee and director nominees.

     TIAO-TSAN  "ANDY" LAI has been  Chairman,  President  and  Director  of our
company (and its predecessors) since 1994. As a pioneer in the network equipment
market he was the first  entrepreneur  to bring the Home PNA solution to Taiwan,
China and Asia.  With Mr. Lai's guidance,  we implemented  Home PNA in a winning
design for an Internet  Service Model for the Taipei city government in 1998. In
1999,  Mr. Lai also  procured an open  tender for a Home PNA project  with Korea
Telecom.  From  1999 to the  present,  we have  had our  products  approved  for
purchase  and sale by China  Telecom,  Taiwan's  HiNet,  Japan  OCC and  Finland
Telecom.  In addition,  Mr. Lai  established  business  projects  with  Shanghai
Telecom,  Fujian Telecom and Guang Dong Telecom.  In October,  2000, Mr. Lai was
presented  the  "Excellent  Manager"  industry  award in Taiwan for  outstanding
service as Chairman of our company.  In June 2002,  Mr. Lai was also awarded the
"The Excellent Alumnus" award for his success in business beyond graduation from
the Taiwan  National  Military  Academy.  Mr.  Lai holds an MBA degree  from the
University of St. Thomas in Minnesota,  USA, and a bachelor's degree in business
from Metropolitan University in Minnesota, USA.

     YUN-YI "STELLA" TSENG has been the Chief  Financial  Officer and a Director
of the Board of our company since November 2004. In 1998, Ms. Tseng  established
the asset  management  and financial  consulting  group called Chief  Securities
Investment Inc., where she was the chairman until December 2003. Over the course
of five years, Ms. Tseng gradually  developed Chief  Securities  Investment Inc.
into a Taiwanese  nation-wide  operation  with more than ten branch  offices and
over 400 employees.  Furthermore, Ms. Tseng has participated in the financing of
numerous  private  and public  companies  both in Taiwan and  abroad.  She is an
experienced financial planner and experienced in company finance, accounting and
auditing.  In 2003, Ms. Tseng helped found Hyo-On Biotechnology Corp., where she
is a company  director and is primarily  responsible  for  strategic  growth and
financial development.  Ms. Tseng graduated from Shih-Hsin University in Taipei,
Taiwan with a degree in Communications and Journalism.

     ALICE CHEN has been Vice  President  and a Director  of our  company  since
October 2002. Ms. Chen has been Vice General  Manager of Sales and Marketing and
a Director of CNT-Taiwan since January 1999. Ms. Chen's duty is to implement and
develop our worldwide sales and marketing plan. Before joining our company,  Ms.
Chen had ten years experience working for the Taiwanese National Security Agency
as a national policy analyst.  Additionally,  Ms. Chen spent three years working
as head of  sales  and  marketing  for a  Taiwanese  public  company.  Ms.  Chen
possesses a degree in Legal Policy from a government  university in the Republic
of China.

     I-MIN OU has been Manager of the  Technology  Department  and a Director of
our company  since October  2002.  From  February  2001 to October 2002,  Mr. Ou
served as a Manager of the Tongnan Technology Company. From June 1999 to January
2001,  he served as a Manager of the Gulite  Technology  Company.  From February
1998 to May 1999,  Mr. Ou was a Manager for the Hueng Kwuo  Technology  Company.
From 1991 to 1997,  he served as a Manager  of the  Ikuani  Technology  Company.
Since  graduating with a bachelor's  degree in Electrical  Engineering  from the
Tung Nan  Institute  of  Technology  in July 1991,  I-Min Ou has been  primarily
engaged in electronics engineering and computer automation industry.

     CHIN-YUAN  LIAO  has  been  a  Director  and  Manager  of  the  Engineering
Department  since  October  2002.  From January 2000 to October  2002,  Mr. Liao
served as Manager of the Engineering Department for CNT-Taiwan.  Previously,  he
was a Manager with A Best  Information  Technology,  Inc., a network  technology
company,  from 1998 to 2000. Mr. Liao received a bachelor's degree in electrical
engineering from the Oriental Institute of Technology in 1996.

     MEI-CHU LAI has been a Director of our company since October 2002. In 1992,
Ms.  Lai began her  career  serving  four  years as an  accountant  and  finance
department  chief for New Land  Developers Co. Ltd. Ms. Lai has been working for
ING Antai since 1996 and is currently a financial safety planner responsible for

                                       25
<PAGE>
the asset management,  financial advisory, inheritance taxation and tax planning
of major  company  clients.  She was  promoted  at ING Antai to the  position of
Division  Supervisor in 1997 and then took the post of Assistant General Manager
in 2001. Ms. Lai graduated from the Department of International  Trading at Ming
Chuan  University in 1991.  Ms. Lai currently  serves on our board of directors'
audit committee.

     YU-HUNG KAO has been a Director of our company since October 2002. Ms. Hung
specializes  in import and export  customs  and  regulations  of many  countries
around  the  world as well as  corporate  financial  reporting,  accounting  and
auditing.  In 1983,  Ms. Hung  personally  founded her own trading,  customs and
product  transport  company called Ce Young Customs  Brokerage Co., Ltd. For the
past 20 years,  Ms. Hung has managed and  directed the  development  of Ce Young
Customs  Brokerage  Co,  Ltd.,  developing  the business  into a profitable  and
well-known  brand name in Taiwan and throughout Asia. From 1980 to 1983, she was
previously  employed by Min Hwa Inc.,  working as the company's  General Manager
supervising the handling of customs  brokerage-related  sales finance,  taxation
and  accounting.  She  graduated  from Hsing Wu  College in 1978 with  majors in
international trading and business  administration.  Ms. Kao currently serves on
our board of directors' audit committee.

     CHUNG-CHIEH  "KEVIN" LIN has been a Director of our company since  November
2004.  Since 1996,  Mr. Lin has been the chairman of Chun-Yang  Investment  Co.,
Ltd.,  an  investment  company  involved in  corporate  finance  and  securities
consulting, since April 1997 and chairman of Sino-Freeze Biotechnology Co., Ltd.
since  February  2003.  Mr. Lin has also been  involved  in venture  capital and
strategic  investments  and has  invested  in,  developed  and managed more than
fifteen public and private  companies in Taiwan and China.  Mr. Lin's investment
experience has been particularly in the biotech and electronics industries.  Mr.
Lin has a degree in Civil Engineering from Tamkang University.

     YONG SU has been a Director of our company since  November  2004. Mr. Su is
currently  a  professor  at the  Business  Administration  Department  at  Fudan
University  and  director  of  the  Business  Administration  Department  of the
university's advanced studies and post-graduate  program. He has worked for many
companies  as a corporate  consultant,  utilizing  his  expertise  in  corporate
strategies  planning,  corporate culture  management,  company  organization and
marketing to provide  operational  guidelines and  strategies.  Mr. Su graduated
from Fudan  University  in 1986 with a master's  degree in Cultural  History and
acquired  a  doctorate  degree  in  Economics  from  Fudan  University  in 1994,
whereupon he took a teaching  position at the university  immediately  following
his  graduation.  He is the author of over fifty  journal  articles and industry
essays.

     PI-LIANG LIU has been a Director of our company since  November 2004. He is
currently a director of Mega Financial  Holding Company and Resident  Supervisor
at Chiao Tung Bank. He was the CEO of the Southern  Taiwan Joint Services Center
of the  Executive  Yuan of Taiwan from 1999 to 2001.  From 1997 to 1999, he held
the  position  of  Secretary   General  at  the  Legislative  Yuan  of  Taiwan's
parliament.  From 1991 to 1997,  Mr.  Liu was an  Advisor  and  Director  of the
Liaison  Office with the  governing  administration's  cabinet for the Executive
Yuan of  Taiwan.  He has also  served  at the  post of  Chairman  of the  Budget
Committee  for the  Legislative  Yuan of Taiwan.  Mr. Liu  obtained his master's
degree in Arts from the School of Industrial Education at Northeastern  Missouri
State  University in 1988. He was an Invited  Researcher at the School of Public
Administration  of the University of Southern  California in 1986. He obtained a
bachelor's  degree  in law  from  the  School  of Law  at  the  National  Taiwan
University  in  1984.  Also,  he is an  author  of  books  such as  Research  on
Developing  Countries'  Government  Budgeting  System  and  Research  on  Modern
Democratic Governments' Budgeting Systems. Mr. Liu currently serves on our board
of directors' audit committee.

     The directors  named above will serve until the next annual  meeting of our
stockholders  or until their  successors  are duly  elected and have  qualified.
Directors will be elected for one-year terms at the annual stockholders meeting.
Officers  will hold their  positions at the pleasure of the board of  directors,
absent any employment  agreement,  of which none currently  exists.  There is no
arrangement  or  understanding  between any of the  directors or officers of our
company and any other person pursuant to which any director or officer was or is
to be selected as a director or officer,  and there is no  arrangement,  plan or
understanding  as to whether  non-management  shareholders  will exercise  their
voting  rights  to  continue  to elect  the  current  directors  to our board of
directors. There are also no arrangements,  agreements or understandings between
non-management  shareholders  that may directly or indirectly  participate in or
influence the  management of our company's  affairs.  There are no agreements or
understandings  for any of our officers or directors to resign at the request of
another  person and none of the officers or directors are acting on behalf of or
will act at the direction of any other person.

                                       26
<PAGE>
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

     Our board of directors adopted a written charter for its audit committee, a
copy of which was attached as an exhibit to our definitive proxy  statement,  as
filed with the SEC December 10, 2004, and is incorporated  by reference  herein.
The audit  committee's  charter  states that the  responsibilities  of the audit
committee shall include:

     *    reviewing  our  charter,  annual  report to  stockholders  and reports
          submitted to the SEC;
     *    recommending our independent auditors,  confirming and reviewing their
          independence, and approving their fees;
     *    reviewing the independent auditors' performance;
     *    considering the independent  auditors'  judgments about our accounting
          principals;
     *    considering and approving major changes to our auditing and accounting
          principals;
     *    establishing  reporting systems to the committee by management and the
          independent auditors regarding  management's  significant judgments in
          preparing financial statements;
     *    following an audit,  reviewing  significant  difficulties  encountered
          during the audit;
     *    reviewing   significant   disagreements   among   management  and  the
          independent auditors in the preparation of our financial statements;
     *    reviewing the extent to which  improvements in financial or accounting
          practices approved by the committee have been implemented; and
     *    Review with counsel any legal  matters  that could have a  significant
          impact on our financial statements.

     The audit  committee met one time during the ten months ended  December 31,
2005.

     The audit  committee  members during the ten months ended December 31, 2004
consisted  of Mei-Chu  Lai,  Yu-Hung Kao and  Chien-Hui  Lin (later  replaced by
Pi-Liang  Liu).  Chien-Hui  Lin  resigned  from the board of directors in August
2004.  Our  board of  directors  appointed  Pi-Liang  Liu to serve on the  audit
committee  upon  his  appointment  as  director  in  November  2004.  All of the
above-listed audit committee members were or are considered  "independent" under
Section 121(A) (as currently  applicable to us) of the listing  standards of The
American  Stock  Exchange,  as determined  by our board of directors.  The audit
committee  recommends to the board of directors the annual  engagement of a firm
of independent  accountants  and reviews with the  independent  accountants  the
scope  and  results  of  audits,  our  internal  accounting  controls  and audit
practices  and  professional   services   rendered  to  us  by  our  independent
accountants.

     Our  board of  directors  has  determined  that we have at least  one audit
committee financial expert, as defined in the Exchange Act, serving on our audit
committee.  Pi-Liang  Liu is the "audit  committee  financial  expert" and is an
independent member of our board of directors.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the  Exchange  Act, as amended,  requires  the  executive
officers  and  directors  of our  company  and every  person who is  directly or
indirectly the beneficial owner of more than 10% of any class of security of our
company to file reports of ownership and changes in ownership with the SEC. Such
persons  also are  required to furnish  our  company  with copies of all Section
16(a)  forms  they  file.  Based  solely on its  review of copies of such  forms
received by it, we believe  that all other  Section  16(a)  filing  requirements
applicable  to the reporting  persons were complied with by such persons  during
2004 except that each of Yun-Yi Cheng,  Chung-Chieh Lin, Yong Su and Pi-Lian Liu
did not file a Form 3 in connection  with his or her appointment as an executive
officer or director of our company in 2004, and Hsin-Nan Lin did not file a Form
4 in connection with his resignation as an executive officer and director of our
company in 2004.

                                       27
<PAGE>
CODE OF ETHICS

     We adopted a code of ethics that applies to our Chief Executive Officer and
Chief Financial Officer, and other persons who perform similar functions. A copy
of our Code of  Ethics  was filed as an  exhibit  to our  Annual  Report on Form
10-KSB  for the fiscal  year  ended  February  29,  2004.  Our Code of Ethics is
intended to be a codification of the business and ethical principles which guide
us, and to deter  wrongdoing,  to promote honest and ethical  conduct,  to avoid
conflicts  of  interest,  and  to  foster  full,  fair,  accurate,   timely  and
understandable disclosures,  compliance with applicable governmental laws, rules
and regulations,  the prompt internal reporting of violations and accountability
for adherence to this Code.

ITEM 10. EXECUTIVE COMPENSATION

     The following  table sets forth the fiscal year indicated the  compensation
paid by our company to the Chief Executive  Officer.  No other executive officer
received a total annual salary and bonus exceeding $100,000.

Name and Principal Position     Year             Salary (US$)        Bonus (US$)
---------------------------     ----             ------------        -----------
Tiao-Tsan "Andy" Lai            2004(1)            $26,000              $2,600
                                2003               $31,200              $2,600
                                2002               $31,200              $2,600

----------
(1)  For the ten month period ended December 31, 2004.

     Our directors do not receive any  compensation  for serving on the board of
directors.

REPORT OF THE AUDIT COMMITTEE

     The role of the Audit  Committee is to assist the Board of Directors in its
oversight of City Network,  Inc.'s (the "Company")  financial reporting process.
The Board of  Directors,  in its  business  judgment,  has  determined  that all
members of the committee  are  "independent"  as required by applicable  listing
standards of the American Stock Exchange.  The Committee  operates pursuant to a
Charter that was approved by the Board. As set forth in the Charter,  management
of the Company is responsible for the preparation, presentation and integrity of
the  Company's   financial   statements,   accounting  and  financial  reporting
principles and internal  controls and procedures  designed to assure  compliance
with accounting  standards and applicable laws and regulations.  The independent
auditors are  responsible  for auditing the Company's  financial  statements and
expressing an opinion as to their conformity with generally accepted  accounting
principles.

     In the performance of this oversight  function,  the Committee has reviewed
and  discussed  the  audited  financial   statements  with  management  and  the
independent auditors.  The Committee has discussed with the independent auditors
the matters required to be discussed by Statement of Auditing  Standards No. 61,
Communication  with  Audit  Committee,  as  currently  in effect.  Finally,  the
Committee has received  written  disclosures and the letter from the independent
auditors  required by Independence  Standard Board Standard No. 1,  Independence
Discussions with Audit  Committees,  as currently in effect,  and has considered
whether the provision of non-audit  services by the independent  auditors to the
Company is  compatible  with  maintaining  the  auditor's  independence  and has
discussed with the auditors the auditors' independence.

     The members of the Audit  Committee are not  professionally  engaged in the
practice of auditing or accounting,  are not experts in the fields of accounting
or  auditing,  including  in  respect of  auditor  independence.  Members of the
Committee rely without independent  verification on the information  provided to
them  and  on  the  representations  made  by  management  and  the  independent
accountants.  Accordingly,  the Audit Committee's  oversight does not provide an
independent  basis to  determine  that  management  has  maintained  appropriate
accounting and financial  reporting  principles or appropriate  internal control
and  procedures  designed to assure  compliance  with  accounting  standards and
applicable   laws  and   regulations.   Furthermore,   the   Audit   Committee's
consideration and discussions  referred to above do not assure that the audit of

                                       28
<PAGE>
the  Company's  financial  statements  has been carried out in  accordance  with
generally accepted  accounting  principles or that the Company's auditors are in
fact "independent".

     Based upon the reports,  review and  discussions  described in this report,
and subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Charter,  the  Committee  recommended  to the Board
that the audited financial statements be included in the Company's Annual Report
on Form  10-KSB  for the  year  ended  December  31,  2004,  as  filed  with the
Securities and Exchange Commission.

The Audit Committee

Kao-Yu Hung
Mei-Chu Lai
Pi-Liang Liu

Independent Directors, City Network, Inc.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY  OWNERSHIP  OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND RELATED
STOCKHOLDER MATTERS

     The  following  table sets forth as of December  31,  2004,  the number and
percentage  of our  outstanding  shares of common  stock that were  beneficially
owned by (i) each  person  who is  currently  a  director,  (ii) each  executive
officer,  (iii) all current directors and executive officers as a group and (iv)
each person who, to our knowledge is the beneficial owner of more than 5% of the
outstanding common stock.

                                  Number of Shares       Percent of Common Stock
   Name and Address (1)         Beneficially Owned (2)     Beneficially Owned
   --------------------         ----------------------     ------------------
Tiao-Tsan "Andy" Lai                 2,000,000                   7.3%
Yun-Yi "Stella" Tseng                  844,000                   3.1%
Alice Chen                              66,000                     *
I-Min Ou                                25,000                     *
Chin-Yuan Liao                          50,000                     *
Mei-Chu Lai                            648,000                   2.4%
Yu-Hung Kao                          1,161,000                   4.2%
Chung-Chieh "Kevin" Lin                      0                     *
Yong Su                                      0                     *
Pi-Liang Liu                                 0                     *
All officers and directors
 as a group (10 persons)             4,794,000                  17.4%

----------
*    Indicates less than one percent.
(1)  The address of each holder is c/o City Network, Inc., 6F-3, No. 16, Jian Ba
     Road, Jhonghe City, Taipei County 235, Taiwan, ROC.
(2)  Beneficial  ownership is determined in accordance with the rules of the SEC
     and  generally  includes  voting or  investment  power with  respect to the
     shares  shown.  Except as  indicated  by footnote  and subject to community
     property laws where applicable, to our knowledge, the stockholders named in
     the table have sole voting and investment  power with respect to all common
     stock shares shown as beneficially  owned by them. A person is deemed to be
     the  beneficial  owner of  securities  that can be  acquired by such person
     within  60 days upon the  exercise  of  options,  warrants  or  convertible
     securities  (in  any  case,  the  "Currently  Exercisable  Options").  Each
     beneficial owner's percentage  ownership is determined by assuming that the
     Currently  Exercisable  Options that are held by such person (but not those
     held by any other person) have been exercised and converted.

CHANGE IN CONTROL

     There are  currently  no  arrangements  which  would  result in a
change in control of our company.

                                       29
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Throughout  the  history of our  company,  certain  members of our board of
directors  and  general  management  have  made  loans to our  company  to cover
operating expenses or operating deficiencies.

     As of December 31, 2004, we had a non interest-bearing  loan from Tiao-Tsan
Lai, our  Chairman,  President  and Chief  Executive  Officer,  in the amount of
$73,827.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this Form 10-KSB.

     1.   The  following   financial   statements  of  our  company,   with  the
          independent auditor's report, are filed as part of this Form 10-KSB:

          Independent Auditor's Report                                      F-2
          Consolidated Balance Sheets                                       F-3
          Consolidated Statements of Income                                 F-4
          Consolidated Statements of Cash Flow                              F-5
          Consolidated Statements of Changes in Stockholders' Equity        F-6
          Notes to Consolidated Financial Statements                        F-7

     2.   The following  exhibits are filed with this report and incorporated by
          reference as set forth below:

     Exhibit                             Description
     -------                             -----------
     2.1   (1)    Exchange  Agreement  dated  December  4,  2002 by and  among
                  City Network,  Inc., the shareholders of City Network, Inc.,
                  Investment Agents, Inc., Pamela Ray Stinson,  Raymond Robert
                  Acha, and Joseph H. Panganiban

     3.1 (2)      Articles of Incorporation

     3.2 (2)      Certificate of Amendment to Articles of Incorporation

     3.3 (3)      Certificate of Amendment of the Articles of Incorporation

     3.4          Amended and Restated Bylaws

     14.1 (4)     Code of Ethics

     21.1         Subsidiaries

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

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

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

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

----------
(1)  Previously  filed  with the SEC as an Exhibit  to City  Network's  Form 8-K
     filed March 5, 2003, and incorporated herein by reference.
(2)  Previously  filed with the SEC as an Exhibit  to City  Network's  Form SB-2
     filed May 18, 2001, and incorporated herein by reference.
(3)  Previously  filed  with  the  SEC as an  Exhibit  to City  Network's  Proxy
     Statement filed March 21, 2003, and incorporated herein by reference.
(4)  Previously filed with the SEC as an Exhibit to City Network's Annual Report
     on Form 10-KSB filed June 16, 2003, and incorporated herein by reference.

                                       30
<PAGE>
(b)  Current Reports on Form 8-K.

     Report on Form 8-K filed December 20, 2004  announcing  the  appointment of
Yung-Yi  Tseng as CFO and director of our company and  Chung-Chieh  "Kevin" Lin,
Yong Su, and Pi-Liang Liu as directors of our company.

ITEM 14. PRINCIPAL ACCOUNTANT AND FEES

     During  ten  months  ended  December  31,  2004 and the  fiscal  year ended
February  29,  2004,  our  principal  independent  auditor  was  Lichter,  Yu  &
Associates. The following are the services provided and the amount billed.

AUDIT FEES

     The  aggregate  fees billed by Lichter,  Yu & Associates  for  professional
services  rendered for the audit of our annual financial  statements for the ten
months ended  December 31, 2004 and the fiscal year ended February 29, 2004, and
for the review of the financial  statements included in our Quarterly Reports on
Form 10-QSB for such periods, were $58,500 and $66,530, respectively.

AUDIT RELATED FEES

     Other  than the fees  described  under  the  caption  "Audit  Fees"  above,
Lichter,  Yu &  Associates  did not bill any fees for  services  rendered  to us
during ten months ended December 31, 2004 and the fiscal year ended February 29,
2004 for assurance and related  services in connection  with the audit or review
of our consolidated financial statements.

TAX FEES

     The  aggregate  fees billed by Lichter,  Yu &  Associates  for tax services
during the ten months ended December 31, 2004 and the fiscal year ended February
29, 2004 were $3,510 and $3,920.

ALL OTHER FEES

     There  were  no  fees  billed  by  Lichter,   Yu  &  Associates  for  other
professional services rendered during the ten months ended December 31, 2004 and
the fiscal year ended February 29, 2004.

PRE-APPROVAL OF SERVICES

     The Audit  Committee  pre-approves  all services,  including both audit and
non-audit services, provided by our independent accountants. For audit services,
each  year  the  independent  auditor  provides  the  Audit  Committee  with  an
engagement  letter  outlining  the scope of the audit  services  proposed  to be
performed  during the year,  which must be formally  accepted  by the  Committee
before the audit  commences.  The  independent  auditor  also  submits an. audit
services fee proposal,  which also must be approved by the Committee  before the
audit commences.

                                       31
<PAGE>
                                   SIGNATURES

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


                                   CITY NETWORK, INC.

Date: April 14, 2004               By: /s/ Tiao-Tsan Lai
                                      --------------------------------------
                                      Tiao-Tsan Lai
                                      Chief Executive Officer

Date: April 14, 2004               By: /s/ Yun-Yi Tseng
                                      --------------------------------------
                                      Yun-Yi Tseng
                                     Chief Financial Officer

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the registrant and in the capacities and on the dates indicated.

Name                                      Title                        Date
----                                      -----                        ----

/s/ Tiao-Tsan Lai               Director, Chairman and Chief      April 14, 2004
--------------------------      Executive Officer (Principal
Tiao-Tsan Lai                   Executive Officer)

/s/ Yun-Yi Tseng                Director and Chief Financial      April 14, 2004
--------------------------      Officer (Principal Accounting
Yun-Yi Tseng                    Officer)

/s/ Alice Chen                  Director                          April 14, 2004
--------------------------
Alice Chen

/s/ Chin Yuan Liao              Director                          April 14, 2004
--------------------------
Chin-Yuan Liao

/s/ I-Min Oun                   Director                          April 14, 2004
--------------------------
I-Min Oun

/s/ Mei-Chu Lai                 Director                          April 14, 2004
--------------------------
Mei-Chu Lai

/s/ Kao-Yu Hung                 Director                          April 14, 2004
--------------------------
Kao-Yu Hung

/s/ Chung Chich Lin             Director                          April 14, 2004
--------------------------
Chung Chich Lin

/s/ Yang Su                     Director                          April 14, 2004
--------------------------
Yang Su

/s/ Pi-Liang Lu                 Director                          April 14, 2004
--------------------------
Pi-Liang Lu

                                       32
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


                                TABLE OF CONTENTS


Independent Auditor's Report                                            F-2

Consolidated Balance Sheets                                             F-3

Consolidated Statements of Income                                       F-4

Consolidated Statements of Cash Flow                                    F-5

Consolidated Statements of Changes in Stockholders' Equity              F-6

Notes to Consolidated Financial Statements                              F-7

                                      F-1
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders
City Network, Inc. and Subsidiaries
Las Vegas, Nevada

We have audited the  accompanying  consolidated  balance sheets of City Network,
Inc. and its  subsidiaries  ("the Company") as of December 31, 2004 and February
29,  2004  and  the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity, and cash flows for the ten months ended December 31, 2004
and fiscal year ended  February 29, 2004.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of City
Network, Inc. and Subsidiaries as of December 31, 2004 and February 29, 2004 and
the  consolidated  results of its  operations  and cash flows for the ten months
ended  December 31, 2004 and fiscal year ended  February 29, 2004, in conformity
with accounting principles generally accepted in the United States of America.


/s/ Lichter,  Yu &  Associates

March 7, 2005
San Diego, California

                                      F-2
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004

<TABLE>
<CAPTION>
                                                        December 31, 2004         February 29, 2004
                                                        -----------------         -----------------
<S>                                                        <C>                      <C>
                                     ASSETS

Current Assets
  Cash and cash equivalents                                $  2,010,644             $  2,723,573
  Accounts receivable, net                                    3,333,990                7,173,149
  Inventory                                                     732,027                  910,190
  Other receivables                                               6,863                  126,492
  Prepaid expenses                                              102,896                  557,903
                                                           ------------             ------------
      Total Current Assets                                    6,186,420               11,491,307
                                                           ------------             ------------

Fixed Assets, net                                             2,586,872                2,745,664
                                                           ------------             ------------
      Total Fixed Assets                                      2,586,872                2,745,664
                                                           ------------             ------------
Other Assets
  Deposits                                                    1,724,542                  255,706
  Trademarks                                                      1,812                    1,966
  Equity in net assets of affiliated company                    829,008                  770,678
  Intangible assets                                             961,053                1,000,000
  Other current assets                                            8,255                       96
                                                           ------------             ------------
      Total Other Assets                                      3,524,670                2,028,446
                                                           ------------             ------------
Total Assets                                               $ 12,297,962             $ 16,265,417
                                                           ============             ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable and accrued expenses                    $  3,335,286             $  6,838,620
  Due to related party                                           80,083                  334,812
  Loan payable                                                        0                1,680,329
  Deferred revenue                                               14,566                  260,498
  Deposits payable                                                    0                    4,371
  Current portion, long-term debt                             3,226,181                2,316,689
                                                           ------------             ------------
      Total Current Liabilities                               6,656,116               11,435,319

Long-term debt, net of current portion                          246,330                  263,041
                                                           ------------             ------------
      Total Liabilities                                       6,902,446               11,698,360
                                                           ------------             ------------

Stockholders' Equity
  Common stock, $.001 par value, 100,000,000
   shares authorized, 27,500,000 and 25,000,000
   issued and outstanding, respectively                          27,500                   25,000
  Additional paid in capital                                  5,937,946                4,260,117
  Cumulative foreign-exchange translation adjustment            142,453                   29,663
  Retained earnings                                            (712,383)                 252,277
                                                           ------------             ------------
      Total Stockholders' Equity                              5,395,516                4,567,057
                                                           ------------             ------------
      Total Liabilities and Stockholders' Equity           $ 12,297,962             $ 16,265,417
                                                           ============             ============
</TABLE>

                  See Accompanying Notes and Auditor's Report

                                      F-3
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
   TEN MONTHS ENDED DECEMBER 31, 2004 AND FISCAL YEAR ENDED FEBRUARY 29, 2004

<TABLE>
<CAPTION>
                                                         December 31, 2004        February 29, 2004
                                                         -----------------        -----------------
<S>                                                        <C>                      <C>
Sales, net                                                 $ 15,674,613             $ 19,647,749

Cost of sales                                                14,924,938               17,827,486
                                                           ------------             ------------
      Gross profit                                              749,675                1,820,263

General and administrative expenses                           1,395,388                1,391,658
                                                           ------------             ------------

      Income (loss) from operations                            (645,713)                 428,605
                                                           ------------             ------------
Other (Income) Expense
  Interest income                                                (3,785)                 (20,202)
  Rental income                                                 (17,858)                  (3,085)
  Commission income                                                (281)                 (15,517)
  (Gain) loss on currency exchange                              (10,720)                 (13,815)
  Other income                                                  (32,120)                 (11,263)
  Equity in earnings of investee                                (58,330)                   1,674
  Miscellaneous                                                   1,303                    2,499
  Bad debt expense                                              185,858                  159,238
  Loss on sale of fixed assets                                   32,068                        0
  Interest expense                                              112,922                   67,691
                                                           ------------             ------------
      Total Other (Income) Expense                              209,057                  167,220
                                                           ------------             ------------

      Income (loss) before income taxes                        (854,770)                 261,385

Provison for income taxes                                       109,890                   85,190
                                                           ------------             ------------

      Net income (loss)                                    $   (964,660)            $    176,195
                                                           ============             ============

Net income (loss) per share (basic and diluted)
  Basic                                                    $     (0.036)            $      0.007
  Diluted                                                  $     (0.036)            $      0.007

Weighted average number of shares
  Basic                                                      27,000,000               24,958,333
  Diluted                                                    27,000,000               24,958,333
</TABLE>

                  See Accompanying Notes and Auditor's Report

                                      F-4
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
   TEN MONTHS ENDED DECEMBER 31, 2004 AND FISCAL YEAR ENDED FEBRUARY 29, 2004

<TABLE>
<CAPTION>
                                                           December 31, 2004       February 29, 2004
                                                           -----------------       -----------------
<S>                                                          <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income (loss)                                          $  (964,660)            $   176,195

Adjustments to reconcile net income (loss) to net
 cash provided by (used) in operating activities:
   Depreciation and amortization                                 161,296                  44,057
   Equity in earning of investee                                 (58,330)                  1,674
   Loss on disposal of assets                                     32,068                       0
   Bad debt                                                      185,858                 159,238
   (Gain) loss on foreign currency exchange                      (10,720)                (13,815)
   Decrease (Increase) in receivables                          3,839,159              (5,652,808)
   Decrease (Increase) in inventory                              178,163                (543,184)
   Decrease (Increase) in other receivables                      119,629                (115,032)
   Decrease (Increase) in prepaid expenses                       455,007                (347,946)
   Decrease (Increase) in deposit                             (1,468,836)               (254,737)
   Decrease (Increase) in deferred charges                             0                  36,836
   Decrease (Increase) in other current assets                    (8,159)                 72,662
   (Decrease) Increase in accounts payable
     and accrued expenses                                     (3,503,334)              6,297,694
   (Decrease) Increase in deferred revenue                      (245,932)                260,498
   (Decrease) Increase in deposits payable                        (4,371)                  4,371
                                                             -----------             -----------
      Total Adjustments                                         (328,502)                (50,492)
                                                             -----------             -----------
      Net cash provided by (used in) operations               (1,293,162)                125,703
                                                             -----------             -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of investments                                    0                 108,594
  Proceeds from sale of fixed assets                              35,462                       0
  Purchase of intangibles                                              0                    (838)
  Purchase of investments                                              0                (772,352)
  Purchase of furniture and equipment                             (5,008)               (462,722)
                                                             -----------             -----------
      Net cash used in investing activities                       30,454              (1,235,912)
                                                             -----------             -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Payment on notes payable                                    (5,217,702)             (2,229,705)
  Payment of loan from related party                            (455,227)                      0
  Loan from related party                                        200,498                 743,386
  Issuance of notes payable                                      477,953               3,974,994
  Issuance of short-term debt                                  5,621,631                       0
  Issuance of common stock                                             0                 720,000
                                                             -----------             -----------
      Net cash provided by financing activities                  627,153               3,208,675
                                                             -----------             -----------

Effect of exchange rate change on cash                           (77,374)                  4,843

Net change in cash and cash equivalents                         (712,929)              2,103,309
                                                             -----------             -----------

Cash and cash equivalents at beginning of year                 2,723,573                 620,264
                                                             -----------             -----------
Cash and cash equivalents at end of year                     $ 2,010,644             $ 2,723,573
                                                             ===========             ===========
Supplemental cash flows disclosures:
  Income tax payments                                        $    35,750             $     9,235
                                                             -----------             -----------
  Interest payments                                          $   112,922             $    67,691
                                                             -----------             -----------
Non cash transaction:
  Conversion of debt to equity                               $ 1,680,329             $         0
                                                             -----------             -----------
</TABLE>

                   See Accompanying Notes and Auditor's Report

                                      F-5
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
   TEN MONTHS ENDED DECEMBER 31, 2004 AND FISCAL YEAR ENDED FEBRUARY 29, 2004

<TABLE>
<CAPTION>
                                                             December 31, 2004        February 29, 2004
                                                             -----------------        -----------------
<S>                                                              <C>                      <C>
Common stock, number of shares outstanding
  Balance at beginning of period                                 25,000,000               24,500,000
  Stock cancellation                                                      0                        0
  Stock split                                                             0                        0
  Common stock issued                                             2,500,000                  500,000
                                                               ------------             ------------
  Balance at end of period                                       27,500,000               25,000,000
                                                               ============             ============

Common stock, par value $.001 (thousands of shares)
  Balance at beginning of year                                 $     25,000             $     24,500
  Stock cancellation                                                      0                        0
  Stock split                                                             0                        0
  Common stock issued                                                 2,500                      500
                                                               ------------             ------------
  Balance at end of year                                             27,500                   25,000
                                                               ------------             ------------
Additional paid in capital
  Balance at beginning of year                                    4,260,117                3,540,617
  Issuance of stock                                               1,677,829                  719,500
                                                               ------------             ------------
  Balance at end of year                                          5,937,946                4,260,117
                                                               ------------             ------------
Cumulative foreign-exchange translation adjustment
  Balance at beginning of year                                       29,663                        0
  Foreign currency translation                                      123,689                   29,663
                                                               ------------             ------------
  Balance at end of year                                            153,352                   29,663
                                                               ------------             ------------
Retained (deficits)
  Balance at beginning of year                                      252,277                   76,082
  Issuance of stock dividend                                              0                        0
  Net income (loss)                                                (964,660)                 176,195
                                                               ------------             ------------
  Balance at end of year                                           (712,383)                 252,277
                                                               ------------             ------------

Total stockholders' equity at end of year                      $  5,406,415             $  4,567,057
                                                               ============             ============
</TABLE>

                   See Accompanying Notes and Auditor's Report

                                      F-6
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note A - ORGANIZATION

     City Network,  Inc., formerly Investment Agents,  Inc., was incorporated on
     August  8,  1996  under  the laws of the  State  of  Nevada.  City  Network
     Technology,  Inc., formerly Gelcrest  Investments Limited, was incorporated
     under  the laws of the  British  Virgin  Islands  on March  1,  2002.  City
     Network,  Inc. -Taiwan,  formerly City Engineering,  Inc., was incorporated
     under the laws of Republic of China on September 6, 1994. City Construction
     was incorporated under the laws of Republic of China on October,  10, 2003.
     City  Network,  Inc.  owns  100%  of the  capital  stock  of  City  Network
     Technology,  Inc.,  and City  Network  Technology,  Inc.  owns  100% of the
     capital  stock of City  Network,  Inc.  -  Taiwan,  and City  Construction.
     Collectively the four corporations are referred to herein as the "Company".

     On November 14, 2002, City Network  Technology,  Inc. became a wholly owned
     subsidiary of City Network,  Inc. through an Exchange Agreement,  which was
     amended on December 4, 2002 whereby City Network,  Inc. acquired all of the
     issued and outstanding  capital stock of City Network  Technology,  Inc. in
     exchange for 12,000,000 shares of City Network, Inc.

     The Company is a provider of internet broadband and wireless infrastructure
     equipment and service for the rapidly expanding broadband marketplace.  The
     Company  intends to be an important  provider of these services  predicated
     upon its  dedication to  delivering  user  friendly,  cost  effective,  and
     customer tailored high speed internet access equipment to meet the business
     needs  of  the  hospitality,  residential  property  and  telecommunication
     industry worldwide.

     On December 16, 2004, the Company changed its fiscal year end from February
     28 to December 31.

                                      F-7
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     REVENUE RECOGNITION
     Revenue from sales of products to customers is recognized  upon shipment or
     when title  passes to  customers  based on the terms of the  sales,  and is
     recorded  net of  returns,  discounts  and  allowances.  Service  income is
     recognized  as the related  services are provided  pursuant to the terms of
     the service agreement.

     PRINCIPLES OF CONSOLIDATION
     The consolidated financial statements include the accounts of City Network,
     Inc., and its wholly owned subsidiaries City Network  Technology,  Inc. and
     its  wholly  owned  subsidiaries,  City  Network,  Inc.  - Taiwan  and City
     Construction,  collectively referred to within as the Company. All material
     intercompany  accounts,  transactions  and profits have been  eliminated in
     consolidation.

     RISKS AND UNCERTAINTIES
     The  Company is subject to  substantial  risks from,  among  other  things,
     intense competition from the providers of broadband products,  services and
     the  telecommunication  industry in general,  other risks  associated  with
     financing, liquidity requirements,  rapidly changing customer requirements,
     limited operating history, and the volatility of public markets.

     CONTINGENCIES
     Certain  conditions  may exist as of the date the financial  statements are
     issued,  which may result in a loss to the  Company  but which will only be
     resolved  when  one or more  future  events  occur  or fail to  occur.  The
     Company's management and legal counsel assess such contingent  liabilities,
     and such  assessment  inherently  involves  an  exercise  of  judgment.  In
     assessing loss contingencies  related to legal proceedings that are pending
     against  the  Company  or  unasserted   claims  that  may  result  in  such
     proceedings,  the Company's legal counsel evaluates the perceived merits of
     any legal  proceedings or unasserted claims as well as the perceived merits
     of the amount of relief sought or expected to be sought.

     If the  assessment  of a contingency  indicates  that it is probable that a
     material  loss has been  incurred  and the amount of the  liability  can be
     estimated,  then the estimated  liability would be accrued in the Company's
     financial statements. If the assessment indicates that a potential material
     loss contingency is not probable but is reasonably possible, or is probable
     but  cannot be  estimated,  then the  nature of the  contingent  liability,
     together with an estimate of the range of possible loss if determinable and
     material would be disclosed.

     Loss contingencies  considered to be remote by management are generally not
     disclosed unless they involve guarantees, in which case the guarantee would
     be disclosed.

                                      F-8
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     USE OF ESTIMATES
     The  preparation  of financial  statements  in  conformity  with  generally
     accepted   accounting   principles  requires  management  to  make  certain
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.  Significant estimates include  collectibility of accounts
     receivable, accounts payable, sales returns and recoverability of long-term
     assets.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS
     The  Company  has  made  an  allowance  for  doubtful  accounts  for  trade
     receivables  based on a combination of write-off  history,  aging analysis,
     and any specific known troubled accounts.

     FIXED ASSETS
     Property and  equipment are stated at cost less  accumulated  depreciation.
     Expenditures for major additions and improvements are capitalized and minor
     replacements,  maintenance  and repairs are charged to expense as incurred.
     Depreciation  is provided on the  straight-line  method over the  estimated
     useful lives of the assets, or the remaining term of the lease, as follows:

               Furniture and Fixtures                5 years
               Equipment                             5 years
               Computer Hardware and Software        3 years
               Building and Improvements             50 years

     INTANGIBLE ASSETS
     Effective July 2002, the Company adopted Statement of Financial  Accounting
     Standards  ("SFAS") No. 142,  "Goodwill and Other  Intangible  Assets." The
     adoption  of  SFAS  No.  142  required  an  initial  impairment  assessment
     involving a comparison of the fair value of  trademarks,  patents and other
     intangible  assets  to  current  carrying  value.  No  impairment  loss was
     recognized for the years ended December 31, 2004 and February 29, 2004.

     Trademarks and other intangible assets determined to have indefinite useful
     lives are not  amortized.  The  Company  tests  such  trademarks  and other
     intangible assets with indefinite useful lives for impairment annually,  or
     more frequently if events or circumstances  indicate that an asset might be
     impaired.  Trademarks  and  other  intangible  assets  determined  to  have
     definite  lives are  amortized  over their  useful lives or the life of the
     trademark and other intangible asset, whichever is less.

     EXCHANGE GAIN (LOSS)
     During year ended December 31, 2004 and February 29, 2004, the transactions
     of City Network,  Inc. - Taiwan and City Construction were denominated in a
     foreign  currency  and are  recorded in New Taiwan  dollars at the rates of
     exchange in effect when the transactions  occur.  Exchange gains and losses
     are  recognized for the different  foreign  exchange rates applied when the
     foreign currency assets and liabilities are settled.

                                      F-9
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     TRANSLATION ADJUSTMENT
     As of  December  31,  2004 and  February  29,  2004,  the  accounts of City
     Network,  Inc. - Taiwan and City  Construction  were maintained,  and their
     financial  statements  were  expressed,  in New Taiwan Dollars (NTD).  Such
     financial  statements were translated into U.S. Dollars (USD) in accordance
     SFAS No. 52, "Foreign Currency Translation", with the NTD as the functional
     currency.  According  to the  Statement,  all assets and  liabilities  were
     translated  at  the  current  exchange  rate,   stockholder's   equity  are
     translated  at  the  historical   rates  and  income  statement  items  are
     translated  at the  weighted  average  exchange  rate for the  period.  The
     resulting  translation  adjustments are reported under other  comprehensive
     income in accordance with SFAS No. 130, "Reporting Comprehensive Income".

     As of December 31, 2004 and February  29, 2004 the exchange  rates  between
     NTD and the USD was NTD$1=USD$0.03128 and NTD$1=USD$0.02994,  respectively.
     The   weighted-average   rate  of   exchange   between   NTD  and  USD  was
     NTD$1=USD$0.02998 and  NTD$1=USD$0.02617,  respectively.  Total translation
     adjustment recognized for the year ended December 31, 2004 and February 29,
     2004 is $153,352 and $29,663, respectively.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     Our Company  measures its financial  assets and  liabilities  in accordance
     with generally accepted accounting principles. For certain of the Company's
     financial  instruments,  including  accounts  receivable (trade and related
     party),  notes  receivable and accounts  payable (trade and related party),
     and accrued  expenses,  the carrying amounts  approximate fair value due to
     their short  maturities.  The amounts owed for long-term debt and revolving
     credit  facility also  approximate  fair value because  interest  rates and
     terms offered to the Company are at current market rates.

     STATEMENT OF CASH FLOWS
     In accordance with SFAS No. 95, "Statement of Cash Flows",  cash flows from
     the Company's operations are based upon the local currencies.  As a result,
     amounts related to assets and liabilities reported on the statement of cash
     flows will not necessarily agree with changes in the corresponding balances
     on the balance sheet.

     CONCENTRATION OF CREDIT RISK
     Financial   instruments   that   potentially   subject   the   Company   to
     concentrations of credit risk are accounts receivable and other receivables
     arising from its normal business activities.  The Company has a diversified
     customer  base.  The  Company  controls  credit  risk  related to  accounts
     receivable   through  credit   approvals,   credit  limits  and  monitoring
     procedures.  The Company routinely  assesses the financial  strength of its
     customers and, based upon factors surrounding the credit risk,  establishes
     an  allowance,   if  required,  for  un-collectible   accounts  and,  as  a
     consequence,  believes  that its accounts  receivable  credit risk exposure
     beyond such allowance is limited.

                                      F-10
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     INVENTORY
     Inventory is valued at the lower of cost or market.  Cost is  determined on
     the weighted average method. As of December 31, 2004 and February 29, 2004,
     inventory consisted only of finished goods.

     PRODUCT WARRANTIES
     The Company estimates its warranty costs based on historical warranty claim
     experience  and applies  this  estimate to the revenue  stream for products
     under  warranty.   Future  costs  for  warranties   applicable  to  revenue
     recognized  in the  current  period  are  charged to cost of  revenue.  The
     warranty accrual is reviewed  quarterly to verify that it properly reflects
     the remaining obligation based on anticipated expenditures over the balance
     of the obligation period.  Adjustments are made when accrual warranty claim
     experience differs from estimate.

     LONG-TERM EQUITY INVESTMENTS
     Long-term  equity  investments  are accounted for by the equity method when
     the Company and its subsidiaries  owns 20% or more of the investee's voting
     shares,  or  less  than  20% of  investee's  voting  shares  but is able to
     exercise significant  influence over the investee's operation and financial
     polices,  but not more then 50%. All other long-term equity investments are
     accounted for by either the lower-of-cost-or-market  method or cost method.
     For  long-term  equity  investments  accounted  for under the equity method
     related to investee's that are publicly listed companies, unrealized losses
     resulting  from  declines in the market  value below cost are recorded as a
     separate component of stockholders' equity.

     For long-term  equity  investments  in non-listed  companies  accounted for
     under  the  cost  method,  investments  are  stated  at  original  cost.  A
     write-down  of the  investment  balance to  earnings is taken only if it is
     determined  that there is a permanent  decline in the  investment's  value.
     Stock dividends do not result in the recognition of investment income.

     For long-term equity  investments  accounted for by the equity method,  the
     investment  is initially  recorded at cost,  then reduced by dividends  and
     increased or decreased by investor's  proportionate share of the investee's
     net earnings or loss.

     CASH AND CASH EQUIVALENTS
     The Company considers all highly liquid investments  purchased with initial
     maturities of three months or less to be cash equivalents.

     ADVERTISING
     Advertising costs are expensed in the year incurred.

                                      F-11
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     INCOME TAXES
     Provisions  for income taxes are based on taxes payable or  refundable  for
     the current year and deferred  taxes on temporary  differences  between the
     amount of taxable  income and pretax  financial  income and between the tax
     bases of assets and liabilities and their reported amounts in the financial
     statements.

     Deferred  tax  assets  and   liabilities  are  included  in  the  financial
     statements at currently  enacted income tax rates  applicable to the period
     in which the  deferred  tax  assets  and  liabilities  are  expected  to be
     realized or settled as prescribed in SFAS No. 109,  "Accounting  for Income
     Taxes".  As changes in tax laws or rates are  enacted,  deferred tax assets
     and liabilities are adjusted through the provision for income taxes.

     EARNINGS PER SHARE
     The Company uses SFAS No. 128,  "Earnings Per Share",  for  calculating the
     basic and diluted  earnings  (loss) per share.  Basic  earnings  (loss) per
     share are computed by dividing  net income  (loss)  attributable  to common
     stockholders by the weighted  average number of common shares  outstanding.
     Diluted earnings per share are computed similar to basic earnings per share
     except  that  the   denominator   is  increased  to  include  common  stock
     equivalents, if any, as if the potential common shares had been issued.

     IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
     The Company  adopted the  provision of The Financial  Accounting  Standards
     Board ("FASB") No. 121, "Accounting for the Impairment of Long-Lived Assets
     and for Long-Lived Assets to be Disposed of". This statement  requires that
     long-lived  assets and certain  identifiable  intangibles  be reviewed  for
     impairment  whenever events or changes in  circumstances  indicate that the
     carrying  amount  of an asset  may not be  recoverable.  Recoverability  of
     assets to be held and used is  measured  by a  comparison  of the  carrying
     amount of an asset to future net cash flows expected to be generated by the
     asset.  If such assets are considered to be impaired,  the impairment to be
     recognized  is measured by the amount by which the carrying  amounts of the
     assets exceed the fair values of the assets. In assessing the impairment of
     these  identifiable  intangible  assets,   identifiable  goodwill  will  be
     allocated  on a pro rata  basis  using  fair  values  of the  assets at the
     original  acquisition  date. In estimating  expected  future cash flows for
     determining  whether an asset is impaired and if expected future cash flows
     are used in measuring  assets that are impaired,  assets will be grouped at
     the lowest level (entity level) for which there are identifiable cash flows
     that are largely  independent  of the cash flows of other groups of assets.
     Assets to be disposed of are reported at the lower of the  carrying  amount
     or fair value less costs to sell.  In recording  an  impairment  loss,  any
     related  goodwill  would be reduced to zero before  reducing  the  carrying
     amount of any identified impaired asset.

     For  goodwill not  identifiable  with an impaired  asset,  the Company will
     establish  benchmarks at the lowest lever  (entity  level) as its method of
     assessing impairment. In measuring impairment, unidentifiable goodwill will
     be  considered  impaired if the fair value at the lowest level is less than
     its carrying  amount.  The fair value of  unidentifiable  goodwill  will be
     determined by subtracting the fair value of the recognized net asset at the
     lowest level  (excluding  goodwill) from the value at the lowest level. The
     amount of the impairment loss should be equal to the difference between the
     carrying  amount of goodwill and the fair value of  goodwill.  In the event
     that impairment is recognized, appropriate disclosures would be made.

                                      F-12
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     NEW ACCOUNTING PRONOUNCEMENTS
     In January 2003, FASB issued FASB Interpretation No. 46,  "Consolidation of
     Variable Interest Entities"  ("FIN46").  This  interpretation of Accounting
     Research Bulletin No. 51, requires  companies to consolidate the operations
     of all variable interest entities  ("VIE's") for which they are the primary
     beneficiary.  The term "primary  beneficiary" is defined as the entity that
     will  absorb a majority  of  expected  losses,  receive a  majority  of the
     expected residual returns,  or both. This  interpretation was later revised
     by the issuance of  Interpretation  No. 46R ("FIN  46R").  The revision was
     issued to address certain  implementation  issues that had arisen since the
     issuance of the original  interpretation  and to provide companies with the
     ability to defer the adoption of FIN46 to period after March 15, 2004.  The
     implementation  of  FIN46  and  FIN  46R,  had no  material  impact  on the
     Company's financial statements.

     On July 16, 2004 the FASB ratified the Emerging  Issues Task Force ("EITF")
     consensus of Issue 02-14,  "Whether the Equity Method of Accounting Applies
     when an Investor Does Not Have an Investment in Voting Stock of an Investee
     but Exercises  Significant  Influence  through Other Means" ("EITF 02-14").
     The consensus  concluded that an investor should apply the equity method of
     accounting  when it can  exercise  significant  influence  over  an  entity
     through  a means  other  than  holding  voting  rights.  The  consensus  is
     effective  for  reporting  periods  beginning  after  September  2004.  The
     adoption  of EITF  02-14 did not have a  material  impact on the  Company's
     financial statements.

     On  December  16,  2004,  the FASB  issued  SFAS No.  123  (revised  2004),
     "Share-Based   Payment"  ("SFAS  123R"),   which  replaces  SFAS  No.  123,
     "Accounting for Stock-Based  Compensation"  ("SFAS 123") and supercedes APB
     Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees."  SFAS 123R
     requires  all  share-based  payments  to  employees,  including  grants  of
     employee stock options, to be recognized in the financial  statements based
     on their fair values,  beginning  with the first  interim or annual  period
     after June 15, 2005. The pro forma disclosures  previously  permitted under
     SFAS  123  no  longer  will  be  an  alternative  to  financial   statement
     recognition. The Company is required to adopt SFAS 123R in its three months
     ending  September 30, 2005. Under SFAS 123R, The Company must determine the
     appropriate fair value model to be used for valuing  share-based  payments,
     the amortization  method for compensation cost and the transition method to
     be used at date of adoption. The transition methods include prospective and
     retroactive adoption options.  Under the retroactive options, prior periods
     may be restated  either as of the  beginning of the year of adoption or for
     all periods  presented.  The prospective  method requires that compensation
     expense be recorded for all unvested stock options and restricted  stock at
     the  beginning  of the first  quarter of adoption  of SFAS 123R,  while the
     retroactive  methods  would  record  compensation  expense for all unvested
     stock  options  and  restricted  stock  beginning  with  the  first  period
     restated.  The Company is evaluating the  requirements  of SFAS 123, and it
     expects that the adoption of SFAS 123R will have no material  impact on the
     Company's financial statements.

     In September  2004, the EITF Issue No. 04-08,  "The Effect of  Contingently
     Convertible  Debt on Diluted  Earnings per Share" ("EITF 04-08") was issued
     stating that  contingently  convertible  debt should be included in diluted
     earnings  per share  computations  regardless  of whether the market  price
     trigger has been met. EIFT 04-08 is effective for reporting  periods ending
     after  December  15, 2004.  EITF 04-08 will have no material  impact on the
     Company's financial statements.

                                      F-13
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note D -CASH

     The Company maintains its cash balances at various banks in Taiwan and Hong
     Kong. All balances are insured by the Central Deposit Insurance Corporation
     (CDIC).  As of  December  31, 2004 and  February  29,  2004,  there were no
     uninsured portions of the balances held at the bank.

Note E - FIXED ASSETS

     Fixed assets consist of the following:

                                       December 31, 2004      February 29, 2004
                                       -----------------      -----------------
     Land                                $ 1,916,328             $ 1,966,694
     Building                                283,977                 305,429
     Machinery and equipment                 430,880                 427,126
     Furniture and fixtures                  143,655                 142,402
                                         -----------             -----------

                                         $ 2,774,840             $ 2,841,651

     Accumulated depreciation               (187,968)                (95,987)
                                         -----------             -----------

                                         $ 2,586,872             $ 2,745,664
                                         ===========             ===========

Note F - INTANGIBLE ASSETS

     Intangible assets consist of the following:

                                       December 31, 2004      February 29, 2004
                                       -----------------      -----------------
     Trademarks                          $     2,150             $     2,150
     Intangible asset                      1,000,000               1,000,000
                                         -----------             -----------

                                         $ 1,002,150             $ 1,002,150

     Accumulated depreciation                (39,285)                   (184)
                                         -----------             -----------

                                         $   962,865             $ 1,001,966
                                         ===========             ===========

                                      F-14
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note G- COMMITTMENTS

     A BEST INFORMATION

     City Network, Inc. - Taiwan, signed an agreement with A Best Information in
     2003 for the exclusive right to sell A Best Information's  products.  There
     is no expiration  date in the agreement,  and the Company has the rights to
     transfer  the  agreement to any third party with a  negotiable  price.  The
     Company paid $1,000,000 for these rights.

     RESELLER AGREEMENTS
     City Network,  Inc. - Taiwan has several signed  reseller  agreements  with
     various  customers.  These resellers are given special sales prices and are
     paid commissions for their sales orders.

     CO-CONSTRUCTION AGREEMENT
     In April 2004, City  Construction  Co., Ltd. Entered into a Co-Construction
     Agreement with another company in Taipei, Taiwan. Under the Agreement,  the
     Company will finance,  construct and own 50% of the building  project.  The
     Company has not yet begun construction on the building.

     OPERATING LEASES
     The Company leases various office  facilities  under operating  leases that
     terminate on various dates.  Rental  expense for these leases  consisted of
     $50,029 for the ten months ended December 31, 2004 and $13,482 for the year
     ended February 29, 2004.  The Company has future minimum lease  obligations
     as follows:

                             2005        $20,122

Note H - LONG-TERM INVESTMENT

     BEIJING PUTAIN HEXIN NETWORK TECHNOLOGY CO., LTD
     On August 31, 2003 the Company purchased approximately  twenty-five percent
     (25%) of Beijing Putain Hexin Network Technology Co., Ltd for $325,000.  On
     December 4, 2003 the Company purchased an additional  fifteen percent (15%)
     for  $398,500.  Beijing  Putain Hexin  Network  Technology  Co., Ltd is not
     publicly traded or listed.  The Company is using the complete equity method
     to record its share of the subsidiary's net income and loss. As of December
     31, 2004 and February 29, 2004 the Company  recognized an income of $58,330
     and a loss $1,674 from their acquisition.

                                      F-15
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


Note I - COMPENSATED ABSENSES

     Employees earn annual vacation leave at the rate of seven (7) days per year
     for the first three years. Upon completion of the third year of employment,
     employees earn annual  vacation leave at the rate of ten (10) days per year
     for  years  four  through  five.  Upon  completion  of the  fifth  year  of
     employment,  employees  earn annual  vacation leave at the rate of fourteen
     (14) days per year for years six through ten. Upon  completion of the tenth
     year of employment,  one (1) additional day for each additional year, until
     it reaches  thirty (30) days per year. At  termination,  employees are paid
     for any  accumulated  annual  vacation  leave.  As of December 31, 2004 and
     February 29, 2004 vacation liability existed in the amount of $1,892 and $0
     respectively.

Note J - INCOME TAXES

     Total Federal and State income tax expense for the years ended December 31,
     2004 and February 29, 2004 amounted to $109,890 and $85,190,  respectively.
     For the years ended  December 31, 2004 and  February 29, 2004,  there is no
     difference  between the federal  statutory  tax rate and the  effective tax
     rate.

     The following is a reconciliation of income tax expense:

     12/31/04           U.S.           State       International        Total
                      --------       --------      -------------       --------
     Current          $      0       $      0         $109,890         $109,890
     Deferred                0              0                0                0
                      --------       --------         --------         --------
          Total       $      0       $      0         $109,890         $109,890
                      ========       ========         ========         ========

     02/29/04           U.S.           State       International        Total
                      --------       --------      -------------       --------
     Current          $  3,321       $      0         $ 44,180         $ 47,501
     Deferred                0              0                0                0
                      --------       --------         --------         --------
          Total       $  3,321       $      0         $ 44,180         $ 47,501
                      ========       ========         ========         ========

     Reconciliation of the differences between the statutory U.S. Federal income
     tax rate and the effective rate is as follows:

                                                  12/31/2004        2/29/2004
                                                  ----------        ---------
     Federal statutory tax rate                        33%              33%
     State, net of federal benefit                      0%               0%
                                                     ----             ----

     Effective tax rate                                33%              33%
                                                     ====             ====

                                      F-16
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004

NOTE K - DEBT

     At December 31, 2004 and February 29, 2004,  the Company had notes  payable
     outstanding  in  the  aggregate   amount  of  $3,461,162  and   $2,579,730,
     respectively. Payable as follows:

<TABLE>
<CAPTION>
           December 31, 2004                                            February 29, 2004
           -----------------                                            -----------------
<S>                                         <C>             <C>                                         <C>
Secured  note  payable  to  a  bank  in                      Secured  note  payable  to  a  bank  in
Taiwan,  interest  at 3.175% per annum,                      Taiwan,  interest  at 3.175% per annum,
due by May 29, 2016                          $280,689        due by May 29, 2016                          $ 280,689

Note  payable  to  a  bank  in  Taiwan,                      Secured  note  payable  to  a  bank  in
interest  at 3.616% per  annum,  due by                      Taiwan,  interest  at 7.425% per annum,
October 8, 2005                               500,480        due by May 9, 2004                              30,972

Note  payable  to  a  bank  in  Taiwan,                      Secured  note  payable  to  a  bank  in
interest  at 3.828% per  annum,  due by                      Taiwan,  interest  at 4.25% per  annum,
February 13, 2005                             125,120        due by June 6, 2005                             13,011

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 4.42%  per  annum,  due by                      interest  at 4.25%  per  annum,  due by
March 29, 2005                                246,921        June 12, 2005                                    1,497

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 4.42%  per  annum,  due by                      interest at 7.5% per annum, due by June
March 15, 2005                                 68,004        16, 2004                                       179,641

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 4.42%  per  annum,  due by                      interest  at 3.77%  per  annum,  due by
April 11, 2005                                 76,548        December 31, 2004                              269,462

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 4.42%  per  annum,  due by                      interest  at 3.77%  per  annum,  due by
April 10, 2005                                 54,995        March 13, 2004                                 119,760

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest at 4.42% per annum, due by May                      interest  at 3.77%  per  annum,  due by
29, 2005                                      233,493        March 26, 2004                                 188,623

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest at 3.77% per annum, due by May
March 10, 2005                                196,563        4, 2004                                        572,405

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 3.77%  per  annum,  due by
February 15, 2005                              60,761        March 5, 2004                                   78,635
</TABLE>

                                      F-17
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


NOTE K - DEBT (CONTINUED)

<TABLE>
<CAPTION>
<S>                                         <C>             <C>                                         <C>
Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 3.77%  per  annum,  due by
March 8, 2005                                141,511         April 8, 2004                                  225,573

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 3.77%  per  annum,  due by
March 2, 2005                                 35,121         April 23, 2004                                   8,994

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 3.77%  per  annum,  due by
March 15, 2005                                43,498         April 8, 2004                                   19,805

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 3.77%  per  annum,  due by
March 11, 2005                                13,085         April 8, 2004                                  261,871

Note  payable  to  a  bank  in  Taiwan,                      Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by                      interest  at 4.269% per  annum,  due by
April 9, 2005                                591,192         August 25, 2004                                328,792

Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by
April 9, 2005                                 53,895

Note  payable  to  a  bank  in  Taiwan,
interest  at 3.616% per  annum,  due by
April 9, 2005                                 59,521

Note  payable  to  a  bank  in  Taiwan,
interest  at 3.26%  per  annum,  due by
March 11, 2005                               312,752

Note  payable  to  a  bank  in  Taiwan,
interest  at 3.26%  per  annum,  due by
April 22, 2005                               121,866

Note  payable  to  a   corporation   in
Taiwan,  interest  at 6.265% per annum,
due by November  20,  2005,  personally
guaranteed by an office of the Company       256,496
                                          ----------
Total                                      3,461,612                                                      2,579,730

Current portion                           $3,215,282                                                     $2,316,689
                                          ----------                                                     ----------
Long-term portion                         $  246,330
                                          ==========                                                     $  263,041
                                                                                                         ==========
</TABLE>

                                      F-18
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004


NOTE L - RELATED PARTY TRANSACTIONS

     Throughout  the  history of the  Company,  certain  members of the Board of
     Directors  and general  management  have made loans to the Company to cover
     operating expenses or operating deficiencies.

     Andy Lai - As of December 31, 2004 and February 29, 2004, the Company has a
     non interest-bearing  loan from Andy Lai, the Company's  President,  in the
     amount of $73,827 and $334,812,  respectively.  Mr. Lai has also personally
     guaranteed a note  payable of the Company in the amount of $477,953.  As of
     December 31, 2004, the balance for the note was $256,496.

     Huang  Hui  Maio  - As  of  December  31,  2004,  the  Company  has  a  non
     interest-bearing loan from Huang Hui Maio, a shareholder of the Company, in
     the amount of $6,256.

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying  amounts of cash and cash  equivalents,  accounts  receivable,
     deposits and accounts payable  approximate  their fair value because of the
     short maturity of those instruments.

     The carrying amounts of the Company's long-term debt approximate their fair
     value  because  of the  short  maturity  and/or  interest  rates  which are
     comparable to those currently  available to the Company on obligations with
     similar terms.

NOTE N - STOCK

     On February  14, 2003 the Board of  Directors  of the Company  approved and
     recommended that Company's Articles of Incorporation be amended to increase
     the number of authorized  shares of common  stock,  par value $0.001 of the
     Company, from 25,000,000 shares to 100,000,000; and to authorize 50,000,000
     shares of preferred stock, par value $0.001.

     On February 17, 2003, the holders of  approximately  52% of the outstanding
     shares of common stock of City Network  executed a written consent adopting
     and approving the Charter  Amendment.  The Charter Amendment was filed with
     the Secretary of State of the State of Nevada in March 2003.

     In May 2004,  the Company  issued  2,500,000  shares of its common stock as
     consideration  for the  conversion  in full of a note and  short  term debt
     payable to third parties in the aggregate of $1,680,329. The note and short
     term debt payable were  converted into shares of common stock at a price of
     approximately $0.672 per share.

                                      F-19
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     DECEMBER 31, 2004 AND FEBRUARY 29, 2004

NOTE O - TRANSITION REPORTS

     In  accordance  to  Regulation  13A-10,  the  following  table  present the
     statements  of income for the ten months  ended  December 31, 2004 and 2003
     for the Company,  due to the change in the fiscal year ended from  February
     28 to December 31.

<TABLE>
<CAPTION>
                                                        Ten months ended        Ten months ended
                                                        December 31, 2004       December 31, 2003
                                                        -----------------       -----------------
                                                            (Audited)              (Unaudited)
<S>                                                       <C>                      <C>
     Sales, net                                           $ 15,674,613             $ 16,119,649

     Cost of sales                                          14,924,938               14,798,578
                                                          ------------             ------------

           Gross profit                                     749,675.00                1,321,071

     General and administrative expenses                     1,395,388                  758,032
                                                          ------------             ------------

           Income (loss) from operations                      (645,713)                 563,039
                                                          ------------             ------------
     Other (Income) Expense
       Interest income                                          (3,785)                 (21,137)
       Rental income                                           (17,858)                  (2,093)
       Commission income                                          (281)                 (14,767)
       (Gain) loss on currency exchange                        (10,720)                  (5,100)
       Other income                                            (32,120)                 (36,067)
       Equity in earnings of investee                          (58,330)                   2,676
       Miscellaneous                                             1,303                   61,774
       Bad debt expense                                        185,858                  362,075
       Loss on sale of fixed assets                             32,068                        0
       Interest expense                                        112,922                   55,655
                                                          ------------             ------------

           Total Other (Income) Expense                        209,057                  403,016
                                                          ------------             ------------

           Income (loss) before income taxes                  (854,770)                 160,023

     Provison for income taxes                                 109,890                  137,095
                                                          ------------             ------------

     Net income (loss)                                    ($   964,660)            $     22,928
                                                          ============             ============

     Net income (loss) per share (basic and diluted)
       Basic                                              $     (0.036)            $      0.001
       Diluted                                            $     (0.036)            $      0.001

     Weighted average number of shares
       Basic                                                27,000,000               24,777,778
       Diluted                                              27,000,000               24,777,778
</TABLE>

                                      F-20