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

                                    FORM 20-F
(MARK ONE)

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                                       OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

                                       OR

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

      FOR THE TRANSITION PERIOD FROM ______________ TO ____________________

                                       OR

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934

            DATE OF EVENT REQUIRING SHELL COMPANY REPORT ___________

Commission file number: 0-26046

                          CHINA NATURAL RESOURCES, INC.
                          -----------------------------
             (Exact name of Registrant as specified in its Charter)

                                 Not Applicable
                                 --------------
                 (Translation of Registrant's name into English)

                             British Virgin Islands
                             ----------------------
                 (Jurisdiction of incorporation or organization)

                     Room 2105, West Tower, Shun Tak Centre,
                  200 Connaught Road C., Sheung Wan, Hong Kong
                  --------------------------------------------
                    (Address of principal executive offices)

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

                        Common Shares, without par value
                                (Title of class)

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

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:  None

<PAGE>

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report. 11,548,416 Common Shares as of December 31, 2006.

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

                                                              Yes [ ]     No [X]

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

                                                              Yes [ ]     No [X]

Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

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

                                                              Yes [ ]     No [X]

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

Large Accelerated Filer [ ]  Accelerated Filer [ ]   Non-Accelerated Filer [X]

Indicate by check mark which financial statement item the registrant has elected
to follow.

                                                     Item 17 [X]     Item 18 [ ]

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act.

                                                              Yes [ ]     No [X]

<PAGE>
                                   CONVENTIONS

         Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," or "$" are to United States dollars; all references
to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all references to
"Renminbi" or "RMB" are to Renminbi yuan, which is the lawful currency of the
People's Republic of China ("China" or "PRC"). The accounts of the Company and
its subsidiaries are maintained in either Hong Kong Dollars or Renminbi. The
financial statements of the Company and its subsidiaries are prepared in
Renminbi. Translations of amounts from Renminbi to U.S. Dollars and from Hong
Kong Dollars to U.S. Dollars are for the convenience of the reader. Unless
otherwise indicated, any translations from Renminbi to U.S. Dollars or from U.S.
Dollars to Renminbi have been made at the single rate of exchange as quoted by
the People's Bank of China (the "PBOC Rate") on December 31, 2006, which was
U.S.$1.00 = Rmb7.80. Translations from Hong Kong Dollars to U.S. Dollars have
been made at the single rate of exchange as quoted by the Hongkong and Shanghai
Banking Corporation Limited on December 31, 2006, which was U.S.$1.00 = HK$7.80.
The Renminbi is not freely convertible into foreign currencies and the quotation
of exchange rates does not imply convertibility of Renminbi into U.S. Dollars or
other currencies. All foreign exchange transactions take place either through
the Bank of China or other banks authorized to buy and sell foreign currencies
at the exchange rates quoted by the People's Bank of China. No representation is
made that the Renminbi or U.S. Dollar amounts referred to herein could have been
or could be converted into U.S. Dollars or Renminbi, as the case may be, at the
PBOC Rate or at all.

         References to "CNRI" are to China Natural Resources, Inc. (formerly
known as Billion Luck Company Ltd.), a British Virgin Islands company, which was
the surviving company after a merger between China Resources and CNRI on
December 9, 2004 (the "Redomicile Merger").

         References to "Central Government" refer to the national government of
the PRC and its various ministries, agencies, and commissions.

         References to "Common Stock" are to the Common Stock, $.001 par value,
of China Resources. References to "Common Shares" are to the Common Shares,
without par value, of CNRI after the Redomicile Merger.

         References to "China Resources" are to China Resources Development,
Inc., a Nevada company, and the predecessor to CNRI.

         References to "Company" are to CNRI, and include, unless the context
requires otherwise, the operations of its predecessor and subsidiaries.

         References to "FMH" are to Feishang Mining Holdings Limited, a British
Virgin Islands corporation and, since February 3, 2006, a wholly-owned
subsidiary of CNRI.

         References to "GAAP" or "U.S. GAAP" are to generally accepted
accounting principles of the United States.

         References to "Hainan" are to Hainan Province of the PRC.

         References to "HARC" are to Hainan Cihui Industrial Company Limited, a
Sino-foreign joint stock company organized in the PRC, and a wholly-owned
subsidiary of the Company. On October 3, 2006, the Company disposed of its
entire interest in HARC, including its subsidiaries, First Goods And Materials
Supply And Sales Corporation, Second Goods And Materials Supply And Sales
Corporation and Hainan Zhongwei Trading Company Limited, to an unaffiliated
third party.

         References to "iSense" are to iSense Limited, a Hong Kong company whose
capital was 100% acquired by the Company on August 29, 2003. On July 31, 2006,
the Company disposed of its entire interest in iSense to the director and former
shareholder of iSense.

         References to "Local Governments" are to governments in the PRC,
including governments at all administrative levels below the Central Government,
including provincial governments, governments of municipalities directly under
the Central Government, municipal governments, county governments, and township
governments.

                                       i
<PAGE>

         References to "Medi-China" are to Zhongwei Medi-China.com Limited, a
Hong Kong company and a wholly-owned subsidiary of Silver Moon.

         References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.

         References to "PRC Government" include the Central Government and Local
Governments.

         References to "Provinces" include provinces, autonomous regions, and
municipalities directly under the Central Government.

         References to "Series B Preferred Stock" are to the Series B Preferred
Stock, $.001 par value, of China Resources. References to "Series B Preferred
Shares" are to the Series B Preferred Shares, without par value, of CNRI, after
the Redomicile Merger.

         References to "Silver Moon" are to Silver Moon Technologies Limited, a
British Virgin Islands company, whose capital is 80% owned by the Company.

         References to "Sunwide" are to Sunwide Capital Ltd., a British Virgin
Islands company, which is a wholly-owned subsidiary of the Company.

         References to "Wuhu" are to Wuhu Feishang Mining Development Co.
Limited, a company organized in the PRC and a wholly-owned subsidiary of FMH.

FORWARD-LOOKING STATEMENTS

         This report contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this report and
include, without limitation, statements regarding the intent, belief and current
expectations of the Company, its directors or its officers with respect to the
Company's policies regarding investments, dispositions, financings, conflicts of
interest and other matters; and trends affecting the Company's financial
condition or results of operations. Any such forward-looking statement is not a
guarantee of future performance and involves risks and uncertainties, and actual
results may differ materially from those in the forward-looking statement as a
result of various factors. The accompanying information contained in this
report, including without limitation the information set forth above and the
information set forth under the heading, "Operating and Financial Review and
Prospects," identifies important factors that could cause such differences. With
respect to any such forward-looking statement that includes a statement of its
underlying assumptions or bases, the Company cautions that, while it believes
such assumptions or bases to be reasonable and has formed them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, the
Company, or its management, expresses an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the stated
expectation or belief will result or be achieved or accomplished.


                                       ii
<PAGE>
                                    PART I

[Item 1] IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         No disclosure is required in response to this Item.

[Item 2] OFFER STATISTICS AND EXPECTED TIMETABLE

         No disclosure is required in response to this Item.

[Item 3] KEY INFORMATION

A.       SELECTED FINANCIAL INFORMATION

         On February 3, 2006 (the "Acquisition Date"), the Company consummated
the acquisition of all of the issued and outstanding capital sock of Feishang
Mining Holdings Limited ("FMH"), a British Virgin Islands corporation (the
"Acquisition"). The acquisition of FMH by the Company was accounted for using
the purchase method of accounting and is treated as a reverse acquisition
because on a post-merger basis, the former FMH shareholder holds 86.4% of the
outstanding common shares of the Company. As a result, FMH is deemed to be the
acquirer for accounting purposes. Accordingly, the following selected financial
data for the years ended December 31, 2002, 2003, 2004, 2005 and 2006, represent
the operations of FMH and its wholly-owned subsidiary, Wuhu Feishang Mining
Development Co. Ltd. ("Wuhu"), through February 2, 2006 and the consolidated
operations of FMH and the Company subsequent to February 2, 2006. We have
retroactively restated our issued share capital to reflect the acquisition by
FMH. The selected financial data are derived from (I) the audited financial
statements of Anhui Fanchang Zinc and Iron Mine (the predecessor of Wuhu, see
"history of FMH" below) for the year ended December 31, 2002 and four months
ended April 30, 2003, (II) the audited financial statements of Wuhu for the
eight months ended December 31, 2003; (III) the audited consolidated financial
statements of FMH for the years ended December 31, 2004 and 2005, (IV) the
audited consolidated financial statements of the Company for the year ended
December 31, 2006, and should be read in conjunction therewith. Details of the
Company's acquisition of FMH are described elsewhere in this report.

<TABLE>
<CAPTION>
                                                             IN THOUSANDS, EXCEPT SHARE AMOUNTS
                                    PREDECESSOR OF WUHU (I)       SUCCESSOR      FMH (III)      FMH (III)    COMPANY (IV)
                                 ---------------------------    ------------   ------------   ------------   ------------
                                                                 (WUHU) (II)
                                                                ------------
                                                    4 MONTHS        8 MONTHS
                                   YEAR ENDED          ENDED           ENDED     YEAR ENDED     YEAR ENDED     YEAR ENDED
                                 DECEMBER 31,      APRIL 30,    DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                         2002           2003            2003           2004           2005           2006
                                 ------------      ---------    ------------   ------------   ------------   ------------
                                          RMB            RMB             RMB            RMB            RMB            RMB
<S>                                 <C>            <C>             <C>            <C>            <C>           <C>
OPERATING STATEMENT DATA
Net sales                              36,129         10,439          31,893         77,939         98,962        145,389
Operating expenses                     (7,943)        (2,154)         (4,541)        (4,597)        (9,172)       (14,170)
Income/(loss) from continuing
  operations before income taxes          (42)           778           7,460         41,992         52,381        100,265
Income/(loss) from continuing
  operations                              (42)           753           7,460         41,992         44,046         85,108
Income/(loss) from discontinued
  operations                           (1,825)          (159)            (72)            12             --        (12,560)
Net Income/(loss)                      (1,867)           594           7,388         42,004         44,046         72,548

Income/(loss) per share:
  Basic
    Continuing operations               (0.01)          0.08            0.75           4.21           4.41           7.46
    Discontinued operations             (0.18)         (0.02)          (0.01)            --             --          (1.10)
                                        -----           ----            ----           ----           ----           ----
                                        (0.19)          0.06            0.74           4.21           4.41           6.36
                                        =====           ====            ====           ====           ====           ====
Income/(loss) per share:
  Diluted
    Continuing operations               (0.01)          0.08            0.66           3.73           4.36           6.17
    Discontinued operations             (0.18)         (0.02)          (0.01)            --             --          (0.91)
                                        -----           ----            ----           ----           ----           ----
                                        (0.19)          0.06            0.65           3.73           4.36           5.26
                                        =====           ====            ====           ====           ====           ====
Weighted average number of
  shares outstanding
    Basic                           9,980,593      9,980,593       9,980,593      9,980,593      9,980,593     11,402,372
    Diluted                         9,980,593      9,980,593      11,249,369     11,245,975     10,110,036     13,798,731

BALANCE SHEET DATA
Total assets                           68,777         71,334          71,894         89,601        104,643        180,765
Current assets                         21,880         30,522          28,416         55,381         70,987        143,330
Current liabilities                    47,710         49,587          52,514         28,218         54,978         50,234
Working capital                       (25,830)       (19,065)        (24,098)        27,163         16,009         93,096
Shareholders' equity                   21,067         21,747          19,380         61,383         49,665        130,531
</TABLE>

<PAGE>

         The Company has not paid any dividends with respect to its Common
Shares and has no present plan to pay any dividends in the foreseeable future.
The Company intends to retain its earnings to support the development of its
business. Any dividends paid in the future by the Company will be paid at the
discretion of the Company's Board of Directors and will be dependent upon
distributions, if any, made by its subsidiaries. In accordance with the relevant
PRC regulations and the Articles of Association of Wuhu, appropriations of net
income as reflected in its statutory financial statements are to be allocated to
each of the general reserve, enterprise expansion reserve and staff bonus and
welfare reserve, respectively, as determined by the resolution of the board of
directors annually. In addition to the foregoing, any future determination to
pay a dividend to holders of its Common Shares will depend on the Company's
results of operations, its financial condition and other factors deemed relevant
by the board of directors. Since the acquisition of CNRI by China Resources in
December 1994, the Company has not received any distributions from any of its
subsidiaries and has not made any distributions to its shareholders. Prior to
the Acquisition, the board of directors of Wuhu declared dividends of
RMB44,005,000 and RMB38,462,000 on February 28, 2005 and January 27, 2006,
respectively.

EXCHANGE RATES

         The Company's reporting currency is Renminbi. Translations of amounts
from Renminbi to U.S. Dollars are for the convenience of the reader. The rate of
exchange means the quote made by the People's Bank of China (the "PBOC Rate").
The average rate means the average of the exchange rates of the last date of
each month during a year.

<TABLE>
<CAPTION>
YEAR                               2002            2003           2004            2005          2006
----                             ------          ------         ------          ------        ------
<S>                              <C>             <C>            <C>             <C>           <C>
High                             8.2776          8.2778         8.2775          8.2767        8.0702
Low                              8.2760          8.2765         8.2763          8.0702        7.8051
Average for period               8.2770          8.2771         8.2768          8.1826        7.9573
End of period                    8.2770          8.2767         8.2765          8.0702        7.8051

MONTH                            Oct 06          Nov 06         Dec 06          Jan 07        Feb 07         Mar 07
-----                            ------          ------         ------          ------        ------         ------
High                             7.9149          7.8811         7.8360          7.8160        7.7662         7.7520
Low                              7.8738          7.8313         7.8051          7.7705        7.7415         7.7257
</TABLE>

         The exchange rate on April 20, 2007 was 7.7150.

                                       2
<PAGE>

B.       CAPITALIZATION AND INDEBTEDNESS

         No disclosure is required in response to this Item.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

         No disclosure is required in response to this Item.

D.       RISK FACTORS

INVESTORS SHOULD CONSIDER POLITICAL, ECONOMIC AND LEGAL FACTORS APPLICABLE TO
INVESTMENTS IN THE PRC PRIOR TO INVESTING IN OUR COMPANY.

         Since 1997, the PRC government has been making efforts to promote
reforms of its economic system. These reforms have brought about marked economic
growth and social progress, and the economy of China has shifted from a planned
economy to a socialist market economy. Wuhu has also benefited from the economic
reforms implemented by the PRC government and the economic policies and
measures. However, economic, legal and social policies in the PRC are not
similar to those of Western governments and revisions or amendments may be made
to these policies and measures from time to time, and Wuhu is not in a position
to predict whether any change in the political, economic or social conditions
may adversely affect the operating results of Wuhu, and how those changes may
impact on us.

         The PRC legal system is a statutory law system. Unlike the common law
system, decided legal cases have little significance for guidance, and rulings
by the court can only be used as reference with little value as precedents.
Since 1979, the PRC government has established a commercial law system, and
significant progress has been made in promulgating laws and regulations relating
to economic affairs. Examples are the organization of companies and their
regulation, foreign investment, commerce, taxation and trade. However, these
regulations are relatively new and the availability of public cases as well as
the judicial interpretation of them are limited in number. Moreover, as they are
not binding, both the implementation and interpretation of these regulations are
uncertain in many areas. The interpretation of PRC laws may also be subject to
policy changes reflecting domestic political changes, and new laws, changes to
existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign investors. The activities of our subsidiaries in China
are subject to PRC regulations governing PRC companies.

GEOGRAPHIC LIMITATIONS MAY MAKE IT DIFFICULT TO OBTAIN JURISDICTION OVER OUR
COMPANY, OUR MANAGEMENT OR OUR ASSETS.

         During 2004, we became a British Virgin Islands company and our
officers and directors are non-residents of the United States, our assets are
located in the PRC and our operations are conducted in the PRC. Therefore, it
may not be possible to effect service of process on such persons in the United
States, and it may be difficult to enforce any judgments rendered against us or
them. Moreover, there is doubt whether courts in the British Virgin Islands or
the PRC would enforce (a) judgments of United States courts against us, or our
directors or officers based on the civil liability provisions of the securities
laws of the Unites States or any state, or (b) in original actions brought in
the British Virgin Islands or the PRC, liabilities against us or any
non-residents based upon the securities laws of the United States or any state.

THE RIGHTS OF OUR SHAREHOLDERS ARE SUBJECT TO BRITISH VIRGIN ISLANDS LAW, THE
PROVISIONS OF WHICH MAY NOT BE AS FAVORABLE TO SHAREHOLDERS AS US LAW.

         Since we are a British Virgin Islands company, the rights of our
shareholders may be more limited than those of shareholders of a United States
corporation. In this regard, our directors are permitted to take action that,
under the laws of most states of the United States require shareholder approval.
These actions include authorizing reorganizations, asset sales (of less than 50%
of our total assets) and amendments to our Memorandum and Articles of
Association (that do not vary the rights of shareholders).

                                       3
<PAGE>

OUR STATUS AS A "FOREIGN PRIVATE ISSUER" RESULTS IN LESS INFORMATION BEING
AVAILABLE ABOUT US THAN DOMESTIC REPORTING COMPANIES.

         We are foreign private issuer and are not required to file as much
information about us as United States issuers are required to file. In this
regard we are not required to file quarterly reports on Form 10-Q or Current
Reports on Form 8-K; we are exempt from the provisions of Regulation FD aimed at
preventing issuers from making selective disclosures; the SEC proxy statement
and information statement rules do not apply; and our officers, directors and
principal shareholders are not required to file reports detailing their
beneficial ownership of our shares. There is generally greater information
available about United States issuers than about foreign private issuers such as
us, and the lack of information about us makes it more difficult to make
investment decisions about us.

WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND THERE ARE
RESTRICTIONS ON THE CONVERSION OF LOCAL CURRENCY.

         We do not intend to pay dividends for the foreseeable future as we
intend to reinvest earnings from operations, if any, back into our operations.
In addition, our holding company structure creates restrictions on our payment
of dividends. The payment of dividends is also subject to numerous restrictions
imposed under PRC law, including restrictions on the conversion of local
currency into United States dollars and other currencies.

AS A "FOREIGN PRIVATE ISSUER" WE ARE NOT SUBJECT TO CERTAIN RULES PROMULGATED BY
NASDAQ THAT OTHER NASDAQ-LISTED ISSUERS ARE REQUIRED TO COMPLY WITH, SOME OF
WHICH ARE DESIGNED TO PROVIDE INFORMATION TO AND PROTECT INVESTORS.

         Our common shares are currently listed on the Nasdaq Capital Market
and, for so long as our securities continue to be listed, we will remain subject
to the rules and regulations established by Nasdaq applicable to listed
companies. As permitted under Nasdaq rules applicable to foreign private issuers
such as China Natural Resources, we have determined not to comply with the
following Nasdaq rules:

         o    a majority of our board of directors are not independent as
              defined by Nasdaq rules;
         o    our independent directors do not hold regularly scheduled meetings
              in executive session;
         o    the compensation of our executive officers is not determined by an
              independent committee of the board or by the independent members
              of the board of directors, and our CEO may be present in the
              deliberations concerning his compensation;
         o    related party transactions are not required to be reviewed or
              approved by our audit committee or other independent body of the
              board of directors;
         o    we are not required to solicit shareholder approval of stock
              plans, including those in which our officers or directors may
              participate; stock issuances that will result in a change in
              control; the issuance of our stock in related party acquisitions
              or other acquisitions in which we may issue 20% or more of our
              outstanding shares; or, below market issuances of 20% or more of
              our outstanding shares to any person;
         o    we are not required to hold an in-person annual meeting to elect
              directors and transact other business customarily conducted at an
              annual meeting; and
         o    we are not required to participate in an electronic link with a
              specified registered depository in connection with any direct
              registration program that we may establish in the future.

We may in the future determine to voluntarily comply with one or more of the
foregoing provisions.

THERE ARE A LIMITED NUMBER OF OUR COMMON SHARES IN THE PUBLIC FLOAT AND TRADING
IN OUR SHARES IS NOT ACTIVE; THEREFORE, OUR COMMON SHARES TEND TO EXPERIENCE
PRICE VOLATILITY.

         There are currently approximately 1,262,926 of our common shares in the
public float and, in general, there has not been an active trading market for
our shares. Our shares tend to trade along with other shares of public companies
whose operations are based in the People's Republic of China. These shares tend
to exhibit periods of extreme volatility and price fluctuations, even when there
are no events peculiar to the Company that appear to warrant price changes. We
cannot assure you that price volatility will not continue in the future or, as a
result thereof, that market prices will reflect actual values of our company.

                                       4
<PAGE>

         As a consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our shareholders may disproportionately influence
the price of those shares in either direction. The share price could, for
example, decline precipitously in the event that a large number of shares are
sold on the market without commensurate demand, as compared to a seasoned issuer
which could better absorb those sales without adverse impact on its share price.
As a consequence of this enhanced risk, more risk-adverse investors may, under
the fear of losing all or most of their investment in the event of negative new
or lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be in the case with the stock of a
seasoned issuer.

WUHU'S EARNINGS AND, THEREFORE, OUR PROFITABILITY, MAY BE AFFECTED BY METALS
PRICE VOLATILITY.

         The majority of Wuhu's revenue is derived from the sale of iron and
zinc and, as a result, our earnings are directly related to the prices of these
metals. At present, the price of these metals in the PRC is generally in line
with that in the international market. There are many factors influencing the
price of iron and zinc including expectations for inflation; global and regional
demand and production; political and economic conditions; and production costs
in major producing regions.

         These factors are beyond Wuhu's control and are impossible for it to
predict. As a result, changes in the price of zinc and iron may adversely affect
Wuhu's operating results. Wuhu has not engaged in hedging transactions or
alternative measures to manage possible price fluctuations.

WUHU HAS NOT PERFORMED FEASIBILITY STUDIES AND, THEREFORE, RELIABLE ESTIMATES OF
PROVEN OR PROBABLE RESERVES CANNOT BE PROVIDED AND IF MINERALS ARE DEPLETED FROM
OUR MINES PRIOR TO TERMINATION OF OUR MINERAL RIGHTS, WE MAY BE UNABLE TO
GENERATE REVENUES.

         Both the quantity of ores and metal reserves are primarily based on
estimates and we have conducted no feasibility studies to confirm the amount of
proven or probable reserves contained in the mines in which we have mineral
rights. While we are currently extracting and selling minerals from our mines,
we are unable to predict the extent of mineral deposits in our mines or whether
there will continue to be sufficient minerals deposits to allow us to extract
minerals at current levels for the duration of our mining rights. Moreover,
reserve estimation is an interpretive process based upon available data and
various assumptions that are believed to be reasonable, and the economic value
of ore reserves may be adversely affected by price fluctuations in the metal
market, reduced recovery rates or a rise in production costs as a result of
inflation or other technical problems arising in the course of extraction.

WE RELY ON OPERATING PERFORMANCE OF A SINGLE MINE AND IF OUR MINE DEVELOPMENT
PLANS ARE UNSUCCESSFUL, WUHU, AND AS A RESULT, WE, MAY SUFFER A DECREASE IN
PROFITABILITY.

         The principal operating asset of Wuhu is the Yang Chong Mine. Over 80%
of the turnover of Wuhu was generated from the Yang Chong Mine. Since its
acquisition in May 2003 until December 31, 2006, 100 % of Wuhu's sales of zinc
and approximately 70% of Wuhu's sales of iron were derived from metal output
from Yang Chong Mine. Although Wuhu plans to increase its production levels by
opening two additional mine shafts in the Yang Chong Mine, as well as by
acquiring additional mining rights in the PRC, there is no assurance that these
development projects will be successful. If these development plans are
unsuccessful, Wuhu may suffer a decrease in overall profit margins, operating
performance and investment return, and may adversely affect the operating
results of Wuhu.

WUHU'S OPERATING RESULTS MAY BE DEGATIVELY IMPACTED BY AMORTIZATION POLICIES
APPLICABLE TO MINING RIGHTS.

         Wuhu's mining rights are amortized based on actual units of production
over estimated reserves of the mines. Wuhu reviews the production plans and the
reserve levels of the mines periodically. Accordingly, any material change in
the production plan of Wuhu's mines or modification of reserve levels may have a
negative impact on Wuhu's operating results.

                                       5
<PAGE>

WUHU RELIES ON SUB-CONTRACTORS TO PERFORM MINERAL EXTRACTION OVER WHOM WUHU HAS
LITTLE CONTROL.

         Wuhu sub-contracts its ore extraction work to a third party. To some
extent, the operations of Wuhu are affected by the performance of the
contractor, whose activities are not within Wuhu's control. If the contractor
fails to achieve the guaranteed monthly extraction volume, or the contractor
otherwise fails to perform its obligations under its agreement with Wuhu, the
agreement may be terminated by Wuhu; however, termination of the relationship
could adversely affect the operating results of Wuhu.

WE ARE SUBJECT TO NUMEROUS RISKS AND HAZARDS ASSOCIATED WITH THE MINING
INDUSTRY.

         Wuhu's business is subject to a number of risks and hazards including:

         o    environment hazards;
         o    industrial accidents;
         o    unusual or unexpected geologic formations;
         o    explosive rock failures; and
         o    flooding and periodic interruptions due to inclement or hazardous
              weather conditions.

         Such risks could result in:

         o    damage to or destruction of mineral properties or production
              facilities;
         o    personal injury or death;
         o    environmental damage;
         o    delays in mining;
         o    monetary losses; and
         o    legal liability.

         Wuhu emphasizes environmental protection in its operations and related
activities. A significant financial commitment has been made towards the
construction of environmental protection facilities and the establishment of a
sound environmental protection management and monitoring system. Although Wuhu
is currently in compliance with applicable environmental regulations of the PRC
government, any changes to these regulations may increase the operating costs of
the Company and may adversely affect the operating results of the Company.

         During the course of its mining activities, Wuhu uses dangerous
materials. Although Wuhu has established stringent rules relating to the
storage, handling and use of such dangerous materials, there is no assurance
that accidents will not occur. Should Wuhu be held liable for any such accident,
Wuhu may be subject to penalties and possible criminal proceedings may be
brought against its employees.

WUHU DEPENDS ON A SINGLE CUSTOMER WITH WHOM WUHU HAS NO BINDING CONTRACTUAL
UNDERSTANDINGS, AND THE LOSS OF THAT CUSTOMER WOULD MATERIALLY AND ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.

         Wuhu's entire production of zinc for the years ended December 31, 2004,
2005 and 2006 were sold to a single customer, Huludao Zinc Industry Co. Ltd.
("Huludao"), the largest zinc smelter in Asia. Wuhu is a party to a one-year
sales contract with Huludao, subject to renewal every year; however, the sales
contract does not obligate Huludao to purchase zinc from Wuhu. In the event
Huludao ceases or reduces its purchases from Wuhu, or if Wuhu and Huludao are
unable to agree upon renewal terms or Wuhu's sales contract with Huludao is not
renewed for any other reason, Wuhu will have to identify one or more alternative
outlets for its mineral production. While the sales contract has been renewed on
an annual basis in the past, the loss of Huludao as a source for Wuhu's zinc
production could adversely affect our results of operations.

WUHU MAY BE UNABLE TO SUCCESSFULLY COMPETE FOR MINERAL RIGHTS WITH COMPANIES
HAVING GREATER FINANCIAL RESOURCES THAN IT HAS.

         Mines have limited lives and as a result, Wuhu continually seeks to
expand its reserves through the acquisition of additional mining rights. As
there is a limited supply of desirable mineral deposits in the PRC, Wuhu faces
strong competition for mining rights from other mining companies, some of which
have greater financial resources than Wuhu, Wuhu may not be able to acquire
attractive mineral rights on terms that Wuhu considers acceptable.

                                       6
<PAGE>

[Item 4] INFORMATION ON THE COMPANY

A.       HISTORY AND DEVELOPMENT OF THE COMPANY

         China Resources was incorporated as Magenta Corp. on January 15, 1986,
in the State of Nevada. It was formed to acquire businesses that would provide a
profit to the Company. China Resources had no operating business until control
of it was acquired in December 1994, by the former shareholders of CNRI, who
exchanged all of the issued and outstanding shares of capital stock of CNRI for
108,000 shares of China Resources' Common Stock. As a result of the acquisition,
the former shareholders of CNRI acquired 90% of the then issued and outstanding
shares of Common Stock of China Resources, and CNRI became a wholly owned
subsidiary of China Resources. CNRI was incorporated in the British Virgin
Islands on December 14, 1993.

         On December 9, 2004, China Resources merged with and into CNRI (the
"Redomicile Merger"). The Redomicile Merger was consummated through an exchange
of shares of China Resources for shares of CNRI on a one-for-one basis. As a
result of the Redomicile Merger, the Company became domiciled in the British
Virgin Islands and CNRI has succeeded to the rights and obligations of China
Resources under its existing agreements and relationships. Prior to the
Redomicile Merger, the Company's common shares were traded on the Nasdaq Capital
market under the symbol "CHRB". Following the Redomicile Merger, the trading
symbol was changed to "CHNR".

         On February 3, 2006 the Company consummated the acquisition of all of
the issued and outstanding capital stock of FMH from Feishang Group Limited (the
"Shareholder"), a British Virgin Islands company, the former owner of all of the
issued and outstanding common stock of FMH. Mr. Li Feilie, our President, Chief
Executive Officer and Chairman is the sole beneficial owner of the Shareholder.

         Under the terms of the Acquisition Agreement governing the acquisition,
the Company issued 9,980,593 of its common shares to the Shareholder,
representing approximately 86.4% of its issued and outstanding common shares
(after giving effect to the issuance and the exchange of 320,000 currently
outstanding preferred shares for 320,000 common shares, as described below), and
issued to the Shareholder warrants (the "Warrants") to purchase an additional
4,500,000 common shares. Ching Lung Po, director, President, Chief Executive
Officer and Chairman of the Company resigned at the closing of the acquisition,
and Li Feilie, Chairman of FMH, was appointed as director, President, Chief
Executive Officer and Chairman of the Company. The Company's other directors and
executive officers were not changed as a result of the acquisition.

         The Warrants entitle the holder to purchase: 2,000,000 common shares at
an exercise price of $4.00 per share for a period of two years from the closing
date; 1,500,000 common shares at an exercise price of $4.50 per share for a
period of three years from the closing date; and 1,000,000 shares at an exercise
price of $5.00 per share for a period of four years from the closing date. Other
than the exercise price and exercise period, all other terms and conditions of
the Warrants are identical. The Warrants provide that the exercise price is
subject to adjustment in the event of stock splits, dividends and
reclassifications. The expiration date of the Warrants is subject to
acceleration in the event of the sale, conveyance or disposal of all or
substantially all of the Company's property or business or a merger with or into
or consolidation with another company or other transaction or series of
transactions in which more than 50% of the voting power of the Company is
disposed of, except for a merger undertaken solely for the purpose of changing
the domicile of the Company or in connection with an equity financing in which
the Company is the surviving corporation.

         In connection with the acquisition, Winsland Capital Limited, a
corporation wholly owned by Ching Lung Po, the former president and chief
executive officer of the Company, exchanged 320,000 Series B preferred shares of
the Company for 320,000 common shares. Under the Acquisition Agreement, the
Shareholder has irrevocably agreed that prior to February 3, 2008 it will not
sell, transfer, pledge, mortgage or otherwise dispose of any of the common
shares it received in the transaction.

                                       7
<PAGE>

         The Company's executive offices are located at Room 2105, West Tower,
Shun Tak Centre, 200 Connaught Road C., Sheung Wan, Hong Kong, telephone (852)
2810-7205. The Company does not currently have an agent in the United States.

B.       BUSINESS OVERVIEW

         From 2000 until 2005, the Company was primarily engaged in identifying,
acquiring and operating business opportunities and, when management deems it
advisable, disposing of acquired businesses.

         The Company commenced an advertising, promotion and public relations
business which it operated through iSense, in 2003. iSense is an integrated
marketing company dedicated to providing creative advertising and promotions
services to both local and international customers engaged in various
industries, including technology and new media, healthcare products and consumer
goods. The Company ceased its advertising business upon the disposal of iSense
on July 31, 2006.

         On February 3, 2006, the Company consummated the acquisition of all of
the issued and outstanding capital sock of Feishang Mining Holdings Limited
("FMH"), a British Virgin Islands corporation (the "Acquisition"). Since the
date the Acquisition was completed the Company's sole operations have consisted
of the mining of zinc, iron and other minerals for distribution in the PRC,
through the acquisition of FMH.

         The Company has not been a party to any bankruptcy, receivership or
similar proceedings, trade suspensions or cease trade orders by any regulatory
authority.

         The following describes activities conducted by the Company's
subsidiaries during the year ended December 31, 2006.

iSENSE

         iSense was Incorporated in March 2000 in Hong Kong. iSense is an
integrated marketing company which provide advertising, promotion and public
relations services in Hong Kong and mainland China to both local and
international customers. On July 31, 2006, the Company disposed of its 100%
equity interest in iSense to the director and former shareholders of iSense for
consideration of RMB2,060,000 (US$264,000).

HARC

         HARC is a Sino-foreign joint stock company incorporated in the PRC on
June 28, 1994 with a registered capital of RMB100 million (US$12.8 million).
HARC owns a 5.3% equity interest in unlisted shares of Hainan Sundiro Motorcycle
Co., Ltd., a PRC company listed on the Shenzhen Stock Exchange in the PRC. HARC
also trades copper occasionally for its own account. On October 3, 2006, we
consummated the sale of all of our right, title and interest in and to the
capital stock of HARC to Allied Clear Investments Limited, an unaffiliated
British Virgin Islands corporation, for a purchase price of RMB30,900,000
(US$3,862,000).

SUNWIDE

         Sunwide was incorporated in the British Virgin Islands on January 22,
2001. Sunwide is primarily engaged in investing in marketable securities, traded
in US markets, as short-term investments. Sunwide is our wholly owned
subsidiary.

SILVER MOON AND MEDI-CHINA

         Silver Moon is a British Virgin Islands company incorporated on March
24, 2000. The principal business of Silver Moon and its wholly-owned subsidiary,
Medi-China, a Hong Kong company incorporated on October 15, 1999, is to provide
online Internet healthcare content, through its website, medi-china.com, which
offers health-related content in both English and Chinese, with a focus on
Chinese herbal medicine and therapies. Neither Silver Moon nor Medi-China is
currently engaged in active business operations. Silver Moon is owned 80% by us
and 20% by E-Link Investment Limited, an unaffiliated party.

                                       8
<PAGE>

FMH AND WUHU

HISTORY OF FMH

         FMH was incorporated under the laws of the British Virgin Islands in
September 2004. FMH beneficially owns 100% of the capital stock of Wuhu, a
company established under the laws of the PRC. FMH treats the business of Wuhu,
a mining enterprise principally engaged in the mining of zinc, iron and other
minerals for distribution in the PRC, as its principal business activity.

         Wuhu was established as a sino-foreign joint stock limited liability
company between Wuhu Feishang Enterprise Development Company Limited ("WFED")
(50%) and Feishang International Holdings Limited ("FIH") on June 21, 2002 with
a tenure of 20 years from the date of its business license. The tenure can be
extended by agreement between the joint venture partners with the necessary
approval from the relevant government agencies. The registered capital of Wuhu
is RMB12 million (US$1.5 million), of which RMB6 million (US$769,000) was each
contributed by WFED and FIH. In May 2003, Wuhu acquired the entire business of
Anhui Fanchang Zinc and Iron Mine, a stated-owned enterprise ("Anhui Fanchang").
In April 2005, WFED and FIH transferred their interests in Wuhu to FMH, at cost,
and since the date of such transfer, FMH has been the owner of 100% of the
capital stock of Wuhu.

BUSINESS OF FMH

         FMH conducts its operations through Wuhu. Wuhu's principal activities
are the mining of zinc, iron and other minerals for distribution in the PRC. In
early 2004, Wuhu sold its mining business in activated bleaching earth and
metallurgy bentonite to Wuhu Feishang Non-Metal Material Co. Ltd. ("WFNM"), a
related party, for consideration of RMB8,050,000 (US$1,032,000). At present,
Wuhu owns the mining rights to two mines located in Wuhu City, Anhui Province,
the PRC: The Yang Chong Mine contains iron and zinc minerals and the Zao Yun
Mine contains mainly iron minerals. The two mines produced 47,000 tons of iron
and 8,600 tons of zinc in 2005, and 46,000 tons of iron and 6,400 tons of zinc
in 2006. The majority of the iron and zinc ore is mined from the Yang Chong
Mine. Wuhu acquired the entire business of Anhui Fanchang in May 2003, including
but not limited to the mining rights to two mines, the properties and the
refinery facilities of the mines. Wuhu City is located in the northwestern
Yangtze River Delta and the center of East China, approximately 384 kilometers
from Shanghai.

         The table below summarizes the production quantity and sales quantity
for each of the years ended December 31, 2004, 2005 and 2006 included in
continuing operations.

                                      2004            2005            2006
                                    ------          ------          ------
Production quantity (tons):
  Zinc                               7,800           8,650           6,380
  Iron                              58,160          46,800          46,107
  Micaceous iron oxide - grey        1,072             524             628

Sales quantity (tons):
  Zinc                               7,782           8,841           6,248
  Iron                              58,326          46,201          46,357
  Micaceous iron oxide - grey        1,089             612             713


                                       9
<PAGE>

YANG CHONG MINE

         The Yang Chong Mine is an underground mine located in Fanyang Town,
Fanchang, Anhui Province in the PRC, the centre of which has a geological
coordinate EL 118(degree)08'00", NL31(degree)05'40". The mine is approximately
4.2 kilometers east of Fanchang City and 13.5 kilometers north-west of Digang
Town. Access to the mine is via Province Road 321 approximately 40 kilometers
from Wuhu City. Yang Chong Mine has a total mining area of 0.186 square
kilometers. The Yang Chong Mine contains iron and zinc.

         The area's mining history dates back to the early 1990s. An exploration
and development campaign was completed by Nanchang Engineering & Research
Institute of Nonferrous Metal in 1991, with a planned daily mining capacity of
approximately 100 tons of ore. Full scale ore production started in 1999 and the
daily mining capacity gradually increased to approximately 600 tons of ore in
2006.

         Since all mineral resources in the PRC are owned by the State, the
Company's right to extract minerals at Yang Chong Mine is licensed to Wuhu by
the State for a period of years (see "Government Regulation," below). The
Company is the only party that is currently licensed to mine the Yang Chong
Mine. The Company's current license to mine the Yang Chong Mine expires on
December 31, 2011, and may be renewed upon expiry.

         Yang Chong Mine is a zinc-iron underground mine. The formations are
believed to date from the Silurian to Triassic ages, with deposits in limestone
and diritic porphyrit contact belt. Ore bodies consist of zinc, magnetite and
composite iron bed. The general course of the mine is N85(degree)E, with NNE
inclination of 70(degree). There are three ore bodies found in the area. Ore
body I is mainly zinc-iron paragenic deposits. The low side of the ore body is
uncontinuous magnetite deposits. Ore body II consists of zinc-iron paragenic
deposits and zinc deposits. Ore body III consists of continuous deposits and
iron deposits.

         Access to the underground workings at the Yang Chong Mine is via a ramp
from the surface and connecting numerous levels. At the end of 2006, the
exploitation of the Yang Chong Mine 50 meters below sea level has been nearly
completed. Since early 2007, the principal working levels lay between the
elevations of 50 and 150-meters below sea level. The electricity supply in the
mining area is mainly provided by East China Grid, with 500 kilo voltage of
transmission base located in 3 kilometers east of Yang Chong Mine.

         Wuhu outsources mine extraction to an unrelated third party. Under an
agreement dated October 1, 2002 and a supplementary agreement dated January 1,
2006, Wuhu entered into sub-contracting agreements with Wenzhou Mining
Engineering Co. Ltd. (formerly known as Zhejiang Universal Tunnel Engineering
Co. Ltd.) for outsourcing the mine extraction work for Yang Chong Mine. Under
the agreements, the subcontractor guarantees an extraction volume of 5,000 tons
per month and charges a service fee of RMB41.2 (US$5.30) per ton of ore
extracted and RMB13 (US$1.70) per ton of useless stone removal. For the
developing of ramps, the subcontractor charges a service fee of RMB1,500
(US$192) per extra meter of inclined shaft and RMB1,188 (US$152) per extra meter
of flat shaft. Except for the mining of raw minerals, which is outsourced to an
unrelated third party (as described above), all the procedures of the refinery
process are performed by Wuhu. Raw minerals extracted from Yang Chong Mine are
refined into iron and zinc metals in factories located near the mine.

         Wuhu's management believes that prospects in the PRC iron and zinc
markets will continue to present it with attractive opportunities for growth and
expansion. Wuhu plans to increase the existing daily mining capacity to 900 tons
of raw ore by the end of 2007 opening two additional mine shafts. One mine shaft
opened in December 2005 and the other has been under trial run since December
2006.

         All equipment, infrastructure and facilities material to Wuhu's
operations are believed to be in good condition. The plant was constructed in
1991 and has been periodically upgraded. The processing plant is capable of
producing approximately 600 tons of finished products per day. The processing
facilities process raw ore from both the Yang Chong Mine and Zao Yun Mine. Site
infrastructure includes roads, water supply system, electric supply system,
warehouses, living quarters, dining facilities and an administration building.
At December 31, 2006, the net book value of property, plant and equipment of
Yang Chong Mine was approximately RMB21,732,000 (US$2,786,000)

                                       10
<PAGE>

ZAO YUN MINE

         The Zao Yun Mine is also an underground mine located in Fanyang Town,
Fanchang, Anhui Province in the PRC, the centre of which has a geological
coordinate EL 118(degree)12'47", NL31(degree)08'54". The mine is approximately
8.5 kilometers east of Fanchang City and 17 kilometers northwest of Digang Town.
Access to the mine is via Province Road 321 approximately 40 kilometers through
Wuhu City. Zao Yun Mine has a total mining area of approximately 0.0136 square
kilometers. The Zao Yun Mine contains mainly iron. In September 2006, a small
quantity of copper was found in Zao Yun Mine, and Wuhu has installed processing
equipment for copper which is currently under trial production.

         The Zao Yun Mine has been in operation since 1998. In 2006, the monthly
mining capacity of the Zao Yun mine was approximately 4,000 tons of iron ore.
The Company is the only party that is currently licensed to mine the the Zao Yun
Mine. The Company's current license to mine the Zao Yun Mine expires on October
31, 2009, and may be renewed upon expiry.

         Access to the underground workings at the Zao Yun Mine is via a ramp
from the surface and connecting numerous levels. At the end of 2006, the
exploitation of the Zao Yun Mine 70-meter below sea level was completed. Since
early 2007, the principal working levels lay between 70 and 195 meters below sea
level. The electricity supply in the mining area is mainly provided by Meishan
Power Station, with 110 kilo voltage of transmission base located in 8
kilometers north-east of Zao Yun Mine.

         Wuhu outsources mine extraction to an unrelated third party. Under an
agreement dated October 1, 2002 and a supplementary agreement dated April 1,
2006, Wuhu entered into sub-contracting agreements with Wenzhou Mining
Engineering Co. Ltd. for outsourcing the mine extraction work for Zao Yun Mine.
Under the agreements, the subcontractor charges a service fee of RMB68 (US$8.70)
per ton of ore extracted and RMB19.5 (US$2.50) per ton of useless stone removal.
For the developing of ramps, the subcontractor charges a service fee off
RMB1,700 (US$218) per extra meter of inclined shaft and RMB1,500 (US$192) per
extra meter of flat shaft. Except for the extraction of raw minerals, which is
outsourced to an unrelated third party, all phases of the refinery process are
performed by Wuhu.

         All equipment, infrastructure and facilities material to Wuhu's
operations are believed to be in good condition. The plant was constructed in
1998 and has been periodically upgraded. Site infrastructure includes roads,
water supply system, electric supply system, warehouses, living quarters, dining
facilities and administration building. At December 31, 2006, the net book value
of property, plant and equipment of Zao Yun Mine was approximately RMB2,584,000
(US$331,000)

INDUSTRY OVERVIEW

ZINC

         Zinc is used in a multitude of applications. Since zinc has a
relatively high place in the galvanic series of metals and consequently
demonstrates excellent resistance to atmospheric corrosion, the major
application of zinc is in galvanizing - a zinc coating on steel to prevent
corrosion, which accounts for approximately 50% of the total world zinc
consumption. Other applications of zinc include production of brass, die-casting
zinc annoy, zinc oxide, etc. Zinc products are widely used in the
infrastructure, housing, communication, household appliance and automobile
sectors. Most of the world's production is concentrated in Australia, Canada,
China and Peru, which together account for 60% of the world's total. China is
world's largest zinc producing and consuming country.

         Driven by the rapid growth in mainland China's economy over the past
few years, there has been a steep rise in demand, production and prices of zinc.
The following shows the production, consumption and prices of zinc in China over
the past five years:

<TABLE>
<CAPTION>
                                                2002            2003            2004            2005            2006
                                               -----           -----          ------          ------          ------
<S>                                            <C>             <C>             <C>             <C>             <C>
Production (in thousand tons)                  2,160           2,300           2,520           2,745           3,150
Consumption (in thousand tons)                 1,820           2,060           2,680           3,219           3,550
Average price (RMB/ton)                        7,889           8,504          11,459          13,713          27,765
</TABLE>

Source: China Non-ferrous Metal Industry Association

                                       11
<PAGE>

IRON

         Iron ore is one of the key compounds for producing crude steel which is
used mainly by the infrastructure, real estate, shipbuilding and automobile
sectors. Most of the world's production is concentrated in Australia, Brazil,
the PRC, India and South Africa, which together account for over 70% of the
world's total. In 2005, the total world iron ore production and consumption were
approximately 13 million tons and 12.5 million tons, respectively. While the PRC
is the largest producer of crude iron ore, it is also the largest importer of
iron ore in the world. The iron ore production in the PRC increased by more than
80% from 233 million tons in 2002 to 420 million tons in 2005. However, the PRC
only ranked the fifth in the world on the proven iron reserves with a relatively
low iron content of approximately 33% compared to over 60% of that of Australia
and Brazil. As the PRC economy continues to record strong growth, the PRC has
become the dominant source of iron ore demand growth. The iron ore imported by
the PRC increased by over 85% from 148 million tons in 2003 to 275 million tons
in 2005.

         World iron ore production is dominated by three companies: Companhia
Vale do Rio Doce (Brazil), Ril Tinto Plc (Australia) and BHP Billiton Limited
(Australia). These three companies together account for approximately 70% of
world's total iron ore exports.

SUPPLIERS

         As a mining enterprise, Wuhu's ore is mined from Yang Chong Mine and
Zao Yun Mine. Wuhu purchases explosives and other auxiliary raw material from
suppliers mainly located in Anhui Province, the PRC. For explosives, the
purchases are made on a cash on delivery basis. For other auxiliary materials,
normal credit terms are granted by major suppliers range from 30 to 60 days on
an open account basis.

         During the years ended December 31, 2004, 2005 and 2006, the largest
five suppliers accounted for 44%, 59% and 54%, respectively, of Wuhu's
purchases. During the years ended December 31, 2004 and 2005, one supplier
accounted for 14% and 24%, respectively, of Wuhu's purchases. During the year
ended December 31, 2006, no supplier accounted for more than 10% of Wuhu's
purchases.

CUSTOMERS

         Wuhu sells zinc and iron products to companies in the PRC. All of
Wuhu's zinc products were sold to a single customer, Huludao Zinc Industry Co.,
Ltd., which is the largest zinc smelter in Asia. Wuhu has a one-year sales
contract with Huludao subject to renewal every year; however the sales contract
does not obligate Huludao to purchase zinc from Wuhu. The loss of Huludao as a
source for Wuhu's zinc production would require Wuhu to identify new outlets for
its zinc and could delay revenue generation and adversely affect our results of
operations (see Item 3D-Risk Factors). All sales to Huludao were made on cash on
delivery basis. For iron and other products, sales are generally made under
sales contracts with customers, typically with a one-year term. Approximately
90% of these sales are made on a cash on delivery basis. For the others,
management may extend up to one month's credit to customers who are determined
to be creditworthy.

         At December 31, 2004, 2005 and 2006, the largest five customers
accounted for 95%, 99% and 100% of trade receivables, respectively. During the
year ended December 31, 2004, three customers accounted for 47%, 24% and 10%,
respectively, of Wuhu's sales. During the year ended December 31, 2005, three
customers accounted for 65%, 12% and 8%, respectively, of Wuhu's sales. During
the year ended December 31, 2006, three customers accounted for 85%, 5% and 5%,
respectively, of Wuhu's sales.

COMPETITION

         Wuhu faces competition from Nanjing Xixia Lead Zinc Silver Mine
("Nanjing") which produces 20,000 tons of zinc annually. Huludao sources zinc
metal from both Nanjing and Wuhu. However, as the annual demand of zinc metal of
Huludao is 300,000 tons and Wuhu has a long-standing sales relationship with
Huludao, management believes that Wuhu will be able to renew its sales contract
with Huludao as it has in the past. In addition, Wuhu faces competition from
other smaller mines around the region for its iron products. However, management
believes that Wuhu has the competitive advantage based upon its high product
quality and purity, and low cost of production.

                                       12
<PAGE>

GOVERNMENT REGULATION

         Under the "Mineral Resources Law", all mineral resources of the PRC are
owned by the State. Mining rights are granted by the State permitting recipients
to conduct mining activities in a specific mining area during the license
period. On December 31, 2005, Wuhu renewed its mining rights to 0.186 square
kilometers covering Yang Chong Mine, which will expire in December 2011, subject
to renewal upon expiry. In October 2006, Wuhu renewed its mining rights to
0.0136 square kilometers covering Zao Yun Mine, which will expire in October
2009, subject to renewal upon expiry. Although Wuhu believes that it will be
able to renew licenses as it has done in the past, there can be no assurance
that Wuhu will be able to exploit the entire mineral resources of its mines
during its license period. If Wuhu fails to renew its mining rights upon expiry
or if it cannot effectively utilize the resources within a license period, the
operation and performance of Wuhu may be adversely affected.

         Wuhu's mining rights entitle it to undertake mining activities and
infrastructure and ancillary work, in compliance with applicable laws and
regulations, within the specific area covered by the license during the license
period. Wuhu is required to submit mining proposal and feasibility studies to
the relevant authority. Wuhu is obligated to pay a natural resources fee to the
State in an amount equal to 2% of annual sales. The license fee for the renewal
of the mining rights to Yang Chong Mine in December 2005 was RMB3 million
(US$385,000). RMB1.5 million (US$192,000) was paid in January 2006, with
RMB500,000 (US$64,000) and RMB1 million (US$128,000) payable in November 2007
and November 2008, respectively. The license fee for the renewal of the mining
rights to Zao Yun Mne was RMB354,000 (US$45,000) and was paid in October 2006.

ENVIRONMENTAL PROTECTION

         The State Environmental Protection Administration Bureau is responsible
for the supervision of environmental protection in, the implementation of
national standards for environmental quality and discharge of pollutants for,
and the supervision of the environmental management system of the PRC.
Environmental protection bureaus at the country level or above are responsible
for environmental protection within their jurisdictions.

         The laws and regulations governing environmental protection require
each company to lodge environmental impact statements for a construction project
with the environmental protection bureaus at the country level. These statements
must be filed prior to the commencement of construction, expansion or
modification of a project. The environmental protection bureaus inspect new
production facilities and determine compliance with applicable environmental
standards, prior to the commencement of operations.

         The "Environmental Protection Law" requires production facilities that
may cause pollution or produce other toxic materials to take steps to protect
the environment and establish an environmental protection and management system.
The system includes the adopting of effective measures to prevent and control
exhaust gas, sewage, waste residues, dust or other waste materials. Entities
discharging pollutants must register with the relevant environmental protection
authorities.

         Penalties for breaching the Environmental Protection Law include a
warning, payment of a penalty calculated on the damage incurred, or payment of a
fine. When an entity fails to adopted preventive measures or control facilities
that meet the requirements of environmental protection standards, it is subject
to suspension of production or operations and for payment of a fine. Material
violations of environmental laws and regulations causing property damage or
casualties may result in criminal liabilities.

         Management believes that Wuhu is in material compliance with all
applicable environmental protection requirements of the State.

EMPLOYEES

         FMH presently has two employees consisting of its Chairman and Chief
Financial Officer. Wuhu currently employs 377 persons on a full time basis,
including 69 technicians and professionals. FMH believes that its relations and
those of Wuhu with their employees are generally good.

                                       13
<PAGE>

C.       ORGANIZATIONAL STRUCTURE

         The following chart illustrates the equity ownership by percentage of
each of the Company's subsidiaries as of December 31, 2006:

<TABLE>
<S>                                    <C>
                                       ----------------------------------------
                                       |            CHINA NATURAL             |
                                       |           RESOURCES, INC.            |
                                       |  a British Virgin Islands company    |
                                       ----------------------------------------
                 |-----------------------------------------------------------------------------------|
                 |                                         |                                         |
                 80%                                      100%                                      100%
                 |                                         |                                         |
---------------------------------      --------------------------------------        -------------------------------
|         SILVER MOON           |      |                 FMH                |        |          SUNWIDE            |
|       a British Virgin        |      |      a British Virgin Islands      |        |      a British Virgin       |
|       Islands company         |      |               company              |        |      Islands company        |
---------------------------------      --------------------------------------        -------------------------------
                   |                                       |
                  100%                                    100%
                   |                                       |
---------------------------------      -------------------------------------
|         MEDI-CHINA            |      |               WUHU                |
|         a Hong Kong           |      |            a PRC company          |
|           company             |      |                                   |
---------------------------------      -------------------------------------
</TABLE>

D.       PROPERTY, PLANT AND EQUIPMENT

         The Company's administrative offices and its principal subsidiaries are
located in Hong Kong and Wuhu in the PRC.

         Pursuant to an office sharing agreement dated September 1, 2000, the
Company's head office in Hong Kong is shared on an equal basis between the
Company and Anka Consultants Limited, a private Hong Kong company which is owned
by certain directors of the Company. The total area of the office is
approximately 230 square meters. For the years ended December 31, 2004, 2005 and
2006, the Company paid its share of rental expenses to Anka Consultants Limited
amounting to RMB232,000 (US$30,000), RMB211,000 (US$27,000) and RMB226,000
(US$29,000), respectively. The office sharing agreement provides that the
Company share certain costs and expenses in connection with its use of the
office.

         FMH conducts its operations through Wuhu. Wuhu's principal activities
are the mining of zinc, iron and other minerals for distribution in the PRC. At
present, Wuhu owns the mining rights to two mines located in Wuhu City, Anhui
Province, the PRC: The Yang Chong Mine contains iron and zinc minerals, and the
Zao Yun Mine contains mainly iron minerals. The two mines produced 47,000 tons
of iron and 8,600 tons of zinc in 2005, and 46,000 tons of iron and 6,400 tons
of zinc in 2006. The majority of the iron and zinc ore is mined from Yang Chong
Mine. Yang Chong Mine has a total mining area of 0.186 square kilometers. Zao
Yun Mine has a total mining area of approximately 0.0136 square kilometers. Wuhu
City is located in the northwestern Yangtze River Delta and the center of East
China, approximately 384 kilometers from Shanghai.

         Since all mineral resources in the PRC are owned by the State, the
Company's right to extract minerals at the mines is licensed to Wuhu by the
State for a period of years. The Company is the only party that is currently
licensed to mine the Yang Chong Mine and the Zao Yun Mine. The Company's current
license to mine the Yang Chong Mine expires on December 31, 2011, and may be
renewed upon expiry. The Company's current license to mine the Zao Yun Mine
expires on October 31, 2009, and may be renewed upon expiry.

         Wuhu outsources mine extraction to an unrelated third party. Except for
the mining of raw mineral stones, which is outsourced to an unrelated third
party, all the procedures of the refinery process are performed by Wuhu. Raw
mineral stones extracted from Yang Chong Mine are refined into iron and zinc
metals in factories located near the mine.

         The offices, mining sites and other processing facilities of Wuhu are
all located in Wuhu City, Anhui Province in the PRC. Wuhu's office premises,
processing facilities and warehouses cover a total gross area of approximately
26,000 square meters. As is typical in the PRC, the PRC government owns all of


                                       14
<PAGE>

the land on which the improvements and mines are situated. Wuhu assumed the
rights to use the land and its leasehold properties when it acquired the entire
business of Anhui Fanchang Zinc and Iron Mine, Wuhu's predecessor.. Wuhu has
been granted mining rights to Yang Chong Mine and Zao Yun Mine to conduct mining
activities in a specific mining area during the license period. The mining
rights to 0.186 square kilometers covering Yang Chong Mine will expire in
December 2011, subject to renewal upon expiry. The mining rights to 0.0136
square kilometers covering Zao Yun Mine will expire in October 2009, subject to
renewal upon expiry.

         All processing facilities and equipment of Wuhu were acquired from
Nanchang Non-ferrous Metallurgy Designing Organization, a Class-A corporation in
China in designing and producing equipment for the mining industry. All
technology and equipment meet the industrial standard as required by the
relevant government authorities.

         For the years ended December 31, 2004, 2005 and 2006, the Company
incurred capital expenditures (excluding fee for renewal of mining rights) of
RMB1,981,000 (US$254,000), RMB2,304,000 (US$295,000) and RMB3,532,000
(US$453,000), respectively.

[Item 4A]  UNRESOLVED STAFF COMMENTS

         No disclosure is required in response to this Item.

[Item 5] OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         The following discussion and analysis of the results of operations and
the Company's financial position should be read in conjunction with the December
31, 2006 consolidated financial statements and accompanying notes.

OVERVIEW

         We are a British Virgin Islands corporation, which, through our
subsidiaries, conducts business operations in the People's Republic of China
(PRC). Prior to 2006, our operations consisted of acquiring and operating
businesses located in the PRC and Hong Kong. As of December 31, 2005, our only
material operations were those of iSense, an integrated marketing company that
provides advertising services to an international customer base. Through Hainan
Cihui Industrial Co. Ltd. (HARC), another of our subsidiaries, we also held an
interest in the unlisted shares of Hainan Sundiro Motorcycle Co., Ltd., a PRC
company listed on the Shenzhen Stock Exchange.

         In February 2006, we acquired all of the outstanding capital stock of
Feishang Mining Holdings Limited, a British Virgin Islands corporation (FMH),
and its subsidiary Wuhu Feishang Mining Development Co. Ltd., a PRC corporation
(Wuhu), in a reverse acquisition with FMH being the accounting acquirer. As a
result of the acquisition, we are now engaged in the mining of zinc, iron and
other minerals for distribution in the PRC. In order to focus our efforts on our
mining operations, during 2006, we also disposed of our interests in iSense and
HARC and currently our sole business operations are the mining operations of
Wuhu. The operations of iSense and HARC are reflected as discontinued operations
in our financial statements for the year ended December 31, 2006.

         Wuhu has acquired mining rights to and operates two mines located in
Anhui Province in the PRC, where it primarily mines zinc, and to a lesser
extent, iron, and is studying the feasibility of mining copper. Wuhu obtains its
mining rights from the State, for a term of years, subject to renewal, and
payment to the State of a license fee when the mining rights are renewed and a
natural resource fee equal to 2% of gross sales which is paid annually. Wuhu
performs all phases of the production and sales process, except that it
outsources mineral extraction to a third party. Zinc sales, which accounted for
approximately 80%, 66% and 47% of revenues in 2006, 2005 and 2004, respectively,
were made to a single customer. While demand for zinc continues to increase in
the PRC and Wuhu believes that its zinc is of high grade, the sole customer is
not obligated to purchase zinc from Wuhu.

         Fiscal 2006 saw a significant increase in net income, primarily
attributable to increased demand for our ore, higher prices and correspondingly
higher gross profit. Demand in 2007 is not expected to decline from 2006 levels,
with average prices expected to increase by approximately 20%.

                                       15
<PAGE>

         We do not anticipate significant capital expenditures during 2007.
However, in order to expand our revenue base, we are seeking to acquire
additional active mining operations in the PRC. We have no agreements or
understandings to acquire any mining operations at this time, although we are
evaluating several prospects, and continue to do so on a routine basis. We
expect to fund acquisitions with cash-on-hand, the issuance of our debt or
equity securities, or a combination of both, and we may use our securities to
raise capital to be used to fund operations. The use of our securities in this
manner may be dilutive to shareholders.

         SG&A expenses increased in 2006, in part due to assimilating the
operations of CHNR as a public company following the reverse acquisition, and in
part due to increased costs of regulatory compliance. As a foreign private
issuer we are not subject to certain of the reporting and compliance obligations
of other US publicly-treaded companies; however, costs of compliance are
expected to rise as regulators continue to expand the scope of controls and
disclosure obligations, and as those obligations are made applicable to foreign
private issuers.

DISCONTINUED OPERATIONS

         Pursuant to a January 1, 2004 agreement, Wuhu disposed of its interest
in the mining of activated bleaching earth operations to a related party, Wuhu
Feishang Non-Metal Material Co. Ltd. ("WFNM"), for total consideration of
RMB8,050,000 (US$1,032,000). The activated bleaching earth operations had not
been profitable for several years prior to disposition. The sale price of the
bleaching earth segment equaled its carrying value and accordingly there was no
gain or loss on the sale. As a result of the disposition, WFM ceased its
activated bleaching earth operations and its results have been retroactively
presented as discontinued operations. Revenues from the discontinued activated
bleaching earth operations were RMB808,000 (US$104,000) for the year ended
December 31, 2004. Income before income taxes from the discontinued activated
bleaching earth operations were RMB12,000 (US$1,000) for the year ended December
31, 2004.

         On July 31, 2006, the Company disposed of its 100% equity interest in
iSense to the director and former shareholder of iSense for consideration of
RMB2,060,000 (US$264,000). On October 3, 2006, the Company consummated the sale
of its 100% equity interest in HARC to an unaffiliated third party for total
consideration of RMB30,900,000 (US$3,962,000). The Company recognized a loss of
approximately RMB11,901,000 (US$1,526,000) from the dispositions which was
recorded in fiscal 2006. Revenues from discontinued iSense operations were
RMB189,000 (US$24,000) for the year ended December 31, 2006. Revenues from
discontinued HARC operations were RMB117,000 (US$15,000) for the year ended
December 31 2006. Loss before income taxes for discontinued iSense operations
was RMB271,000 (US$35,000) for the year ended December 31, 2006. Loss before
income taxes from discontinued HARC operations was RMB659,000 (US$84,000) for
the year ended December 31, 2006. Following the disposition of these
unprofitable businesses, management expects to expand our revenue base through
the acquisition of additional mining rights.



                                       16
<PAGE>

A.       OPERATING RESULTS

SALES AND GROSS PROFIT

         Sales for the year ended December 31, 2006 increased by 47% compared to
year ended December 31, 2005. The increase was mainly due to the 152% increase
in the average selling price of zinc, partly offset by the decrease in the sales
volume of zinc as actual zinc mined was 2% lower during the current year. Sales
for the year ended December 31, 2005 increased by 27% compared to year ended
December 31, 2004. The increase was due to the increase in sales volume and
average selling price of zinc by 14% and 56%, respectively, during 2005. The
Company's selling prices were driven by market forces. While the PRC's zinc
consumption increased by over 95% from 2002 to 2006, the PRC's zinc production
only increased by 46% during the same period. As a result of the shortage in
supply, the PRC's average zinc prices increased more than threefold from 2002 to
2006. We expect that the zinc prices will continue to increase for the next
several years.

         The Yang Chong Mine's zinc content and ore grades vary at different
underground levels and locations in the mining area. As the zinc content at the
extraction levels during 2006 was relatively low, the yield of zinc output was
lower than that of fiscal 2005 despite the opening of an additional mine shaft
in December 2005. It is expected that the zinc content at the current working
levels approximate that of fiscal 2006.

         The gross profit margin for the year ended December 31, 2006 was 75%,
compared to 61% for the year ended December 31, 2005. The increase was primarily
due to the increase in selling price of zinc as a result of increased demand.
Cost of sales is mainly comprised of direct materials, direct salaries,
depreciation of property and equipment, sub-contracting charges, transportation
expenses, natural resources fee and mining safety fee. Except for natural
resources fees which were calculated as a percentage of sales, other costs, in
general, varied with the sales volume of raw ore extracted. While the selling
prices increased, sales volume decreased during 2006 which accounted for the
decrease in cost of sales and the increase in gross profit margin. The gross
profit margin for the year ended December 31, 2005 was 61%, compared to 60% for
the year ended December 31, 2004. The increase was due to the increase in
selling price of zinc.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses ("SG&A") are mainly
comprised of salaries and staff welfare expenses, contribution to retirement
fund, utilities, depreciation expenses, travel and entertainment expenses and
office expenses. SG&A expenses increased by RMB4,998,000 (US$641,000) or 54% to
RMB14,170,000 (US$1,817,000) for the year ended December 31, 2006 from
RMB9,172,000 (US$1,176,000) for the year ended December 31, 2005. SG&A expenses
for the year ended December 31, 2005 only represented those of FMH and Wuhu.
SG&A expenses for the year ended December 31, 2006 included those of FMH and
Wuhu and those of CHNR incurred after February 3, 2006 following the reverse
acquisition and which amounted to approximately RMB5.6 million (US$718,000), and
include salaries, legal, accounting, filing fees and other expenses of public
company operations. These expenses are recurring. It is anticipated that these
expenses will increase moderately in future years in line with general
inflation.

         SG&A expenses for the year ended December 31, 2004 also only
represented those of FMH and Wuhu. They increased by RMB4,575,000 (US$587,000)
or 100% to RMB9,172,000 (US$1,176,000) for the year ended December 31, 2005 from
RMB4,597,000 (US$589,000) for the year ended December 31, 2004. The increase was
primarily attributable to the increase in salary and retirement benefits, and
the professional fees in connection with the acquisition transaction.

INTEREST INCOME

         Interest income decreased by RMB312,000 (US$40,000) or 26% to
RMB904,000 (US$116,000) for the year ended December 31, 2006 from RMB1,216,000
(US$156,000) for the year ended December 31, 2005. The decrease was primarily
due to a decrease in interest income earned on loans and advances to related
parties in 2005 of RMB515,000 (US$66,000), partly offset by an increase in cash
balances in 2006.

         Interest income increased by RMB1,054,000 (US$135,000) to RMB1,216,000
(US$156,000) for the year ended December 31, 2005 from RMB162,000 (US$21,000)
for the year ended December 31, 2004. The increase was primarily due to an
interest income earned on loans and advances to related parties in 2005 of
RMB950,000 (US$122,000) and the increase in average bank balances.

                                       17
<PAGE>

OTHER INCOME/(EXPENSES), NET

         Other income, net for the year ended December 31, 2006 primarily
consisted of a net gain on trading of marketable securities of RMB5,013,000
(US$643,000).

         Other income/(expenses), net for the year ended December 31, 2005
mainly consisted of a loss on disposal of property and equipment of RMB92,000
(US$12,000).

DISCONTINUED OPERATIONS

         Discontinued operations for the year ended December 31, 2006 consisted
of a loss on disposal of iSense and HARC of RMB11,901,000 (US$1,526,000).

INCOME TAXES

         Management believes that the Company is not subject to US taxes.

         Under the current laws of the BVI, dividends and capital gains arising
from the Company's investments in the BVI are not subject to income taxes and no
withholding tax is imposed on payments of dividends to the Company.

         The Company's subsidiaries in the PRC are subject to PRC federal
statutory tax rate applicable to foreign investment enterprises in Wuhu of 15%.

NET INCOME

         Net income increased by RMB28,502,000 (US$3,654,000) or 65% to
RMB72,548,000 (US$9,301,000) for the year ended December 31, 2006 from
RMB44,046,000 (US$5,647,000) for the year ended December 31, 2005. The increase
was primarily attributable to the increase in gross profit by 79% in 2006
compared to 2005, partly offset by the increase in selling, general and
administrative expenses and the loss on disposal of discontinued operations of
RMB11,901,000 (US$1,526,000).

         Net income increased by RMB2,042,000 (US$262,000) or 5% to
RMB44,046,000 (US$5,647,000) for the year ended December 31, 2005 from
RMB42,004,000 (US$5,385,000) for the year ended December 31, 2004. The increase
was primarily attributable to the increase in gross profit by 30% in 2005
compared to 2004, partly offset by the increase in selling, general and
administrative expenses and the income taxes at 15% after the 2 year tax-free
period.

B.       LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary liquidity needs are to fund operating expenses
and, to a lesser extent, fund capital expenditures. The Company has financed its
working capital requirements and capital expenditures through internally
generated cash.

         Net cash provided by operating activities was RMB43,747,000
(US$5,609,000), RMB44,901,000 (US$5,757,000) and RMB103,175,000 (US$13,228,000),
in fiscal 2004, 2005 and 2006, respectively. Net cash flows from the Company's
operating activities are attributable to the Company's income and changes in
operating assets and liabilities. The principal sources of cash in fiscal 2006
were derived from early repayment of trade receivables and delayed payment of
trade payables.

         The following summarizes the Company's financial condition and
liquidity at the dates indicated:

                                                        AT DECEMBER 31,
                                                 ----------------------------
                                                       2005              2006
                                                 ----------        ----------
         Current ratio                                 1.29x             2.85x
         Working capital                         16,009,000        93,096,000
         Ratio of long-term debt to total
           shareholders' equity                          0x                0x

                                       18
<PAGE>

         Net cash provided by/(used in) investing activities was (RMB34,619,000)
(US$4,438,000), (RMB23,586,000) (US$3,024,000) and RMB12,004,000 (US$1,539,000),
in fiscal 2004, 2005 and 2006, respectively. Net cash used in Company's
investing activities in 2004 and 2005 was mainly attributable to advances to
related companies. Net cash provided by investing activities in 2006 was mainly
attributable to net proceeds from the disposal of subsidiaries, partly offset by
repayments to a director and to related companies. Following the reverse
acquisition in February 2006, the non-core businesses were disposed of in fiscal
2006 and advances received from a director and from related companies in prior
years were repaid. These investing activities are non-recurring.

         Net cash used in financing activities was nil, nil and RMB18,010,000
(US$2,309,000) in fiscal 2004, 2005 and 2006, respectively. Net cash used in
Company's financing activities in 2006 were mainly attributable to dividends
paid of RMB18,000,000 (US$2,308,000).

         The Company has no capital expenditure commitments as of December 31,
2006. We do not anticipate significant capital expenditures during 2007.
However, in order to expand our revenue base, we are seeking to acquire
additional active mining operations in the PRC. We have no agreements or
understandings to acquire any mining operations at this time, although we are
evaluating several prospects, and continue to do so on a routine basis. We
expect to fund acquisitions with cash-on-hand, the issuance of our debt or
equity securities, or a combination of both, and we may use our securities to
raise capital to be used to fund operations. The use of our securities in this
manner may be dilutive to shareholders.


         Except as disclosed above, there have been no significant changes in
the financial condition and liquidity during the years ended December 31, 2004,
2005 and 2006. The Company believes that its internally generated funds will be
sufficient to satisfy its anticipated working capital needs for at least the
next 12 months.

C.       RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

         The Company did not spend any significant amounts on company-sponsored
research and development activities during each of the last three fiscal years.

D.       TREND INFORMATION

         The Company does not believe that there have been recent trends in
production, sales and inventory, the state of the order book and costs and
selling prices since the latest financial year, nor any known trends,
uncertainties, demands, commitments or events that are reasonably likely to have
a material effect of the Company's net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause
reported financial information not necessarily to be indicative of future
operating results or financial condition.

E.       OFF BALANCE SHEET ARRANGEMENTS

         Under SEC regulations, we are required to disclose our off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors. An off-balance sheet
arrangement means a transaction, agreement or contractual arrangement to which
any entity that is not consolidated with us is a party, under which we have:

     o   Any obligation under certain guarantee contracts;
     o   Any retained or contingent interest in assets transferred to an
         unconsolidated entity or similar arrangement that serves as credit,
         liquidity or market risk support to that entity for such assets;
     o   Any obligation under a contract that would be accounted for as a
         derivative instrument, except that it is both indexed to our stock and
         classified in stockholder's equity in our statement of financial
         position; and
     o   Any obligation arising out of a material variable interest held by us
         in an unconsolidated entity that provides financing, liquidity, market
         risk or credit risk support to us, or engages in leasing, hedging or
         research and development services with us.

         As of December 31, 2006, the Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.

                                       19
<PAGE>

F.       TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         The Company has no contractual obligations and commercial commitments
as at December 31, 2006.

G.       SAFE HARBOR

         No disclosure is required in response to this item.

CRITICAL ACCOUNTING POLICIES

         Our financial statements reflect the selection and application of
accounting policies which require management to make significant estimates and
assumptions. We believe that the following are some of the more significant
judgment areas in the application of our accounting policies that currently
affect our financial condition and results of operations.

DEFERRED TAX ASSETS

         The Company is required to assess the ultimate realization of deferred
tax assets generated from net operating loss carryforwards. This assessment
takes into consideration the availability and character of future taxable
income. As management estimates that there will be no taxable income generated
for the foreseeable future, no deferred tax assets are recognized in the
financial statements.

REVENUE RECOGNITION

         Revenue from product sales is recognized when title passes to the
customer in accordance with the sales agreement, generally upon product
acceptance by the customer.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost less accumulated
depreciation. Expenditures for routine repairs and maintenance are expensed as
incurred. Depreciation is calculated on the straight-line basis to write off the
cost less estimated residual value of each asset over its estimated useful life.

         The Company has determined that its mining rights are mineral rights,
and accordingly they are classified as property and equipment.

         Mining rights are stated at cost less accumulated amortization and any
impairment losses. The mining rights are amortized based on actual units of
production over the estimated reserves of the mines, not to exceed 20 years. The
weighted average remaining amortization period for these reserves is 16 years as
of December 31, 2006. The Company's rights to extract minerals are contractually
limited by time. However, the Company believes that it will be able to extend
licenses, as it has in the past, and therefore, believes that assigned lives are
appropriate.

         Management assesses the carrying values of its long-lived assets for
impairment when circumstances warrant such a review. Generally, long-lived
assets are considered impaired if the estimated fair value is less than the
assets' carrying values. If an impairment is indicated, the loss is measured
based on the amounts by which the carrying values of the assets exceed their
fair values.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         During June 2006, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income
Taxes"-- an interpretation of FASB Statement No. 109. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, "Accounting
for Income Taxes," and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This interpretation
is effective for fiscal years beginning after December 15, 2006. Management is


                                       20
<PAGE>

assessing the impact this interpretation will have on the Company's consolidated
operating results, cash flows or financial position upon adoption.

         During October 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). This statement does not require any new fair value
measurements but provides guidance on how to measure fair value and clarifies
the definition of fair value under accounting principles generally accepted in
the United States of America. The statement also requires new disclosures about
the extent to which fair value measurements in financial statements are based on
quoted market prices, market-corroborated inputs, or unobservable inputs that
are based on management's judgments and estimates. The statement is effective
for fiscal years beginning after November 15, 2007. The statement will be
applied prospectively by the Company for any fair value measurements that arise
after the date of adoption.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." This statement permits entities to choose to measure
eligible items at fair value at specified election dates. The statement is
effective as of the beginning of an entity's first fiscal year that begins after
November 15, 2007 although early adoption is permitted provided that an entity
also adopts SFAS 157. Management has not determined the impact this standard
will have on the Company's consolidated operating results or financial position
upon adoption.

[Item 6] DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.       DIRECTORS AND SENIOR MANAGEMENT

         The following table sets forth the current directors and executive
officers of the Company, and their ages and positions with the Company:

NAME                  AGE               POSITION
----                  ---               --------

Li Feilie             40     Chairman of the Board of Directors,
                             President and Chief Executive Officer

Tam Cheuk Ho          44     Director and Chief Financial Officer

Wong Wah On Edward    43     Director, Secretary and Financial Controller

Lam Kwan Sing         37     Non-employee Director

Ng Kin Sing           44     Non-employee Director

Yip Wing Hang         40     Non-employee Director

         Mr. Li Feilie was appointed as a director, Chief Executive Officer,
Chairman of the Board and President of CNRI on February 3, 2006 to replace Mr.
Ching Lung Po following the consummation of the acquisition of FMH. Mr. Li has
served as a director of FMH since September 2004. Mr. Li served as the Chairman
of Wuhu from June 2002 to June 2004. Mr. Li has been the chairman of Shenzhen
Feishang Industrial Development Co. Ltd., Wuhu Feishang Industry Development Co.
Ltd. and Wuhu Port Co. Ltd., companies beneficially owned by him, since June
2000, December 2001 and October 2002, respectively. He has also served as
director of Pingxiang Iron & Steel Co. Ltd. since July 2003. From March 2002 to
April 2004, Mr. Li served as the chairman of Fujian Dongbai (Group) Co. Ltd. Mr.
Li graduated from the Economic Department of Peking University and was awarded a
Master's degree from the Graduate School of Peking University.

         Mr. Tam Cheuk Ho has served as a director of CNRI since December 23,
1993, and as its Chief Financial Officer since November 22, 2004. He served as


                                       21
<PAGE>

the Chief Financial Officer and a director of China Resources from December 2,
1994 until completion of the Redomicile Merger. From July 1984 through January
1992, he worked as Audit Manager at Ernst & Young, Hong Kong, and from February
1992 through September 1992, as Financial Controller at Tack Hsin Holdings
Limited, a listed company in Hong Kong, where he was responsible for accounting
and financial functions. From October 1992, through December, 1994, Mr. Tam was
Finance Director of Hong Wah (Holdings) Limited. He is a fellow of both the Hong
Kong Institute of Certified Public Accountants and the Association of Chartered
Certified Accountants. He is also a certified public accountant (practicing) in
Hong Kong. He holds a Bachelor's degree in Business Administration from the
Chinese University of Hong Kong.

         Mr. Wong Wah On Edward has been a director of CNRI since January 25,
1999, as its Secretary since February 1, 1999 and as Financial Controller since
November 22, 2004. He served as Financial Secretary, Financial Controller and a
director of China Resources from December 30, 1997 until completion of the
Redomicile Merger. He is responsible for assisting the Chief Financial Officer
with the Company's treasury, accounting and secretarial functions. From October
1992 through December 1994, Mr. Wong was the Deputy Finance Director of Hong Wah
(Holdings) Limited. From July 1988 through October 1992, he was an audit
supervisor at Ernst & Young, Hong Kong. Mr. Wong is also a director of Anka
Capital Limited, a privately-held corporation, through which he is a principal
shareholder of the Company. He received a professional diploma in Company
Secretaryship and Administration from the Hong Kong Polytechnic University. He
is a fellow of both the Hong Kong Institute of Certified Public Accountants and
the Association of Chartered Certified Accountants, and an associate of the Hong
Kong Institute of Chartered Secretaries. He is also a certified public
accountant (practicing) in Hong Kong.

         Mr. Lam Kwan Sing has been a director and a member of CNRI's audit
committee since November 22, 2004. He served as a director and a member of the
Audit Committee of China Resources from March 20, 2003 until completion of the
Redomicile Merger. Mr. Lam has been the executive director of New Times Group
Holdings Limited, a Hong Kong listed company, where he is responsible for the
overall corporate finance and accounting operations. From 2000 to 2002, Mr. Lam
was the business development manager of China Development Corporation Limited, a
Hong Kong listed company. From 1997 to 2000, he was the business development
manager of Chung Hwa Development Holdings Limited, a Hong Kong listed company.
From 1995 to 1997, Mr. Lam was the assistant manager (Intermediaries
supervision) of Hong Kong Securities and Futures Commission. Mr. Lam holds a
Bachelor's degree in Accountancy from the City University of Hong Kong.

         Mr. Ng Kin Sing has been a director and a member of CNRI's audit
committee since November 22, 2004. He served as a director and a member of the
Audit Committee of China Resources from February 1, 1999 until completion of the
Redomicile Merger. From April 1998 to the present, Mr. Ng has been the managing
director of Action Plan Limited, a securities investment company. From November
1995 until March 1998, Mr. Ng was sales and dealing director for NatWest Markets
(Asia) Limited; and from May 1985 until October 1996, he was the dealing
director of BZW Asia Limited, an international securities brokerage house. Mr.
Ng holds a Bachelor's degree in Business Administration from the Chinese
University of Hong Kong.

         Mr. Yip Wing Hang has been a director and a member of CNRI's audit
committee since June 26, 2006. From February 2002 to present, Mr. Yip has been
the marketing director of Hantec Investment Consultant Limited responsible for
the wealth management business. From May 1997 to February 2002, Mr. Yip was the
senior manager of CCIC Finance Limited. My. Yip holds a Masters degree in
Accounting and Finance from the Lancaster University, UK.

         The following table sets forth the senior management of FMH and Wuhu,
and their ages and positions with FMH and Wuhu:

NAME                    AGE                         POSITION
----                    ---                         --------

Chan Him Alfred         43               Chief Financial Officer of FMH

Tang Mian               43               Director and General Manager of Wuhu

         Mr. Chan Him Alfred has been the Chief Financial Officer of FMH since
September 2004. He is responsible for the finance, accounting and secretarial
functions of FMH and its subsidiary Wuhu. From January 2004 through June 2004,
he was the financial controller and company secretary of Beijing Beida Jade Bird


                                       22
<PAGE>

Universal Sci-Tech Company Limited, a PRC based company listed on the Hong Kong
Stock Exchange. From July 2001 through January 2004, Mr. Chan was the financial
controller and company secretary of Loulan Holdings Limited, a PRC based company
listed on the Hong Kong Stock Exchange. From November 2000 through June 2001, he
was the deputy CEO of the Kingcomics.com Limited. From April 1999 through
October 2000, he was the financial controller and company secretary of The
Bigstoreasia.com. Limited. From January 1998 through October 1998, he was an
audit manager at Moores Rowland. From October 1996 through December 1997, he was
the financial controller and company secretary of Richman Group Limited. He
joined Ernst & Young Hong Kong in July 1987 as a staff accountant, and worked
with Ernst & Young until June 1996, at which time he served as an audit senior
manager. Mr. Chan received a professional diploma in Accounting from the Hong
Kong Polytechnic University. He is a fellow of both the Association of Chartered
Certified Accountants and the Hong Kong Institute of Certified Public
Accountants.

         Mr. Tang Mian has been the Director and General Manager of Wuhu since
its incorporation in June 2002. From September 1996 to June 2002, he was the
manager of Anhui Fanchang Zinc and Iron Mine, the predecessor of Wuhu. Mr. Tang
holds a master's degree in business administration.

B.       COMPENSATION

         The following table sets forth the amount of compensation that was
paid, earned and/or accrued during the fiscal year ended December 31, 2006, to
each of the individuals identified in Item 6(A) above.

                 NAME                          COMPENSATION (US$)*
                 ----                          -------------------
                 Li Feilie                                      --
                 Ching Lung Po**                            $2,564
                 Tam Cheuk Ho                              141,026
                 Wong Wah On Edward                        102,564
                 Lam Kwan Sing                               3,846
                 Ng Kin Sing                                 3,846
                 Yip Wing Hang                               3,846
                 Chan Him Alfred                                --
                 Tang Mian                                  14,487

----------
*    Each of the named individuals is eligible to participate in the Company's
     equity compensation plan; however, no awards were made under the plan
     during the year ended December 31, 2006.
**   Mr. Ching resigned from the Company in February 2006. Upon his resignation,
     the prior Service Agreement with Mr. Ching terminated.

         On February 1, 1999, the Company entered into an Employment Agreement
with Tam Cheuk Ho. In accordance with the terms of the Employment Agreement, Mr.
Tam has been employed by the Company as the Chief Financial Officer and to
perform such duties as the Board of Directors shall from time to time determine.
Mr. Tam shall receive a base salary of HK$1,800,000 (US$230,769) annually, which
base salary shall be adjusted on each anniversary of the Employment Agreement to
reflect a change in the applicable consumer price index or such greater amount
as the Company's Board of Directors may determine. The initial two year term of
Employment Agreement has expired, and the term of the Agreement continues to
automatically renew each year, until terminated as provided therein. On March 1,
2006, the Company entered into a Supplemental Employment Agreement with Tam
Cheuk Ho, reducing his base salary to HK$960,000 (US$123,077) per annum with all
other terms of the Employment Agreement remained in full force and effect.

         On February 1, 1999, the Company entered into an Employment Agreement
with Wong Wah On Edward. In accordance with the terms of the Employment
Agreement, Mr. Wong has been employed by the Company as the Financial Controller
and Corporate Secretary and to perform such duties as the Board of Directors
shall from time to time determine. Mr. Wong shall receive a base salary of


                                       23
<PAGE>

HK$1,200,000 (US$153,846) annually, which base salary shall be adjusted on each
anniversary of the Employment Agreement to reflect a change in the applicable
consumer price index or such greater amount as the Company's Board of Directors
may determine. The initial two year term of the Employment Agreement has
expired, and the Agreement continues to automatically renew each year, until
terminated as provided therein. On March 1, 2006, the Company entered into a
Supplemental Employment Agreement with Wong Wah On Edward, reducing his base
salary to HK$720,000 (US$92,308) per annum with all other terms of the
Employment Agreement remained in full force and effect.

         The Company has no other employment contracts with any of its officers
or directors and maintains no retirement, fringe benefit or similar plans for
the benefit of its officers or directors. The Company may, however, enter into
employment contracts with its officers and key employees, adopt various benefit
plans and begin paying compensation to its officers and directors as it deems
appropriate to attract and retain the services of such persons.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth information relating to our outstanding
stock option plans as of December 31, 2006:

<TABLE>
<CAPTION>
                                                                                                 NUMBER OF SECURITIES
                                    NUMBER OF SECURITIES TO                                      REMAINING AVAILABLE FOR
                                    BE ISSUED UPON               WEIGHTED-AVERAGE                FUTURE ISSUANCE UNDER
                                    EXERCISE OF OUTSTANDING      EXERCISE PRICE OF               EQUITY COMPENSATION
                                    OPTIONS,                     OUTSTANDING OPTIONS,            PLAN (EXCLUDING SECURITIES
                                    WARRANTS AND RIGHTS          WARRANTS AND RIGHTS             REFLECTED IN COLUMN A)
                                    -----------------------      --------------------            --------------------------
<S>                                      <C>                           <C>                       <C>
Equity Compensation
Plan Approved by
Security Holders
   2003 Equity Compensation Plan                 0                            N/A                2,807,104
                                         ---------                      ---------                ---------

Equity Compensation
Plans Not Approved by
Security Holders                                 0                              0                        0
                                         ---------                      ---------                ---------

Total                                            0                                               2,807,104
                                         =========                                               =========
</TABLE>

STOCK OPTION PLAN

         We have adopted the 2003 Equity Compensation Plan. The purposes of the
plan are to:

         o    Encourage ownership of our common stock by our officers,
              directors, employees and advisors;
         o    Provide additional inventive for them to promote our success and
              our business; and
         o    Encourage them to remain in our employ by providing them with the
              opportunity to benefit from any appreciation of our common shares.

A brief description of plan is as follows:

         On December 18, 2003, our members approved and adopted the 2003 Equity
Compensation Plan (the "2003 Plan"). The 2003 Plan allows the Board to grant
various incentive equity awards not limited to stock options. The Company has
reserved a number of common shares equal to 20% of the issued and outstanding
common stock of the Company, from time-to-time, for issuance pursuant to options
granted ("Plan Options") or for restricted stock awarded ("Stock Grants") under
the 2003 Plan. Stock Appreciation Rights may be granted as a means of allowing
participants to pay the exercise price of Plan Options. Stock Grants may be made
upon such terms and conditions as the Board or Committee designated by the Board
determines. Stock Grants may include deferred stock awards under which receipt


                                       24
<PAGE>

of Stock Grants is deferred, with vesting to occur upon such terms and
conditions as the Board or Committee determines.

         The 2003 Plan is administered by the Board of Directors or a Committee
designated by the Board. The Board or Committee will determine, from time to
time, those of our officers, directors, employees and consultants to whom Stock
Grants and Plan Options will be granted, the terms and provisions of the
respective Stock Grants and Plan Options, the dates such Plan Options will
become exercisable, the number of shares subject to each Plan Option, the
purchase price of such shares and the form of payment of such purchase price.
Plan Options and Stock Grants will be awarded based upon the fair market value
of our common shares at the time of the award. All questions relating to the
administration of the 2003 Plan, and the interpretation of the provisions
thereof are to be resolved at the sole discretion of the Board or Committee.

         Options granted under the 2003 may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, or non-qualified options. The exercise price of incentive stock options
may not be less than 100% of the fair market value of the underlying shares as
of the date of grant. The exercise price of non-qualified options ay not be less
than 85% of the fair market value of the underlying shares as of the date of
grant.

         During the years ended December 31, 2006 and 2005, no awards were made
under the 2003 Plan. During the year ended December 31, 2004, the board of
directors granted options to certain employees and officers to purchase 104,000
shares of the Company's Common Stock, of which 24,000 shares were under the 1995
Plan and 80,000 shares were under the 2003 Plan. A total of 2,807,104 shares
were available for grant as of December 31, 2006. The 2003 Plan terminates on
December 18, 2013.

C.       BOARD PRACTICES

         As provided by Article 74 of our Memorandum and Articles of
Association, directors, solely for purposes of determining the term for which
they will serve, are classified as Class I, Class II and Class III directors,
with approximately one-third of the total number of directors being allocated to
each Class. Each director is to hold office for a three-year term expiring at
the annual meeting of members held three years following the annual meeting at
which he or she was elected.

         At the annual meeting of members in 2006, Messrs. Lam Kwan Sing and Yip
Wing Hang were elected to serve as Class II Directors until the annual meeting
held in 2009 and until their successors were duly elected and qualified; Messrs.
Li Feilie and Ng Kin Sing serve as Class I Directors until the annual meeting to
be held in 2008 and until their successors have been duly elected and qualified;
and Messrs. Tam Cheuk Ho and Wong Wah On Edward serve as Class III Directors
until the annual meeting to be held in 2007 and until their successors have been
duly elected and qualified.

         Our officers are elected annually at the Board of Directors meeting
following each annual meeting of members, and hold office until their respective
successors are duly elected and qualified, subject to their earlier death,
resignation or removal.

         Commencing July 1, 2006, we pay our independent directors a monthly
directors' fee equal to HK$5,000 (US$641). We do not otherwise pay fees to
directors for their attendance at meetings of the Board of Directors or of
committees; however, we may adopt a policy of making such payments in the
future. We will reimburse out-of-pocket expenses incurred by directors in
attending Board and Committee meetings. During the fiscal year ended December
31, 2006, no long-term incentive plans or pension plans were in effect with
respect to any of the Company's officers, directors or employees.

Audit Committee

         Our audit committee, whose members currently consists of Yip Wing Hang,
Lam Kwan Sing and Ng Kin Sing, is principally responsible for ensuring the
accuracy and effectiveness of the annual audit of the financial statements. The
duties of the Audit Committee include, but are not limited to:

                                       25
<PAGE>

         o    appointing and supervising our independent registered public
              accounting firm;
         o    assessing the organization and scope of the company's interim
              audit function;
         o    reviewing the scope of audits to be conducted, as well as the
              results thereof;
         o    approving audit and non-audit services provided to us by our
              independent registered public accounting firm; and
         o    overseeing our financial reporting activities, including our
              internal controls and procedures and the accounting standards and
              principles applied.

         Each member of the Audit Committee is an "independent" director, as
such term is used in (a) Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), (b) Section 10A-3(m)(3) of
the Exchange Act, and (c) Nasdaq Marketplace Rule 4200(a)(15).

Nominating and Corporate Governance Committee; Member Nominees for Director

         Our board of directors has established a Nominating and Corporate
Governance Committee that operates pursuant to a written charter. The current
members of the Nominating and Corporate Governance Committee are Ng Kin Sing,
Lam Kwan Sing and Yip Wing Hang. Each member of the Nominating and Corporate
Governance Committee is an "independent" director, as such term is used in
Section 10A-3(m)(3) of the Exchange Act and Nasdaq Marketplace Rule 4200(a)(15).

         The Nominating and Corporate Governance Committee is responsible for
providing oversight on a broad range of issues surrounding the composition and
operation of our Board of Directors. In particular, the responsibilities of the
Nominating and Corporate Governance Committee include:

         o    identifying individuals qualified to become members of the Board
              of Directors;
         o    determining the slate of nominees to be recommended for election
              to the Board of Directors;
         o    reviewing corporate governance principles applicable to us,
              including recommending corporate governance principles to the
              Board of Directors and administering our Code of Ethics;
         o    assuring that at least one Audit Committee member is an "audit
              committee financial expert" within the meaning of regulatory
              requirements; and
         o    carrying out such other duties and responsibilities as may be
              determined by the Board of Directors.

         The Nominating and Corporate Governance Committee is required to meet
at least once annually, and more frequently if the committee deems it to be
appropriate. The committee may delegate authority to one or more members of the
committee; provided that any decisions made pursuant to such delegated authority
are presented to the full committee at its next scheduled meeting. Discussions
pertaining to the nomination of directors are required to be held in executive
session.

         The Nominating and Corporate Governance Committee will consider
candidates for directors proposed by members, although no formal procedures for
submitting the names of candidates for inclusion on management's slate of
director nominees have been adopted. Until otherwise determined by the
Nominating and Corporate Governance Committee, a member who wishes to submit the
name of a candidate to be considered for inclusion on management's slate of
nominees at the next annual meeting of members must notify our Corporate
Secretary, in writing, no later than June 30 of the year in question of its
desire to submit the name of a director nominee for consideration. The written
notice must include information about each proposed nominee, including name,
age, business address, principal occupation, telephone number, shares
beneficially owned and a statement describing why inclusion of the candidate
would be in our best interests. The notice must also include the proposing
member's name and address, as well as the number of shares beneficially owned. A
statement from the candidate must also be furnished, indicating the candidate's
desire and ability to serve as a director. Adherence to these procedures is a
prerequisite to the board's consideration of the member's candidate. Once a
candidate has been identified, the Nominating and Corporate Governance Committee
reviews the individual's experience and background, and may discuss the proposed
nominee with the source of the recommendation. If the Nominating and Corporate
Governance Committee believes it to be appropriate, committee members may meet
with the proposed nominee before making a final determination whether to include
the proposed nominee as a member of management's slate of director nominees to
be submitted for election to the board.

                                       26
<PAGE>

Compensation Committee

         We do not have a formal compensation committee. The Board of Directors,
acting as a compensation committee, periodically meets to discuss and deliberate
on issues surrounding the terms and conditions of executive officer
compensation, including base salaries, bonuses, equity awards and reimbursement
of certain business related costs and expenses. Three of the members of our
Board of Directors are officers, of which two are employees of our company, and
those board members participate in decisions of the board concerning
compensation arrangements with our executive officers.

NASDAQ Requirements

         Our common shares are currently listed on the NASDAQ Capital Market
and, for so long as our securities continue to be listed, we will remain subject
to the rules and regulations established by NASDAQ Stock Market as being
applicable to listed companies. NASDAQ has adopted, and from time-to-time
adopts, amendments to its Marketplace Rule 4350 to impose various corporate
governance requirements on listed securities. Section (a)(1) of Marketplace Rule
4350 provides that foreign private issuers such as our company are required to
comply with certain specific requirements of Marketplace Rule 4350, but, as to
the balance of Marketplace Rule 4350, foreign private issuers are not required
to comply if the laws of their home jurisdiction do not otherwise require
compliance.

         We currently comply with the specifically mandated provisions of
Marketplace Rule 4350. In addition, we have elected to voluntarily comply with
certain other requirements of Marketplace Rule 4350, notwithstanding that our
home jurisdiction does not mandate compliance; although we may in the future
determine to cease voluntary compliance with those provisions of Marketplace
Rule 4350. However, we have determined not to comply with the following
provisions of Marketplace Rule 4350 since the laws of the British Virgin Islands
do not require compliance:

         o    a majority of our Directors are not independent as defined by
              NASDAQ rules;
         o    our independent directors do not hold regularly scheduled meetings
              in executive session;
         o    the compensation of our executive officers is not determined by an
              independent committee of the Board or by the independent members
              of the Board of Directors, and our CEO may be present in the
              deliberations concerning his compensation;
         o    related party transactions are not required to be reviewed and we
              are not required to solicit member approval of stock plans,
              including those in which our officers or directors may
              participate; stock issuances that will result in a change in
              control; the issuance of our stock in related party acquisitions
              or other acquisitions in which we may issue 20% or more of our
              outstanding shares; or, below market issuances of 20% or more of
              our outstanding shares to any person;
         o    we are not required to hold an in-person annual meeting to elect
              directors and transact other business customarily conducted at an
              annual meeting; and
         o    we are not required to participate in an electronic link with a
              specified registered depository in connection with any direct
              registration program that we may establish in the future.

         We may in the future determine to voluntarily comply with one or more
of the foregoing provisions of Marketplace Rule 4350.

                                       27
<PAGE>

D.       EMPLOYEES

         The following table sets out the number of employees and consultants
with contracts at the end of each of the past three financial years, including
their main category of activity and geographic location.

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                          ------------------------------------
                                                                          2006            2005            2004
                                                                          ----            ----            ----
<S>                                                                        <C>             <C>            <C>
Hong Kong             Accounting, administration and management             5               4              4
                      Advertising and promotion                           ---               2              2
                      Others                                                1               1              1
                                                                          ---              --             --
                                                                            6               7              7

The PRC               Accounting, administration and management            14               2              2
                      Sales and quality inspection                         27              --             --
                      Purchasing and supplies                              14              --             --
                      Production                                          294              --             --
                      Cashier                                               1               1              1
                      Others                                               27               2              2
                                                                          ---              --             --
                                                                          377               5              5
                                                                          ---              --             --

Total                                                                     383              12             12
                                                                          ===              ==             ==
</TABLE>

E.       SHARE OWNERSHIP

         The following table sets forth, as of March 31, 2007 , the share
ownership of the Company's Common Shares by each of our directors and executive
officers.

         As of March 31, 2007, there were 11,548,416 Common Shares issued and
outstanding. Unless otherwise indicated, each person has sole investment and
voting power with respect to all shares shown as beneficially owned. A person is
deemed to be the beneficial owner of securities that the person has the right to
acquire within 60 days upon exercise of options, warrants or convertible
securities.

<TABLE>
<CAPTION>
        ----------------------------------- ----------------------------------- ----------------------
                                                     AMOUNT AND NATURE OF             PERCENT OF
             NAME OF BENEFICIAL OWNER                BENEFICIAL OWNERSHIP               CLASS
        ----------------------------------- ----------------------------------- ----------------------
<S>                                                        <C>                         <C>
        Li Feilie                                          14,480,593(1)               90.2%
        ----------------------------------- ----------------------------------- ----------------------
        Tam Cheuk Ho                                           80,000                      *
        ----------------------------------- ----------------------------------- ----------------------
        Wong Wah On Edward                                     80,000                      *
        ----------------------------------- ----------------------------------- ----------------------
        Lam Kwan Sing                                              --                     --
        ----------------------------------- ----------------------------------- ----------------------
        Ng Kin Sing                                                --                     --
        ----------------------------------- ----------------------------------- ----------------------
        Yip Wing Hang                                              --                     --
        ----------------------------------- ----------------------------------- ----------------------
        Chan Him Alfred                                            --                     --
        ----------------------------------- ----------------------------------- ----------------------
        Tang Mian                                                  --                     --
        ----------------------------------- ----------------------------------- ----------------------
        Officers and directors as a group                  14,640,593                  91.2%
        (6 persons)
        ----------------------------------- ----------------------------------- ----------------------
</TABLE>

----------
*    Less than 1%.

(1)  Shares are held in the name of Feishang Group Limited, a British Virgin
     Islands corporation that is wholly owned by Mr. Li. Includes 9,980,593
     outstanding common shares and 4,500,000 common shares issuable upon
     exercise of the outstanding warrants.

                                       28
<PAGE>

[Item 7] MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.       MAJOR SHAREHOLDERS

         The following table sets forth, as of March 31, 2007, to the knowledge
of management, the share ownership of each person who is the beneficial owner of
more than 5% of our outstanding Common Shares.

         As of March 31, 2007, there were 11,548,416 Common Shares issued and
outstanding. Unless otherwise indicated, each person has sole investment and
voting power with respect to all shares shown as beneficially owned. A person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days upon exercise of options, warrants or convertible
securities.

         The Company's major shareholders do not have different voting rights
than other shareholders of the Company.

<TABLE>
<CAPTION>
        ----------------------------------- ----------------------------------- ----------------------
                                                     AMOUNT AND NATURE OF             PERCENT OF
             NAME OF BENEFICIAL OWNER                BENEFICIAL OWNERSHIP               CLASS
        ----------------------------------- ------------------------------------- --------------------
<S>                                                      <C>                              <C>
        Li Feilie                                        14,480,593(1)                    90.2%
        ----------------------------------- ------------------------------------- --------------------
</TABLE>
----------
(1)  Shares are held in the name of Feishang Group Limited, a British Virgin
     Islands corporation that is wholly owned by Mr. Li. Includes 9,980,593
     outstanding common shares and 4,500,000 common shares issuable upon
     exercise of the outstanding warrants.

         As of March 27, 2007, our Common Shares were held of record by a total
of 183 persons, of which 1,227,896 Common Shares were held of record by Cede &
Co.

         To our knowledge, there are no arrangements the operations of which
may, at a subsequent date, result in a change in control of the Company.

B.       RELATED PARTY TRANSACTIONS

         On September 1, 2000, the Company and Anka Consultants Limited
("Anka"), a private Hong Kong company that is owned by certain directors of the
Company, entered into an office sharing agreement, based upon which the
Company's head office in Hong Kong is shared on an equal basis between the two
parties. The office sharing agreement also provides that the Company and Anka
shall share certain costs and expenses in connection with its use of the office.
For the years ended December 31, 2004, 2005 and 2006, the Company paid rental
expenses to Anka Consultants Limited amounted to RMB232,000 (US$30,000),
RMB211,000 (US$27,000) and RMB226,000 (US$29,000), respectively.

         On February 3, 2006 the Company consummated the acquisition of all of
the issued and outstanding capital stock of FMH from Feishang Group Limited (the
"Shareholder"), a British Virgin Islands company, the former owner of all of the
issued and outstanding common stock of FMH. Mr. Li Feilie, our President, Chief
Executive Officer and Chairman is the sole beneficial owner of the Shareholder.
The terms of the acquisition are described under Item 4(a), above.

         Other transactions with related companies are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                       --------------------------------------------
                                                                            2004             2005              2006
                                                                       ---------        ---------         ---------
                                                                             RMB              RMB               RMB
<S>                                                                    <C>              <C>               <C>
Sales of finished goods to Wuhu Feishang
   Non-Metal Material Co. Ltd. ("WFNM")                                  428,000                -                 -
Sales of finished goods to Pingxiang Iron and Steel
    Co. Ltd. ("Pingxiang")                                                57,000                -                 -
Purchases of raw materials from WFNM                                      82,000                -                 -
Sale of property and equipment to WFNM                                 8,050,000                -                 -
Expenses paid on behalf of WFNM                                        2,670,000        1,809,000         2,032,000
Interest income earned from Anhui Xinke New
   Material Co. Ltd. ("Xinke")                                                 -          503,000                 -
Interest income received from Xinke                                                       447,000                 -
</TABLE>

                                       29
<PAGE>

(a)  On February 23, 2005, the Company advanced RMB20,000,000 to Xinke. The
     balance increased to RMB20,503,000 at December 31, 2005 due to the accrual
     of interest income. On January 27, 2006, the balance was offset against
     dividends payable to Mr. Li Feilie.

(b)  At December 31, 2004, WFNM owed WFM RMB11,122,000, and through November 30,
     2005, WFM made additional advances of RMB8,140,000 (including expenses paid
     on behalf of WFNM of RMB1,810,000) to WFNM and WFNM paid expenses of
     RMB623,000 on behalf of WFM. Also at December 31, 2004, WFM owed WFE
     RMB25,115,000. WFNM's obligation to WFM was assumed by WFE. On November 30,
     2005, WFM and WFE agreed to offset RMB25,182,000, resulting in WFM, owing
     WFNM RMB6,476,000 at December 31, 2005. During the year ended December 31,
     2006, WFNM paid expenses of RMB2,032,000 on behalf of WFM and advanced
     RMB1,000,000, resulting in WFM owing WRNM RMB3,444,000 at December 31,
     2006. These advances are interest free, unsecured and are due on demand.

(c)  The amount due to a director represents advances made by Mr. Li Feilie to
     the Company and expenses he paid on behalf of the Company of RMB431,000 and
     RMB11,213,000 in 2004 and 2005, respectively. During the year ended
     December 31, 2006, RMB14,899,000 was repaid and an additional advance of
     RMB759,000 was made.

         Xinke, WFNM and Pingxiang are controlled by Mr. Li Feilie who is also a
director and beneficial shareholder of the Company.

         The balance with Xinke is unsecured, bears interest at 5.22% per annum
and was repaid in March 2006 by offset against dividends payable to Mr. Li
Felie. The balances with the other related companies and director are unsecured,
interest-free and are repayable on demand.

C.       INTERESTS OF EXPERTS AND COUNSEL

         No disclosure is required in response to this Item.

[Item 8] FINANCIAL INFORMATION

A.       CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         The Company's Consolidated Financial Statements for the fiscal years
ended December 31, 2004, 2005 and 2006 are included herewith as Appendix A and
are incorporated herein by reference.

         There are no legal or arbitration proceedings, including those relating
to bankruptcy, receivership or similar procedures and those involving any third
party, which may have, or have had in the recent past, significant effects on
our financial position or profitability. We are not aware of any governmental
proceedings pending or known to be contemplated.

         We have no direct business operations, other than through the ownership
of our subsidiaries. While we have no current intention of paying dividends,
should we, as a holding company, decide in the future to do so, our ability to
pay dividends and meet other obligations depends upon the receipt of dividends
or other payments from our operating subsidiaries and other holdings and
investments. In addition, our operating subsidiaries are subject to restrictions
on their ability to make distributions to us, including as a result of
restrictions imposed under PRC law.

B.       SIGNIFICANT CHANGES

         On February 3, 2006, the Company acquired all of the issued and
outstanding capital stock of FMH and its subsidiary Wuhu, and thereby acquired
the mining operations of Wuhu. Inasmuch as the acquisition was accounted for as
a reverse acquisition that resulted in a change of control of the Company, in


                                       30
<PAGE>

future filings, the operations of FMH and Wuhu will be presented on a
consolidated basis and the historic operations of the Company will be those of
FMH. Following the acquisition, we will be substantially dependent upon the
operations of FMH and Wuhu in order to generate meaningful revenue and
profitable operations. A description of the Company's acquisition of FMH is
contained elsewhere in this report under Item 4(A).

[Item 9] THE OFFER AND LISTING

A.       OFFER AND LISTING DETAILS

         The following table sets forth the annual high and low last trade
prices of our Common Shares as reported by The Nasdaq Stock Market for each of
the five preceding fiscal years. The prices are inter-dealer prices, without
retail markup, markdown or commission, and do not necessarily reflect actual
transactions.

                      PERIOD                                HIGH            LOW
                      ------                                ----            ---
         Fiscal Year ended:
                  December 31, 2006                        $18.02          $3.50
                  December 31, 2005                          7.49           2.88
                  December 31, 2004                         13.37           3.30
                  December 31, 2003                         13.30           1.70
                  December 31, 2002                          2.99           1.20

         The following table sets forth the high and low last trade prices of
our Common Shares as reported by The Nasdaq Stock Market for each fiscal quarter
of 2005 and 2006. The prices are inter-dealer prices, without retail markup,
markdown or commission, and do not necessarily reflect actual transactions.

                      PERIOD                                HIGH            LOW
                      ------                                ----            ---

         2006 Fiscal Year, quarter ended:
                  March 31, 2006                           $18.02          $3.50
                  June 30, 2006                             11.79           7.12
                  September 30, 2006                         8.03           5.12
                  December 31, 2006                         12.00           7.75
         2005 Fiscal Year, quarter ended:
                  March 31, 2005                            $7.49          $3.90
                  June 30, 2005                              5.46           3.81
                  September 30, 2005                         4.71           3.90
                  December 31, 2005                          5.98           2.88

         The following table sets forth the monthly high and low last trade
prices of our Common Shares as reported by The Nasdaq Stock Market for each
month during the six months preceding the date of this Report. The prices are
inter-dealer prices, without retail markup, markdown or commission, and do not
necessarily reflect actual transactions.

                      PERIOD                                HIGH            LOW
                      ------                                ----            ---
         Month ended:
                  March 31, 2007                             7.78           6.50
                  February 28, 2007                          8.84           7.56
                  January 31, 2007                          10.51           8.76
                  December 31, 2006                         10.67           8.21
                  November 30, 2006                         12.00          10.00
                  October 31, 2006                         $10.90           7.75

                                       31
<PAGE>

B.       PLAN OF DISTRIBUTION

         No disclosure is required in response to this Item.

C.       MARKETS

         Our Common Shares have been listed on the Nasdaq SmallCap market since
November 22, 2004, under the symbol "CHNR." From August 7, 1995 until November
22, 2004, our Common Stock was listed under the symbol "CHRB."

D.       SELLING SHAREHOLDERS

         No disclosure is required in response to this Item.

E.       DILUTION

         No disclosure is required in response to this Item.

F.       EXPENSES OF THE ISSUE

         No disclosure is required in response to this Item.

[Item 10] ADDITIONAL INFORMATION

A.       SHARE CAPITAL

         No disclosure is required in response to this Item.

B.       MEMORANDUM AND ARTICLES OF ASSOCIATION

         Charter. Our charter documents consist of our Memorandum of Association
and our Articles of Association. The Memorandum of Association loosely resembles
the Articles of Incorporation of a Untied States corporation, and the Articles
of Association loosely resembles the bylaws of a Untied States corporation. A
brief description of our Memorandum of Association and Articles of Association
follows, including a summary of material differences between the corporate laws
of the United States and those of the British Virgin Islands. This description
and summary does not purport to be complete and does not address all differences
between United States and British Virgin Islands corporate laws. Copies of our
Memorandum of Association and Articles of Association have been filed as
exhibits to this report and readers are urged to review these exhibits in their
entirety for a complete understanding of the provisions of our charter
documents.

         Corporate Powers. We have been registered in the British Virgin Islands
since December 14, 1993, under British Virgin Islands International Business
Company number 102930. Clause 4 of our Articles of Association states that the
objects for which we are established are to engage in any act or activity which
is not prohibited by any laws in force in the British Virgin Islands.

         Directors. Article 73 of our Articles of Association provides that our
board of directors shall consist of not less than three nor more than 25
directors. Article 74 of our Articles of Association provides that directors,
solely for purposes of determining the term for which they will serve, are
classified as Class I, Class II and Class III directors, with approximately
one-third of the total number of directors being allocated to each Class. Each
director is to hold office for a three-year term expiring at the annual meeting
of members held three years following the annual meeting at which he or she was
elected. However, for our first annual meeting of members following the
Redomicile Merger at which directors are elected, the Class I directors so


                                       32
<PAGE>

elected will hold office for a one-year term, and the Class II directors so
elected will hold office for a two-year term.

         With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors, fix the emoluments of directors
with respect to services to be rendered in any capacity to us. The directors
may, by a resolution of directors, exercise all the powers of the Company to
borrow money. There is no age limit requirement for retirement or non-retirement
of directors. A director shall not require a share qualification.

         Directors may be natural persons or companies, in which event the
company may designate a person as its representative as director. Directors may
remove a director for cause. A director may appoint an alternate to attend
meetings and vote in the place and stead of the director. No agreement or
transaction between us and one or more of our directors or any person in which
any of our directors has a financial interest is void or voidable by reason of
the presence, vote or consent by such interested director at the meeting at
which such agreement or transaction is approved if the material facts of the
interest of each director are disclosed in good faith or known to the other
directors. Directors do not have the authority to appoint new auditors - such
appointment must be made by the shareholders.

         Share Rights, Preferences and Restrictions. We are authorized to issue
210,000,000 shares consisting of 200,000,000 Common Shares of no par value, and
10,000,000 preferred shares of no par value. The preferred shares may be issued
in series having such rights, preferences and limitations as are determined by
our board of directors at the time of issuance. In accordance with our
Memorandum of Association, our board of directors has designated a series of
preferred shares, consisting of 320,000 shares and designated Series B Preferred
Shares. Series B Preferred Shares are entitled to one vote for each share, shall
be entitled to vote on each matter that is submitted for a vote of common
shareholders and shall be aggregated with outstanding Common Shares for all
voting purposes. Series B Preferred Shares have no preemptive or other
subscription rights and are not subject to future calls or assessments. There
are no redemption or sinking fund provisions applicable to the Series B
Preferred Shares and holders thereof have no rights whatsoever to dividends or
to distributions upon our liquidation. No Series B Shares are outstanding.

         No purchase, redemption or other acquisition of shares shall be made
unless out of surplus (as defined by the International Business Companies Act)
and unless the directors determine that immediately after the purchase,
redemption or other acquisition we will be able to satisfy our liabilities as
they become due in the ordinary course of business, and the realizable value of
our assets will not be less than the sum of our total liabilities, other than
deferred taxes, as shown in the books of account, and our capital and, in the
absence of fraud, the decision of the directors as to the realizable value of
our assets is conclusive, unless a question of law is involved. All dividends
unclaimed for three years after having been declared may be forfeited by
resolution of the directors for our benefit. Cumulative voting for directors is
not authorized. We may redeem any of our own shares for fair value. All common
shares have the same rights with regard to dividends and distributions upon our
liquidation.

         Changing Share Rights. The rights of each class and series of shares
that we are authorized to issue shall be set out in the Memorandum of
Association unless the Memorandum of Association states that such rights are to
be fixed by the resolution of directors. If the authorized capital is divided
into different classes, the rights attached to any class may be varied with the
consent in writing of the holders of not less than three-fourths of the issued
shares of that class and of the holders of not less than three-fourths of the
issued shares of any other class which may be affected by such variation.

         Shareholder Meetings. The directors may convene meetings of our members
at such times and in such manner and places as the directors consider necessary
or desirable. The directors shall convene such a meeting upon the written
request of members holding 30 percent or more of our outstanding voting shares.
At least seven days' notice of the meeting shall be given to the members whose
names appear on the share register. A majority of our outstanding shares
entitled to vote must be present at a meeting of shareholders in order to
constitute a quorum and the affirmative vote of a majority of those present and
entitled to vote shall be required in order to approve action by members.
However, in the event a meeting of shareholders is adjourned due to the absence
of a quorum, the minimum number of shares that must be present in order to
constitute a quorum shall be reduced to one-third. Notwithstanding the
foregoing, our Memorandum of Association provides that any action that may be


                                       33
<PAGE>

taken at a meeting of members may be taken without a meeting if the action is
approved by written consent of a majority of members.

         Restrictions on Rights to Own Securities. There are no limitations on
the rights to own our securities.

         Change in Control Provisions. There are no provisions of our Memorandum
of Association or Articles of Association that would have an effect of delaying,
deferring or preventing a change in our control and that would have operate only
with respect to a merger, acquisition or corporate restructuring involving us.

         Disclosure of Share Ownership. There are no provisions of our
Memorandum of Association or Articles of Association governing the ownership
threshold above which shareholder ownership must be disclosed.

         Dispute Resolution. Our Articles of Association provides that any
differences between us and our members or their legal representatives relating
to the intent, construction, incidences or consequences of our Articles of
Association or the British Virgin Islands International Business Companies Act,
including any breach or alleged breach of our Articles of Association or the
International Business Companies Act, or relating to our affairs shall be
resolved by arbitration before two arbitrators (unless the parties agree to
arbitrate before one arbitrator), who shall jointly appoint an umpire.

         Applicable Law. Under the laws of most jurisdictions in the US,
majority and controlling shareholders generally have certain fiduciary
responsibilities to the minority shareholders. Shareholder action must be taken
in good faith and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. British Virgin Islands law
protecting the interests of minority shareholders may not be as protective in
all circumstances as the law protecting minority shareholders in US
jurisdictions.

         While British Virgin Islands law does permit a shareholder of a British
Virgin Islands company to sue its directors derivatively, that is, in the name
of, and for the benefit of, our company and to sue a company and its directors
for his benefit and for the benefit of others similarly situated, the
circumstances in which any such action may be brought, and the procedures and
defenses that may be available in respect of any such action, may result in the
rights of shareholders of a British Virgin Islands company being more limited
than those of shareholders of a company organized in the US.

         Our directors have the power to take certain actions without
shareholder approval, including an amendment of our Memorandum of Association or
Articles of Association (unless such amendment varies the rights attached to
shares) or an increase or reduction in our authorized capital, which would
require shareholder approval under the laws of most US jurisdictions. In
addition, the directors of a British Virgin Islands company, subject in certain
cases to court approval but without shareholder approval, may, among other
things, implement a reorganization, certain mergers or consolidations with a
subsidiary, the sale, transfer, exchange or disposition of any assets, property,
part of the business, or securities of the company, or any combination (provided
the assets do not represent more than 50% of the total assets of the company and
the sale is not outside of the usual or ordinary course of the company's
business), if they determine it is in the best interests of the company. Our
ability to amend our Memorandum of Association and Articles of Association
without shareholder approval could have the effect of delaying, deterring or
preventing a change in our control without any further action by the
shareholders, including a tender offer to purchase our common shares at a
premium over then current market prices.

         The International Business Companies Act of the British Virgin Islands
permits the creation in our Memorandum and Articles of Association of staggered
terms of directors, cumulative voting, shareholder approval of corporate matters
by written consent, and the issuance of preferred shares. Currently, our
Memorandum and Articles of Association provide for (a) shareholder approval of
corporate matters by majority written consent, (b) staggered terms of directors
and (c) the issuance of preferred shares.

         As in most US jurisdictions, the board of directors of a British Virgin
Islands company is charged with the management of the affairs of the company. In
most US jurisdictions, directors owe a fiduciary duty to the corporation and its
shareholders, including a duty of care, under which directors must properly


                                       34
<PAGE>

apprise themselves of all reasonably available information, and a duty of
loyalty, under which they must protect the interests of the corporation and
refrain from conduct that injures the corporation or its shareholders or that
deprives the corporation or its shareholders of any profit or advantage. Many US
jurisdictions have enacted various statutory provisions which permit the
monetary liability of directors to be eliminated or limited.

         Under British Virgin Islands law, liability of a corporate director to
the corporation is primarily limited to cases of willful malfeasance in the
performance of his duties or to cases where the director has not acted honestly
and in good faith and with a view to the best interests of the company. However,
under our Memorandum of Association, we are authorized to indemnify any director
or officer who is made or threatened to be made a party to a legal or
administrative proceeding by virtue of being one of our directors or officers,
provided such person acted honestly and in good faith and with a view to our
best interests and, in the case of a criminal proceeding, such person had no
reasonable cause to believe that his conduct was unlawful. Our Memorandum of
Association also enable us to indemnify any director or officer who was
successful in such a proceeding against expense and judgments, fines and amounts
paid in settlement and reasonably incurred in connection with the proceeding.

         Unlike most corporate laws in the United States, directors of a British
Virgin Islands company may be companies. Moreover, any director may appoint an
alternate to attend meetings and vote in the place and stead of the director
appointing the alternate. It is unclear of the effect of such an appointment on
the fiduciary obligations of the director making the appointment.

         Changes in Capital. Requirements to effect changes in capital are not
more stringent than is required by law.

C.       MATERIAL CONTRACTS

         Other than contracts disclosed elsewhere in this annual report or
entered into the ordinary course of business, the Company has not entered into
any contracts during the two preceding fiscal years, which can reasonably be
determined as being material to the Company.

D.       EXCHANGE CONTROLS

         There are no material British Virgin Islands laws, decrees, regulations
or other legislation that impose foreign exchange controls on us or that affect
our payment of dividends, interest or other payments to non-resident holders of
our capital stock. British Virgin Islands law and our Memorandum of Association
and Articles of Association impose no limitations on the right of non-resident
or foreign owners to hold or vote our common shares. However, we operate through
subsidiaries and the payment of dividends by PRC companies is subject to
numerous restrictions imposed under PRC law, including restrictions on the
conversion of local currency into United States dollars and other currencies.

         The principal regulation governing foreign currency exchange in the PRC
is the Foreign Currency Administration Rules (1996) as amended. Under these
rules, the Renminbi is freely convertible for trade and service-related foreign
exchange transactions, but not for direct investment, loans or investments in
securities outside the PRC without the prior approval of the State
Administration of Foreign Exchange of the PRC ("SAFE").

         Pursuant to the Foreign Currency Administration Rules, foreign-invested
enterprises in the PRC may purchase foreign exchange without the approval of
SAFE for trade and service-related exchange transactions by providing commercial
documents evidencing these transactions. They may also retain foreign exchange,
subject to a cap approved by SAFE, to satisfy foreign exchange liabilities or to
pay dividends. However, the relevant PRC authorities may limit or eliminate the
ability of foreign-invested enterprises to purchase and retain foreign
currencies in the future. In addition, foreign exchange transactions for direct
investment, loan and investment in securities outside the PRC remain subject to
limitations and require approvals from SAFE.

         The principal regulations governing distribution of dividends by
foreign-invested companies include:

         o    The Sino-foreign Equity Joint Venture Law (1979), as amended;
         o    The Regulations of Implementation of the Sino-foreign Equity Joint
              Venture Law (1983) as amended;

                                       35
<PAGE>

         o    The Foreign Investment Enterprise Law (1986) as amended; and
         o    The Regulations of Implementation of the Foreign Investment
              Enterprise Law (1990) as amended.

         Under these regulations, foreign-invested enterprises in the PRC may
pay dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. In addition, wholly
foreign-owned enterprises in the PRC are required to set aside at least 10% of
their respective accumulated profits each year, if any, to fund certain reserve
funds unless such reserve funds have reached 50% of their respective registered
capital. These reserves are not distributable as cash dividends.

         In addition, our wholly owned subsidiaries are required to allocate
portions of their after-tax profits to their enterprise expansion funds and
staff welfare and bonus funds at the discretion of their boards of directors.
Our affiliated PRC entities are required to allocate at least 5% of their
respective after-tax profits to their respective statutory welfare funds.
Allocations to these statutory reserves and funds can only be used for specific
purposes and are not transferable to us in the forms of loans, advances or cash
dividends.

E.       TAXATION

         The following is a summary of anticipated material U.S. federal income
and British Virgin Islands tax consequences of an investment in our common
shares. The summary does not deal with all possible tax consequences relating to
an investment in our common shares and does not purport to deal with the tax
consequences applicable to all categories of investors, some of which, such as
dealers in securities, insurance companies and tax-exempt entities, may be
subject to special rules. In particular, the discussion does not address the tax
consequences under state, local and other non-U.S. and non-British Virgin
Islands tax laws. Accordingly, each prospective investor should consult its own
tax advisor regarding the particular tax consequences to it of an investment in
the common shares. The discussion below is based upon laws and relevant
interpretations in effect as of the date of this annual report, all of which are
subject to change.

United States Federal Income Taxation

         The following discussion addresses only the material U.S. federal
income tax consequences to a U.S. person, defined as a U.S. citizen or resident,
a U.S. corporation, or an estate or trust subject to U.S. federal income tax on
all of its income regardless of source, making an investment in the common
shares. For taxable years beginning after December 31, 1996, a trust will be a
U.S. person only if:

     o   a court within the United States is able to exercise primary
         supervision over its administration; and
     o   one or more United States persons have the authority to control all of
         its substantial decisions.

         In addition, the following discussion does not address the tax
consequences to a person who holds or will hold, directly or indirectly, 10% or
more of our common shares, which we refer to as a "10% Shareholder". Non-U.S.
persons and 10% Shareholders are advised to consult their own tax advisors
regarding the tax considerations incident to an investment in our common shares.

         A U.S. investor receiving a distribution of our Common Shares will be
required to include such distribution in gross income as a taxable dividend, to
the extent of our current or accumulated earnings and profits as determined
under U.S. federal income tax principles. Any distributions in excess of our
earnings and profits will first be treated, for U.S. federal income tax
purposes, as a nontaxable return of capital, to the extent of the U.S.
investor's adjusted tax basis in our Common Shares, and then as gain from the
sale or exchange of a capital asset, provided that our common shares constitutes
a capital asset in the hands of the U.S. investor. U.S. corporate shareholders
will not be entitled to any deduction for distributions received as dividends on
our Common Shares.

         Gain or loss on the sale or exchange of our Common Shares will be
treated as capital gain or loss if our common shares is held as a capital asset
by the U.S. investor. Such capital gain or loss will be long-term capital gain
or loss if the U.S. investor has held our Common Shares for more than one year
at the time of the sale or exchange.

                                       36
<PAGE>

         A holder of Common Shares may be subject to "backup withholding" at the
rate of 31% with respect to dividends paid on our common shares if the dividends
are paid by a paying agent, broker or other intermediary in the United States or
by a U.S. broker or certain United States-related brokers to the holder outside
the United States. In addition, the proceeds of the sale, exchange or redemption
of Common Shares may be subject to backup withholding, if such proceeds are paid
by a paying agent, broker or other intermediary in the United States.

         Backup withholding may be avoided by the holder of Common Shares if
such holder:

     o   is a corporation or comes within other exempt categories; or
     o   provides a correct taxpayer identification number, certifies that such
         holder is not subject to backup withholding and otherwise complies with
         the backup withholding rules.

         In addition, holders of Common Shares who are not U.S. persons are
generally exempt from backup withholding, although they may be required to
comply with certification and identification procedures in order to prove their
exemption.

         Any amounts withheld under the backup withholding rules from a payment
to a holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, provided that amount withheld is claimed as
federal taxes withheld on the holder's U.S. federal income tax return relating
to the year in which the backup withholding occurred. A holder who is not
otherwise required to file a U.S. income tax return must generally file a claim
for refund or, in the case of non-U.S. holders, an income tax return in order to
claim refunds of withheld amounts.

British Virgin Islands Taxation

         Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of common shares who is not a resident
of British Virgin Islands is exempt from British Virgin Islands income tax on
dividends paid with respect to the common shares and all holders of Common
Shares are not liable for British Virgin Islands income tax on gains realized
during that year on sale or disposal of such shares; British Virgin Islands does
not currently impose a withholding tax on dividends paid by a company
incorporated under the International Business Companies Act.

         There are no capital gains, gift or inheritance taxes levied by the
British Virgin Islands on companies incorporated under the International
Business Companies Act. In addition, the common shares are not subject to
transfer taxes, stamp duties or similar charges.

         There is no income tax treaty or convention currently in effect between
the United States and the British Virgin Islands.

F.       DIVIDENDS AND PAYING AGENTS

         No disclosure is required in response to this Item.

G.       STATEMENT BY EXPERTS

         No disclosure is required in response to this Item.

H.       DOCUMENTS ON DISPLAY

         The documents concerning the Company that are referred to in this
annual report may be inspected at the Company's principal executive offices at
Room 2105, West Tower, Shun Tak Centre, 200 Connaught Road C., Sheung Wan, Hong
Kong. Certain documents described in response to Item 19 of this annual report
are incorporated by reference to documents filed by the Company with the United
States Securities and Exchange Commission. The documents that are incorporated
by reference can be viewed on the SEC's web site at www.sec.gov.

                                       37
<PAGE>

I.       SUBSIDIARY INFORMATION

         No disclosure is required in response to this Item.

[Item 11] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATE RISK

         All of the Company's sales and purchases are made domestically and are
denominated in Renminbi. The administrative expenses of the Company's head
office in Hong Kong are denominated either in United States dollars or Hong Kong
dollars. As the reporting currency of the Company's consolidated financial
statements is Renminbi, the Company has material market risk with respect to
currency fluctuation between Hong Kong dollars and United States dollars to
Renminbi and translation difference may arise on consolidation. The Company may
also suffer an exchange loss when it converts Renminbi to other currencies, such
as Hong Kong dollars or United States dollars.

INTEREST RATE RISK

         The Company's interest income is sensitive to changes in the general
level of Renminbi and Hong Kong dollars interest rates. In this regard, changes
in interest rates affect the interest earned on the Company's cash equivalents.
As of December 31, 2006, the Company's cash equivalents are mainly Renminbi and
Hong Kong Dollar deposits with financial institutions, bearing market interest
rates partly without fixed term and partly with one-month term.

COMMODITY PRICE RISK

         The Company is exposed to fluctuation in the prices of zinc and iron
which we produce. As at December 31, 2006, the Company's inventories amounted to
RMB5,231,000 (US$671,000), consisted of zinc and iron. These commodity prices
can fluctuate widely and are affected by factors beyond our control which affect
our earnings and cashflow. We have not engaged in hedging transactions or
alternative measures to manage possible price fluctuations.

[Item 12] DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         No disclosure is required in response to this Item.

                                     PART II

[Item 13] DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         No disclosure is required in response to this Item.

[Item 14] MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
          USE OF PROCEEDS

         No disclosure is required in response to this Item.

[Item 15] CONTROLS AND PROCEDURES

         As of December 31, 2006, the Company's management has concluded its
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (the evaluation date). Disclosure controls
and procedures are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this Annual Report, is recorded, processed,
summarized and reported within the time periods prescribed by SEC rules and
regulations, and to reasonably assure that such information is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

                                       38
<PAGE>

         The Company's management, including the Chief Executive Officer and
Chief Financial Officer, does not expect that our disclosure controls and
procedures will prevent all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system's objectives will be met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.

         As of the evaluation date, the Company's Chief Executive Officer and
its Chief Financial Officer concluded that the Company maintains disclosure
controls and procedures that are effective in providing reasonable assurance
that information required to be disclosed in the Company's reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods prescribed by SEC rules and regulations, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.

         There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the evaluation date.

[Item 16A] AUDIT COMMITTEE FINANCIAL EXPERT

         In general, an "audit committee financial expert" within the meaning of
Item 401(e) of Regulation S-K of the Securities Act of 1933, as amended (the
"Securities Act"), is an individual member of the Audit Committee who:

     o   understands generally accepted accounting principles and financial
         statements,

     o   is able to assess the general application of such principles in
         connection with accounting for estimates, accruals and reserves,

     o   has experience preparing, auditing, analyzing or evaluating financial
         statements comparable to the breadth and complexity to the our
         financial statements,

     o   understands internal controls over financial reporting, and

     o   understands audit committee functions.

         An "audit committee financial expert: may acquire the foregoing
attributes through:

     o   education and experience as a principal financial officer, principal
         accounting officer, controller, public accountant, auditor or person
         serving similar functions;

     o   experience actively supervising a principal financial officer,
         principal accounting officer, controller, public accountant, auditor or
         person serving similar functions; experience overseeing or assessing
         the performance of companies or public accounts with respect to the
         preparation, auditing or evaluation of financial statements; or

     o   other relevant experience.

Our Board of Directors has determined that Mr. Yip Wing Hang and Mr. Lam Kwan
Sing are each an "audit committee financial expert" within the meaning of Item
401(e) of Regulation S-B. Each of our "audit committee financial experts" are
independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.

                                       39
<PAGE>

[Item 16B] CODE OF ETHICS

         A Code of Ethics is a written standard designed to deter wrongdoing and
to promote:

         o    honest and ethical conduct,
         o    full, fair, accurate, timely and understandable disclosure in
              regulatory filings and public statements,
         o    compliance with applicable laws, rules and regulations,
         o    the prompt reporting violation of the code, and
         o    accountability for adherence to the Code of Ethics.

         We have adopted the Code of Ethics of China Development. The Code of
Ethics is applicable to all of our employees, and also contains provisions that
apply only to our Chief Executive Officer, principal financial and accounting
officers and persons performing similar functions. A copy of our Code of Ethics
is filed as Exhibit 11 to this annual report.

                                       40
<PAGE>

[Item 16C] PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table shows the fees that we paid or expect to pay for
the audit and other services provided by GHP Horwath, P.C. for the fiscal years
2005 and 2006.

                                    FISCAL 2005                     FISCAL 2006
                                    -----------                     -----------
Audit Fees                              $70,000                        $135,000
Audit-Related Fees                           --                              --
Tax Fees                                     --                              --
All Other Fees                               --                              --
                                        -------                        --------
Total                                   $70,000                        $135,000
                                        =======                        ========

         Audit Fees -- This category includes the audit of our annual financial
statements and services that are normally provided by the independent auditors
in connection with engagements for those fiscal years. This category also
includes advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial statements.

         Audit-Related Fees -- This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.

         Tax Fees -- This category consists of professional services rendered by
GHP Horwath, P.C. for tax compliance and tax advice. The services for the fees
disclosed under this category include tax return preparation and technical tax
advice.

         All Other Fees -- This category consists of fees for other
miscellaneous items.

         The Audit Committee has adopted a procedure for pre-approval of all
fees charged by GHP Horwath, P.C., the Company's independent registered public
accounting firm. Under the procedure, the Audit Committee approves the
engagement letter with respect to audit, tax and review services. Other fees are
subject to pre-approval by the entire Committee, or, in the period between
meetings, by a designated member of the Audit Committee. Any such approval by
the designated member is disclosed to the entire Audit Committee at the next
meeting. The audit fees paid to GHP Horwath, P.C. with respect to fiscal year
2006 were pre-approved by the Audit Committee.

[Item 16D] EXEMPTION FROM THE LISTING STANDARDS FOR THE AUDIT COMMITTEE

           No disclosure is required in response to this Item.

[Item 16E] PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

           No disclosure is required in response to this Item.

                                       41
<PAGE>
                                    PART III

[Item 17] FINANCIAL STATEMENTS

         The following financial statements are filed as a part of this Form
20-F in Appendix A hereto:

                  Report of Independent Registered Public Accounting Firm,
                  together with consolidated financial statements for the
                  Company and subsidiaries, including:

                  a.   Consolidated statements of operations for the years ended
                       December 31, 2004, 2005 and 2006

                  b.   Consolidated balance sheets as of December 31, 2005 and
                       2006

                  c.   Consolidated statements of shareholders' equity for the
                       years ended December 31, 2004, 2005 and 2006

                  d.   Consolidated statements of cash flows for the years ended
                       December 31, 2004, 2005 and 2006

                  e.   Notes to consolidated financial statements.

[Item 18] FINANCIAL STATEMENTS

         No disclosure is required in response to this Item.

[Item 19] EXHIBITS

         The following Exhibits are filed as part of this Form 20-F:

         EXHIBIT NO.       EXHIBIT DESCRIPTION
         -----------       -------------------

         1.1      Articles of Association Incorporation of the Registrant (Filed
                  as Annex B to Form S-4 filed September 24, 2004, and
                  incorporated herein by reference.)

         1.2      Amended and Restated Memorandum of Association of the
                  Registrant (Filed as Annex A to Form S-4 filed September 24,
                  2004, and incorporated herein by reference.)

         1.3      Board of Directors Resolutions Designating Series B Preferred
                  Stock and Establishing Rights, Preferences and Limitations
                  (Filed as Exhibit 1.3 to Annual Report on Form 20-F for the
                  fiscal year ended December 31, 2004, and incorporated herein
                  by reference.)

         4.1      China Resources Development, Inc., Amended and Restated 1995
                  Stock Option Plan, as amended on December 30, 1996 (Filed as
                  Exhibit 10.34 to Annual Report on Form 10-K/A for the fiscal
                  year ended December 31, 1996, and incorporated herein by
                  reference.) *

         4.2      China Resources Development, Inc., 2003 Equity Compensation
                  Plan (Filed as Appendix B to Schedule 14A, filed November 20,
                  2003,, and incorporated herein by reference.) *

         4.3      Employment Agreement between the Company and Tam Cheuk Ho,
                  dated February 1, 1999 (Filed as Exhibit 10.43 to Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1998, and incorporated herein by reference.) *

                                       42
<PAGE>

         EXHIBIT NO.       EXHIBIT DESCRIPTION
         -----------       -------------------

         4.4      Employment Agreement between the Company and Wong Wah On,
                  dated February 1, 1999 (Filed as Exhibit 10.44 to Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1998, and incorporated herein by reference.) *

         4.5      Service Agreement between the Company and Ching Lung Po, dated
                  February 1, 1999 (Filed as Exhibit 10.45 to Annual Report on
                  Form 10-K for the fiscal year ended December 31, 1998, and
                  incorporated herein by reference.) *

         4.6      Agreement for the Sale and Purchase of Shares in Shenzhen Xubu
                  Investment Co. Ltd. by and between HARC and Su Wei Min dated
                  February 10, 2004 (Certified English translation of original
                  Chinese version filed as Exhibit 10.18 to Current Report on
                  Form 8-K filed February 25, 2004, and incorporated herein by
                  reference.)

         4.7      Agreement for the Sale and Purchase of Shares in Shenzhen Xubu
                  Investment Co. Ltd. by and between Li Fei Lie, as nominee for
                  HARC and Su Wei Min dated February 10, 2004 (Certified English
                  translation of original Chinese version filed as Exhibit 10.19
                  to Current Report on Form 8-K filed February 25, 2004, and
                  incorporated herein by reference.)

         4.8      Acquisition Agreement dated January 24, 2006 by and between
                  China Natural Resources, Inc., Feishang Mining Holdings
                  Limited and Feishang Group Limited (Filed as Exhibit 10.1 to
                  the Current Report on Form 6-K filed January 25, 2006, and
                  incorporated herein by reference.)

         4.9      Sale and Purchase Agreement of HARC dated July 5, 2006 by and
                  between China Natural Resources, Inc. and Allied Clear
                  Investments Limited (Filed as Exhibit 10.1 to the Current
                  Report on Form 6-K filed July 11, 2006, and incorporated
                  herein by reference.)

         4.10     Agreement for Sale and Purchase of Shares of iSense Limited
                  dated July 31, 2006 among China Natural Resources, Inc., Ngan
                  Chiu Wai Jenny and iSense Limited (Filed as Exhibit 4.10
                  herewith)

         6        Computation of Earnings Per Share for Fiscal Year ended
                  December 31, 2006 (Contained in Financial Statements filed
                  herewith.)

         8        Subsidiaries of the Registrant (Filed herewith.)

         11       Code of Ethics (Filed as Exhibit 14 to Annual Report on Form
                  10-KSB for the fiscal year ended December 31, 2003, and
                  incorporated herein by reference.)

         12.1     CEO Certification Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002 (Filed herewith.)

         12.2     CFO Certification Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002 (Filed herewith.)

         13.1     CEO Certification Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (Filed herewith.)

         13.2     CFO Certification Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (Filed herewith.)
----------
*    Compensatory plan.

                                       43
<PAGE>
                                   SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.


                                           CHINA NATURAL RESOURCES, INC.



Date: April 30, 2007                       By: /s/ Li Feilie
                                               --------------------
                                               Li Feilie, President

                                       44
<PAGE>
                                   APPENDIX A

                              FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm, together with
consolidated financial statements for the Company and subsidiaries, including:

a.       Consolidated statements of operations for the years ended December 31,
         2004, 2005 and 2006

b.       Consolidated balance sheets as of December 31, 2005 and 2006

c.       Consolidated statements of shareholders' equity for the years ended
         December 31, 2004, 2005 and 2006

d.       Consolidated statements of cash flows for the years ended December 31,
         2004, 2005 and 2006

e.       Notes to consolidated financial statements.


<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006


<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

                                                                     PAGES
                                                                     -----

Report of independent registered public accounting firm               F-1

Consolidated statements of operations                              F-2 - F-3

Consolidated balance sheets                                        F-4 - F-5

Consolidated statements of shareholders' equity                       F-6

Consolidated statements of cash flows                              F-7 - F-8

Notes to consolidated financial statements                        F-9 - F-28


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

China Natural Resources, Inc.


We have audited the accompanying consolidated balance sheets of China Natural
Resources, Inc. and subsidiaries as of December 31, 2005 and 2006, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2006. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Natural
Resources, Inc. and subsidiaries at December 31, 2005 and 2006, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123R, "Share-Based Payment".

As discussed in Note 3 to the consolidated financial statements, on February 3,
2006, the Company acquired Feishang Mining Holdings Limited in a transaction
recorded as a reverse merger.


GHP Horwath, P.C.
Denver, Colorado

April 25, 2007

                                      F-1
<PAGE>
                          CHINA NATURAL RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------------------------
                                                       Notes            2004             2005             2006             2006
                                                     ---------       ----------       ----------       ----------       ----------
                                                                        RMB              RMB              RMB               US$
<S>                                                  <C>             <C>              <C>              <C>              <C>
NET SALES                                                                77,939           98,962          145,389           18,639

COST OF SALES                                                           (31,518)         (38,402)         (36,787)          (4,716)
                                                                      ---------       ----------       ----------       ----------

GROSS PROFIT                                                             46,421           60,560          108,602           13,923

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                                               (4,597)          (9,172)         (14,170)          (1,817)
                                                                      ---------       ----------       ----------       ----------

INCOME FROM OPERATIONS                                                   41,824           51,388           94,432           12,106

INTEREST INCOME                                                             162            1,216              904              116

OTHER INCOME (EXPENSE), NET                                  5                6             (223)           4,929              632
                                                                      ---------       ----------       ----------       ----------

INCOME FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES                                         41,992           52,381          100,265           12,854

INCOME TAXES                                                 6               --           (8,335)         (15,157)          (1,943)
                                                                      ---------       ----------       ----------       ----------

INCOME FROM CONTINUING
   OPERATIONS                                                            41,992           44,046           85,108           10,911
                                                                      ---------       ----------       ----------       ----------

DISCONTINUED OPERATIONS
  Income from discontinued
     bleaching earth segment                                 4               12               --               --               --
  Loss from discontinued advertising and
      HARC operations, net of taxes of nil                   4               --               --             (659)             (84)
  Loss on disposal of discontinued operations,
      net of taxes of nil                                    4               --               --          (11,901)          (1,526)
                                                                      ---------       ----------       ----------       ----------
INCOME/(LOSS) FROM DISONTINUED
   OPERATIONS                                                                12               --          (12,560)          (1,610)
                                                                      ---------       ----------       ----------       ----------

NET INCOME                                                               42,004           44,046           72,548            9,301
                                                                      =========       ==========       ==========       ==========
</TABLE>
                                  (Continued)

                                      F-2
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------------------------
                                                       Notes            2004             2005             2006             2006
                                                     ---------       ----------       ----------       ----------       ----------
                                                                        RMB              RMB              RMB               US$
<S>                                                  <C>             <C>              <C>              <C>              <C>
INCOME PER SHARE:
  Basic
    Income from continuing operations                                      4.21             4.41             7.46             0.96
    Loss from discontinued operations                                        --               --            (1.10)           (0.14)
                                                                    -----------      -----------      -----------      -----------
                                                                           4.21             4.41             6.36             0.82
                                                                    ===========      ===========      ===========      ===========

INCOME PER SHARE:
  Diluted
    Income from continuing operations                                      3.74             4.36             6.17             0.79
    Loss from discontinued operations                                        --               --            (0.91)           (0.12)
                                                                    -----------      -----------      -----------      -----------

                                                                           3.74             4.36             5.26             0.67
                                                                    ===========      ===========      ===========      ===========

WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING
    Basic                                                             9,980,593        9,980,593       11,402,372       11,402,372
                                                                    ===========      ===========      ===========      ===========

    Diluted                                                          11,245,975       10,110,036       13,798,731       13,798,731
                                                                    ===========      ===========      ===========      ===========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-3
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2005 AND 2006

                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                           Notes            2005            2006           2006
                                                           -----         -------         -------        -------
                                                                             RMB             RMB            US$
<S>                                                         <C>           <C>            <C>             <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                 41,202         136,991         17,563
Trade receivables, net of allowance of RMB307
  and RMB311, respectively                                                 4,622             504             65
Bills receivable                                                             450              --              -
Other receivables, deposits and prepayments                                  422             604             77
Amount due from a related company                            10           20,503              --              -
Inventories                                                   7            3,788           5,231            671
                                                                        --------        --------        -------

TOTAL CURRENT ASSETS                                                      70,987         143,330         18,376

PROPERTY AND EQUIPMENT, NET                                   8           33,656          37,435          4,799
                                                                        --------        --------        -------

TOTAL ASSETS                                                             104,643         180,765         23,175
                                                                        ========        ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable                                                             934           1,231            158
Other payables                                                9           18,881          28,509          3,655
Advances from customers                                                    1,174           2,650            340
Accrued liabilities                                                        1,319           2,371            304
Amount due to a director                                     10           23,644           8,594          1,102
Amount due to a related company                              10            6,476           3,444            441
Dividends payable                                                              5             170             22
Taxes payable                                                              2,545           3,265            418
                                                                        --------        --------        -------

TOTAL LIABILITIES - ALL CURRENT                                           54,978          50,234          6,440
                                                                        --------        --------        -------
</TABLE>

                                   (Continued)

                                      F-4
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           DECEMBER 31, 2005 AND 2006

                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                           Notes            2005            2006           2006
                                                           -----         -------         -------        -------
                                                                             RMB             RMB            US$

<S>                                                         <C>           <C>            <C>             <C>
SHAREHOLDERS' EQUITY Common shares, no par:
  Authorized - 200,000,000 shares;
  Issued and outstanding - 11,548,416 shares in 2006                          --          47,250          6,058
Reserves                                                                   3,912           7,331            940
Retained earnings                                                         45,513          76,180          9,767
Other comprehensive income/(loss)                                            240            (230)           (30)
                                                                        --------        --------       --------

TOTAL SHAREHOLDERS' EQUITY                                                49,665         130,531         16,735
                                                                        --------        --------       --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               104,643         180,765         23,175
                                                                        ========        ========       ========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-5
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                 OTHER
                                          SHARE       SHARE                RETAINED      COMPREHENSIVE
                                        CAPITAL     CAPITAL    RESERVES    EARNINGS       INCOME/(LOSS)    TOTAL
                                     ----------      ------     -------     -------               ----    -------
                                         SHARES         RMB         RMB         RMB                RMB        RMB
<S>                                  <C>              <C>           <C>       <C>                  <C>     <C>
Balances at January 1, 2004           9,980,593          --          --       7,380                 --      7,380

Net income for the year                      --          --          --      42,004                 --     42,004
                                     ----------      ------     -------     -------               ----    -------

Balances at December 31, 2004         9,980,593          --          --      49,384                 --     49,384

Transfer to reserves                         --          --       3,912      (3,912)                --          -

Dividends declared                           --          --          --     (44,005)                --    (44,005)

Net income for the year                      --          --          --      44,046                 --     44,046

Currency translation adjustments             --          --          --          --                240        240
                                                                                                          -------
Comprehensive income                                                                                       44,286
                                     ----------      ------     -------     -------               ----    -------

Balances at December 31, 2005         9,980,593          --       3,912      45,513                240     49,665

Acquisition of the Company
  by FMH                              1,567,823      19,222      28,028          --                 --     47,250

Dividends                                    --          --          --     (38,462)                --    (38,462)

Appropriation of reserves  -                 --          --       3,419      (3,419)                --         --

Elimination of reserves relating
  to discontinued operations                 --      28,028     (28,028)         --                 --         --

Net income for the year                      --          --          --      72,548                 --     72,548

Currency translation adjustments             --          --          --          --               (470)      (470)
                                                                                                          -------
Comprehensive income                                                                                       72,078
                                     ----------      ------     -------     -------               ----    -------
Balances at
  December 31, 2006                  11,548,416      47,250       7,331      76,180               (230)   130,531
                                     ==========      ======     =======     =======               ====    =======

Balances at December
  31, 2006 (US$)                     11,548,416       6,058         940       9,767                (30)    16,735
                                     ==========      ======     =======     =======               ====    =======
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-6
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------------
                                                           2004             2005             2006            2006
                                                        -------          -------          -------          ------
                                                            RMB              RMB              RMB             US$
<S>                                                     <C>              <C>              <C>              <C>
OPERATING ACTIVITIES
Net income                                               42,004           44,046           72,548           9,301
Adjustments to reconcile net income
    to net cash provided by operating activities:
       Depreciation                                       1,715            2,414            2,350             301
       Amortization of mining rights                        312              370              803             103
       Loss on disposal of subsidiaries                      --               --           11,901           1,526
       Loss on disposal of property and equipment           255               92               25               3
       Interest accrued on loan to related company           --             (503)              --              --

Changes in operating assets and liabilities,
  net of business acquisition:
    Trading securities                                       --               --            1,587             203
    Trade receivables                                     2,705           (3,910)           4,118             528
    Bills receivable                                       (697)             597              450              58
    Inventories                                             767             (270)          (1,443)           (185)
    Other receivables, deposits and prepayments             426               (3)            (181)            (23)
    Accounts payable                                       (472)            (416)             297              38
    Other payables                                          724            3,302            6,814             874
    Advances from customers                              (5,911)          (1,026)           1,476             189
    Accrued liabilities                                     131             (187)           1,660             213
    Taxes payable                                           902              395              720              93
    Discontinued operations *                               886               --               50               6
                                                       --------         --------         --------        --------

Net cash provided by operating activities                43,747           44,901          103,175          13,228
                                                       --------         --------         --------        --------

INVESTING ACTIVITIES
    Advances to related companies                       (33,069)         (83,140)              --              --
    Repayment from related companies                         --           50,623              206              26
    Repayment to related companies                           --               --           (3,032)           (389)
    Advances from a director                                431           11,213              759              97
   Repayment to a director                                   --               --          (14,899)         (1,910)
    Purchases of property and equipment                  (1,981)          (2,304)          (5,032)           (645)
    Proceeds from disposal of property and equipment         --               22               --              --
    Cash received on acquisition of subsidiaries             --               --            1,207             155
    Net proceeds from disposal of subsidiaries               --               --           32,795           4,205
                                                       --------         --------         --------        --------

Net cash (used in)/provided by investing activities     (34,619)         (23,586)          12,004           1,539
                                                       --------         --------         --------        --------

FINANCING ACTIVITIES
    Proceeds from bank loan                                  --           10,000               --              --
    Repayment of bank loan                                   --          (10,000)              --              --
    Dividends paid                                           --               --          (18,000)         (2,308)
    Net cash used in financing activities of
     discontinued operations                                 --               --              (10)             (1)
                                                       --------         --------         --------        --------

Net cash used in financing activities                        --               --          (18,010)         (2,309)
                                                       --------         --------         --------        --------
</TABLE>
                                   (Continued)

                                      F-7
<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------------
                                                           2004             2005             2006            2006
                                                        -------          -------          -------          ------
                                                            RMB              RMB              RMB             US$
<S>                                                     <C>              <C>              <C>              <C>
NET INCREASE IN CASH AND
   CASH EQUIVALENTS                                       9,128           21,315           97,169          12,458

EFFECT OF EXCHANGE RATES ON CASH                             --              240           (1,380)           (177)

CASH AND CASH EQUIVALENTS,
   BEGINNING                                             10,519           19,647           41,202           5,282
                                                       --------         --------         --------        --------

CASH AND CASH EQUIVALENTS, ENDING                        19,647           41,202          136,991          17,563
                                                       ========         ========         ========        ========

Supplemental disclosure of cash flow information:
Cash paid for income taxes                                   --            7,145           14,901           1,910
                                                        =======          =======          =======        ========

Supplemental disclosure of non-cash investing
  and financing activities:

Business acquisition
  Fair value of assets acquired                              --               --           50,558           6,482
  Liabilities assumed                                        --               --           (3,308)           (424)
                                                       --------         --------         --------        --------
Common shares issued                                         --               --           47,250           6,058
                                                        =======          =======          =======        ========

Other payable for mining rights                              --               --            1,500             192
                                                        =======          =======          =======        ========

Transfer of interest in WFM                                  --           12,000               --              --
                                                        =======          =======          =======        ========

Dividends declared                                           --           44,005           38,462           4,931
                                                        =======          =======          =======        ========

  Offset dividends against amount due from a
     former shareholder and amounts due from
     related companies                                       --           44,000           20,297           2,602
                                                        =======          =======          =======        ========

  Offset amount due to a former shareholder against
     amount due from a related company                       --           25,183               --              --
                                                        =======          =======          =======        ========

Amount due from related company for sale of assets
    of discontinued operations                            8,050               --               --              --
                                                        =======          =======          =======        ========


  Offset other receivables against amount due to a
     related company                                        (68)              --               --              --
                                                        =======          =======          =======        ========
</TABLE>

----------
*    Cash flows from investing and financing activities of discontinued
     operations were not significant in 2004.

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-8
<PAGE>

1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

         The following depicts China Natural Resources, Inc. and its
         subsidiaries (collectively the "Company" or "Group") at December 31,
         2006:

<TABLE>
<S>                                    <C>
                                       ----------------------------------------
                                       |            CHINA NATURAL             |
                                       |           RESOURCES, INC.            |
                                       |  a British Virgin Islands company    |
                                       ----------------------------------------
                 |-----------------------------------------------------------------------------------|
                 |                                         |                                         |
                 80%                                      100%                                      100%
                 |                                         |                                         |
---------------------------------      --------------------------------------        -------------------------------
|         SILVER MOON           |      |                 FMH                |        |          SUNWIDE            |
|       a British Virgin        |      |      a British Virgin Islands      |        |      a British Virgin       |
|       Islands company         |      |               company              |        |      Islands company        |
---------------------------------      --------------------------------------        -------------------------------
                   |                                       |
                  100%                                    100%
                   |                                       |
---------------------------------      -------------------------------------
|         MEDI-CHINA            |      |               WUHU                |
|         a Hong Kong           |      |            a PRC company          |
|           company             |      |                                   |
---------------------------------      -------------------------------------
</TABLE>

         China Natural Resources, Inc. ("CNRI"), (formerly know as Billion Luck
         Company Limited ("Billion Luck")) is a British Virgin Islands ("BVI")
         holding company incorporated in 1993. China Resources Development, Inc.
         ("CRDI") was a U.S. holding company, incorporated in Nevada in 1986.
         CRDI owned all the outstanding capital stock of Billion Luck. On
         December 9, 2004, CRDI completed a merger (the "Merger") with and into
         Billion Luck. The Merger was effected by an exchange of shares of CRDI
         into shares of Billion Luck on a one-for-one basis. As a result of the
         Merger, CRDI became domiciled in the British Virgin Islands and its
         name was changed to China Natural Resources, Inc. All assets,
         liabilities, contracts and obligations of CRDI became the assets,
         liabilities, contracts and obligations of CNRI. References to the
         Company are to CNRI as successor to CRDI and its subsidiaries.

         On February 3, 2006 (the "Acquisition Date"), the Company consummated
         the acquisition of all of the issued and outstanding capital stock of
         Feishang Mining Holdings Limited ("FMH"), (the "Acquisition"). FMH is a
         BVI company incorporated in 2004, and through its wholly owned
         subsidiary, Wuhu Feishang Mining Development Co. Ltd. ("WFM"), is
         principally engaged in the mining of zinc, iron and other minerals for
         distribution in the PRC. The Acquisition was accounted for using the
         purchase method of accounting and is treated as a reverse acquisition,
         with FMH being the accounting acquirer. Accordingly, the accompanying
         financial statements represent the operations of FMH through February
         2, 2006 and the consolidated operations of FMH and the Company
         subsequent to February 2, 2006. We have retroactively restated issued
         share capital to reflect the acquisition of FMH. (See Note 3)

         Sunwide Capital Limited ("Sunwide") is a BVI company incorporated in
         2001 and engaged in the investment in US-listed securities. Sunwide is
         a wholly-owned subsidiary of CNRI and is currently inactive.

                                      F-9
<PAGE>

1.       ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)

         Silver Moon Technologies Limited ("Silver Moon") is a BVI company
         incorporated in 2002 with its primary operations to be the provision of
         online internet healthcare information. Zhongwei Medi-China.com Limited
         ("Medi-China") is a Hong Kong company incorporated in 1999 to conduct
         the business of Silver Moon. Neither Silver Moon nor Medi-China is
         currently engaged in active business operations. Silver Moon is 80%
         owned by CNRI and Medi-China is 100% owned by Silver Moon.

         WFM was established as a Sino-foreign joint venture company in the PRC
         with the venturers being Wuhu Feishang Enterprise Development Limited
         ("WFE") ("50%") and Feishang International Holdings Ltd. ("FIH")
         ("50%") on June 21, 2002 with a tenure of 20 years from the date of the
         business license. The tenure can be extended by agreement between the
         joint venture partners with the necessary approval from the relevant
         government agencies. The registered capital of WFM is RMB12,000
         (US$1,538), of which RMB6,000 (US$769) was each contributed by WFE and
         FIH. WFM commenced operations in May 2003 upon its acquisition of Anhui
         Fanchang Zinc and Iron Mine ("Anhui"), a PRC state-owned entity.

         In April 2005, WFE and FIH transferred their interests in WFM to FMH at
         cost (RMB12,000). WFE, FIH and FMH are all controlled by the same
         individual, Mr. Li Feilie. FMH recorded the transfer of WFE's and FIH's
         interests in WFM at historical net book value and has accounted for the
         transfer as a transfer of assets between entities under common control
         in a manner similar to the pooling of interests; accordingly, all prior
         year consolidated financial statements of FMH have been restated to
         include the results of operations, financial position, and cash flows
         of WFM.

         WFM owns the mining rights to two mines: Yang-chong Mine contains iron
         and zinc minerals and Zao-yun Mine contains mainly iron minerals. The
         cash flows and profitability of WFM's current operations are
         significantly affected by the market price of zinc and iron. These
         commodity prices can fluctuate widely and are affected by factors
         beyond WFM's control.

         Through October 3, 2006, the date of disposition, the Company owned
         100% of Hainan Cihui Industrial Company Limited ("HARC"), a PRC company
         incorporated in 1994 which performed limited commodity trading.

         Through July 31, 2006, the date of disposition, the Company owned 100%
         of iSense Limited ("iSense"), a Hong Kong company incorporated in 2000
         and a provider of promotion and public relations services in Hong Kong
         and mainland China to both local and international customers.

                                      F-10
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Principles of consolidation

                  The consolidated financial statements of CNRI and its
                  subsidiaries (the "Company" or the "Group") are prepared in
                  accordance with accounting principles generally accepted in
                  the United States of America ("US GAAP"), and include the
                  accounts of the Company and its subsidiaries. Significant
                  intercompany accounts and transactions have been eliminated on
                  consolidation.

         (b)      Use of estimates

                  The preparation of the financial statements in conformity with
                  US GAAP requires management to make estimates and assumptions
                  that affect the reported amounts of assets and liabilities and
                  disclosure of contingent assets and liabilities at the date of
                  the consolidated financial statements and the reported amounts
                  of revenues and expenses during the reporting year. Actual
                  results could differ from those estimates.

         (c)      Cash and cash equivalents

                  The Group considers all highly liquid investments and cash
                  deposits with financial institutions with original maturities
                  of three months or less to be cash equivalents.

         (d)      Inventories

                  Inventories are stated at the lower of average cost or net
                  realizable value. For products, the Group determines net
                  realizable value by estimating value based on current metals
                  prices, less cost to convert stockpiled and in-process
                  inventories to finished products. Major types of inventories
                  include:

                    Raw materials consists of raw ore extracted and auxiliary
                    material - costs are limited to those directly related to
                    mining.

                    Work in progress consists of semi-finished iron and zinc ore
                    - valued at the cost of production through the point at
                    which inventory has been processed.

                    Finished goods - valued at the lower of full cost of
                    production or net realizable value based on current metal
                    prices.

                                      F-11
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (e)      Property and equipment

                  Property and equipment are stated at cost less accumulated
                  depreciation. Expenditures for routine repairs and maintenance
                  are expensed as incurred.

                  Depreciation is calculated on the straight-line basis to write
                  off the cost less estimated residual value of each asset over
                  its estimated useful life.

                  In April 2004, the FASB issued FASB Staff Position ("FSP") FAS
                  141-1 and FAS 142-1 "Interaction of FASB Statements No. 141,
                  Business Combinations, and No. 142, Goodwill and Other
                  Intangible Assets, and Emerging Issues Task Force ("EITF")
                  Issue 04-2, "Whether Mineral Rights are Tangible or Intangible
                  Assets". This FSP amends SFAS Nos. 141 and 142 and requires
                  mineral rights to be accounted for as tangible assets based on
                  the consensus reached in EITF 04-2.

                  The Company has determined that its mining rights are mineral
                  rights, and accordingly they are classified as property and
                  equipment.

                  Mining rights are stated at cost less accumulated amortization
                  and any impairment losses. The mining rights are amortized
                  based on actual units of production over the estimated
                  reserves of the mines, not to exceed 20 years. The weighted
                  average remaining amortization period for these reserves is 16
                  years as of December 31, 2006. The Company's rights to extract
                  minerals are contractually limited by time. However, the
                  Company believes that it will be able to extend licenses, as
                  it has in the past, and therefore, believes that assigned
                  lives are appropriate.

                  Estimated useful lives are as follows:

                  Buildings and mine development              15 - 35 years
                  Machinery and equipment                      5 - 15 years
                  Motor vehicles                                5 - 8 years
                  Mining rights                                  5-16 years

                  Management assesses the carrying values of its long-lived
                  assets for impairment when circumstances warrant such a
                  review. Generally, long-lived assets are considered impaired
                  if the estimated fair value is less than the assets' carrying
                  values. If an impairment is indicated, the loss is measured
                  based on the amounts by which the carrying values of the
                  assets exceed their fair values.

                                      F-12
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (f)      Revenue recognition

                  Revenue from product sales is recognized when title passes to
                  the customer in accordance with the sales agreement, generally
                  upon product acceptance by the customer.

                  Freight and handling costs paid to third party carriers are
                  recorded as cost of sales.

         (g)      Income taxes

                  Deferred tax assets and liabilities are recognized for the
                  estimated future tax consequences attributable to differences
                  between the financial statement carrying amounts of existing
                  assets and liabilities and their respective tax bases.
                  Deferred tax assets and liabilities are measured using enacted
                  tax rates expected to apply to taxable income in the years in
                  which those temporary differences are expected to be recovered
                  or settled.

         (h)      Earnings per share

                  Basic earnings per share amounts are calculated using the
                  weighted average number of common shares outstanding during
                  the period. Diluted earnings per share assumes the conversion,
                  exercise or issuance of all potential common stock
                  instruments, such as options or warrants (including the
                  warrants issued in connection with the Acquisition - Note 3),
                  unless the effect is to reduce a loss or increase earnings per
                  share and is calculated using the treasury stock method. The
                  basic weighted average shares outstanding during each of the
                  years ended December 31, 2004, 2005 and 2006 were 9,980,593,
                  9,980,593 and 11,402,372 respectively. The diluted weighted
                  average shares outstanding during each of the years ended
                  December 31, 2004, 2005 and 2006 were 11,245,975, 10,110,036
                  and 13,798,731, respectively.

         (i)      Foreign currency translation

                  The functional currency of substantially all the operations of
                  the Group is Renminbi ("RMB"), the national currency of the
                  PRC. The financial statements of subsidiary operations with a
                  functional currency other than the RMB have been translated
                  into RMB using the closing rate method and all balance sheet
                  accounts have been translated using the exchange rates in
                  effect at the balance sheet date and the statements of
                  operations amounts have been translated using the weighted
                  average exchange rate for the year. Resulting translation
                  adjustments are reported as a separate component of
                  comprehensive income.

                  Transactions denominated in currencies other than the RMB are
                  translated into RMB at the applicable rates of exchange
                  prevailing at the dates of the transactions. Monetary assets
                  and liabilities denominated in other currencies have been
                  translated into RMB at the rate of exchange at the balance
                  sheet date. The resulting exchange gains or losses are
                  credited or charged to the consolidated statements of
                  operations.

                                      F-13
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (i)      Foreign currency translation (continued)

                  The financial statements are stated in RMB. The translation of
                  amounts from RMB into US$ is included solely for the
                  convenience of the reader and has been made at the rate of
                  exchange quoted by the People's Bank of China on December 31,
                  2006 of US$1.00 = RMB7.80. No representation is made that the
                  RMB amounts could have been, or could be, converted into US$
                  at that rate on December 31, 2006 or at any other date.

         (j)      Interest income

                  Interest on bank balances is recorded when earned.

         (k)      Stock-based compensation

                  On January 1, 2006, the Company adopted the provisions of, and
                  accounts for stock-based compensation in accordance with
                  Statement of Financial Accounting Standard ("SFAS") No.
                  123-revised 2004 ("SFAS 123R"), Share-Based Payment, which
                  replaced SFAS No. 123, "Accounting for Stock-Based
                  Compensation", and supersedes Accounting Principles Board
                  Opinion No 25, Accounting for Stock Issued to Employees ("APB
                  25").

                  Under the fair value recognition provisions of SFAS 123R,
                  stock-based compensation cost is measured at the grant date
                  based on the fair value of the award and is recognized as
                  expense on a straight-line basis over the requisite service
                  period, which is the vesting period. The Company elected the
                  modified prospective method, under which prior periods are not
                  revised for comparative purposes. The valuation provisions of
                  SFAS 123R apply to new grants and to grants that were
                  outstanding at the effective date and are subsequently
                  modified. Estimated compensation for grants that were
                  outstanding as of the effective date will be recognized over
                  the remaining service period using the compensation cost
                  estimated for the SFAS 123 proforma disclosure.

                  At December 31, 2004, 2005 and 2006, the Company had no
                  outstanding options. Proforma income and income per share for
                  fully vested options granted and exercised in 2004, and
                  reflecting the retroactive restatement of issued share capital
                  as a result of the acquisition of FMH is as follow:

                                      F-14
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (k)      Stock-based compensation (continued)

                                                   YEAR ENDED DECEMBER 31, 2004
                                                   ----------------------------
                                                                            RMB
                  Net income, as reported                                42,004
                  Less: Total stock-based employee
                    compensation expense determined
                    under fair value based method                          (946)
                                                                         ------
                                                                         41,058
                                                                         ======
                  Income per share:
                     Basic- as reported                                    4.21
                                                                         ======
                     Diluted - as reported                                 3.74
                                                                         ======
                     Basic - pro forma                                     4.11
                                                                         ======
                     Diluted - pro forma                                   3.65
                                                                         ======

                  The fair value of the options granted in 2004 was estimated at
                  the date of grant using the Black-Scholes option pricing model
                  with the following assumptions: risk-free interest rate of
                  0.96%; no dividend yield; volatility factor of the expected
                  market price of the Company's common stock of 109.10%; and the
                  life of the options of 2 months.

         (l)      Recently issued accounting pronouncements

                  During June 2006, the Financial Accounting Standards Board
                  ("FASB") issued Interpretation No. ("FIN") 48, "Accounting for
                  Uncertainty in Income Taxes"-- an interpretation of FASB
                  Statement No. 109. This interpretation clarifies the
                  accounting for uncertainty in income taxes recognized in an
                  enterprise's financial statements in accordance with SFAS No.
                  109, "Accounting for Income Taxes," and prescribes a
                  recognition threshold and measurement attribute for the
                  financial statement recognition and measurement of a tax
                  position taken or expected to be taken in a tax return. This
                  interpretation also provides guidance on derecognition,
                  classification, interest and penalties, accounting in interim
                  periods, disclosure, and transition. This interpretation is
                  effective for fiscal years beginning after December 15, 2006.
                  Management is assessing the impact this interpretation will
                  have on the Company's consolidated operating results, cash
                  flows or financial position upon adoption.

                                      F-15
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (l)      Recently issued accounting pronouncements (continued)

                  During October 2006, the FASB issued SFAS No. 157, "Fair Value
                  Measurements" ("SFAS 157"). This statement does not require
                  any new fair value measurements but provides guidance on how
                  to measure fair value and clarifies the definition of fair
                  value under accounting principles generally accepted in the
                  United States of America. The statement also requires new
                  disclosures about the extent to which fair value measurements
                  in financial statements are based on quoted market prices,
                  market-corroborated inputs, or unobservable inputs that are
                  based on management's judgments and estimates. The statement
                  is effective for fiscal years beginning after November 15,
                  2007. The statement will be applied prospectively by the
                  Company for any fair value measurements that arise after the
                  date of adoption.

                  In February 2007, the FASB issued SFAS No. 159, "The Fair
                  Value Option for Financial Assets and Financial
                  Liabilities-Including an amendment of FASB Statement No. 115."
                  This statement permits entities to choose to measure eligible
                  items at fair value at specified election dates. The statement
                  is effective as of the beginning of an entity's first fiscal
                  year that begins after November 15, 2007 although early
                  adoption is permitted provided that an entity also adopts SFAS
                  157. Management has not determined the impact this standard
                  will have on the Company's consolidated operating results or
                  financial position upon adoption.

         (m)      Reclassifications

                  Certain comparative balances have been reclassified to conform
                  to the current year presentation.

                                      F-16
<PAGE>

3.       ACQUISITION

         On February 3, 2006, the Company acquired all of the issued and
         outstanding capital stock of FMH. The Acquisition of FMH by the Company
         was accounted for using the purchase method of accounting and is
         treated as a reverse acquisition because on a post-merger basis, the
         former FMH shareholder holds 86.4% of the outstanding common shares of
         the Company. As a result, FMH is deemed to be the acquirer for
         accounting purposes. Accordingly, the consolidated financial statements
         included herein present the financial information of FMH for all
         periods prior to the Acquisition Date and the financial information of
         the consolidated companies from the Acquisition Date forward.
         Historical share and per share amounts for the periods prior to the
         Acquisition have been retroactively restated to reflect the exchange
         ratio established in the transaction, in a manner similar to a reverse
         stock split. The consolidated retained earnings of FMH have been
         carried forward after the Acquisition.

         As consideration for the Acquisition, the Company issued to the former
         FMH shareholder 9,980,593 of the Company's common shares, as well as
         warrants (the "Warrants") to purchase an additional 4,500,000 of the
         Company's common shares. In connection with the Acquisition, 320,000
         series B preferred shares were converted into 320,000 common shares.
         The Warrants entitle the holder to purchase: 2,000,000 common shares of
         the Company at an exercise price of US$4.00 per share for a period of
         two years from the Acquisition Date; 1,500,000 common shares at an
         exercise price of US$4.50 per share for a period of three years from
         the Acquisition Date; and 1,000,000 common shares at an exercise price
         of US$5.00 per share for a period of four years from the Acquisition
         Date. Other than the exercise price and exercise period, all other
         terms and conditions of the Warrants are identical.

         The following table summarizes the fair values of the Company's assets
         and liabilities acquired by FMH at the Acquisition Date. The purchase
         price was determined by multiplying the number of outstanding shares
         immediately prior to consummating the acquisition of 1,567,823 by the
         closing price of our common shares the day prior to the public
         announcement of the Acquisition Agreement between the Company and FMH.
<TABLE>
<CAPTION>
                                                                    RMB                     RMB
                                                                 ------                  ------
<S>                                                              <C>                     <C>
          Purchase price (including direct costs)                                        47,250
          Current assets                                          3,074
          Property and equipment                                    869
          Investments                                            24,700
                                                                 ------
          Total assets                                           28,643
          Total liabilities assumed                              (3,308)
                                                                 ------
          Net assets acquired                                                            25,335
                                                                                         ------
          Goodwill resulting from the acquisition                                        21,915
                                                                                         ======
</TABLE>

         During the year ended December 31, 2006, the goodwill of RMB21,915
         (US$2,810) was eliminated upon the disposal of the reporting units to
         which the goodwill had been assigned (Note 4).

                                      F-17
<PAGE>

3.       ACQUISITION (Continued)

         At the Acquisition Date, the Company had appropriated retained earnings
         to statutory reserves in accordance with PRC regulations of RMB28,028
         (US$3,593). These statutory reserves primarily related to HARC. During
         the year ended December 31, 2006, these reserves were eliminated upon
         the disposal of HARC (Note 4).

         The following unaudited proforma financial information presents results
         of operations as if the above acquisitions had occurred at the
         beginning of the respective three years in the period ended December
         31, 2006:

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                               ---------------------------------------------------------
                                                                  2004             2005              2006          2006
                                                               -------           ------           -------         ------
                                                                   RMB              RMB               RMB           US$
<S>                                                            <C>               <C>              <C>             <C>
          Net sales                                              77,939           98,962           145,389        18,639
          Income from continuing operations                      33,065           36,936            81,411        10,437
          Loss from discontinued operations                     (13,501)          (6,754)          (12,604)       (1,616)
          Net income                                             19,564           30,182            68,807         8,821
          Basic income per share                                   1.69             2.61              5.96          0.76
          Diluted income per share                                 1.53             2.59              4.93          0.63
</TABLE>

                                      F-18
<PAGE>

4.       DISPOSITION OF ASSETS

         Pursuant to a January 1, 2004 agreement, WFM disposed of its interest
         in the mining of activated bleaching earth operations to a related
         party, Wuhu Feishang Non-Metal Material Co. Ltd. ("WFNM"), for total
         consideration of RMB8,050 (US$1,032), which was paid in November 2005.
         Inventories of the bleaching earth segment with a carrying value of
         RMB796 (US$102) were not sold to WFNM and were sold by WFM to unrelated
         third parties in 2004. The sale price of the bleaching earth segment
         equaled its carrying value and accordingly there was no gain or loss on
         the sale. As a result of the disposition, WFM ceased its activated
         bleaching earth operations and its results have been retroactively
         presented as discontinued operations. Revenues from the discontinued
         activated bleaching earth segment were RMB808 (US$104) for the year
         ended December 31, 2004. Income before income taxes from the
         discontinued activated bleaching earth segment was RMB12 (US$1) for the
         year ended December 31, 2004. Cash flows from discontinued operations
         of RMB886 (US$114) are from operating activities. There were no cash
         flows from discontinued operations from investing or financing
         activities.

         On July 31, 2006, the Company disposed of its 100% equity interest in
         iSense to the director and former shareholder of iSense for
         consideration of RMB2,060 (US$264). On October 3, 2006, the Company
         consummated the sale of its 100% equity interest in Hainan Cihui
         Industrial Co. Ltd. ("HARC") to an unaffiliated third party for total
         consideration of RMB30,900 (US$3,962). The Company recognized a loss of
         approximately RMB11,901 (US$1,526) from the dispositions including
         goodwill written off of RMB21,915 (US$2,809) which was recorded in
         2006. As a result of the dispositions, the Company ceased its
         advertising operation effective July 31, 2006 and its commodity trading
         operation effective October 3, 2006 and their results have been
         retroactively restated as discontinued operations. Revenues from
         discontinued iSense operations was RMB189 (US$24) for the year ended
         December 31, 2006. Revenues from discontinued HARC operations was
         RMB117 (US$15) for the year ended December 31 2006. Loss before income
         taxes for discontinued iSense operations was RMB266 (US$34) for the
         year ended December 31, 2006. Loss before income taxes from
         discontinued HARC operations was RMB393 (US$50) for the year ended
         December 31, 2006.

5.       OTHER INCOME(EXPENSE), NET

         Other income (expense), net represents:
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                        --------------------------------------------
                                                        2004          2005          2006        2006
                                                        ----          ----          ----        ----
                                                         RMB           RMB           RMB         US$
<S>                                                       <C>         <C>          <C>           <C>
         Net gain on sale of marketable securities        --            --         5,013         643
         Loss on disposal of property & equipment         --           (92)          (25)         (3)
         Other                                             6          (131)          (59)         (8)
                                                        ----          ----         -----         ---
                                                           6          (223)        4,929         632
                                                        ====          ====         =====         ===
</TABLE>

                                      F-19
<PAGE>

6.       INCOME TAXES

         Pre-tax income from continuing operations for the years ended December
         31, 2004, 2005 and 2006 was taxable in the following jurisdictions:

                                      YEARS ENDED DECEMBER 31,
                          --------------------------------------- ------
                            2004          2005          2006        2006
                          ------        ------       -------      ------
                             RMB           RMB           RMB         US$

         PRC              42,005        53,673       114,807      14,718
         BVI                 (13)       (1,292)      (14,542)     (1,864)
                          ------        ------       -------      ------
                          41,992        52,381       100,265      12,854
                          ======        ======       =======      ======

         Prior to the Merger, it was management's intention to reinvest all the
         income attributable to the Group earned by its operations outside the
         United States of America (the "U.S."). Accordingly, no U.S. corporate
         income taxes were provided in these consolidated financial statements.
         After the Merger, management believes that the Company is no longer
         subject to US taxes.

         Under the current laws of the BVI, dividends and capital gains arising
         from the Company's investments in the BVI are not subject to income
         taxes and no withholding tax is imposed on payments of dividends by the
         Company.

         The reconciliation of income taxes/(tax benefit) for income tax
         computed at the PRC federal statutory tax rate applicable to foreign
         investment enterprises operating in Anhui Province in the PRC, to
         income tax expense is as follows:
<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                            -----------------------------------------------
                                               2004          2005          2006        2006
                                            -------       -------       -------      ------
                                                RMB           RMB           RMB         US$
<S>                                         <C>           <C>           <C>          <C>
         PRC Federal statutory tax rate          30%           30%           30%         30%

         Computed expected income tax
            expense                         (12,598)      (15,714)      (30,080)     (3,856)
         Non-deductible expenses                 --          (956)         (117)        (15)
         Preferential tax treatment          12,598         8,335        15,040       1,928
                                            -------       -------       -------      ------
         Income tax expense, all current         --        (8,335)      (15,157)     (1,943)
                                            =======       =======       =======      ======
</TABLE>

         WFM is governed by the Income Tax Laws of the PRC. Being a Sino-foreign
         joint venture, the Company is exempt from income taxes for a period of
         two years commencing from its first profitable year (2003) and is
         entitled to a preferential income tax rate of 15% for three consecutive
         years commencing from its third profitable year (2005). Beginning in
         2008, income will be taxed at the full rate of 30%.

                                      F-20
<PAGE>

7.       INVENTORIES

         Inventories consisted of:
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                    ---------------------------------
                                                     2005          2006          2006
                                                    -----         -----           ---
                                                      RMB           RMB           US$
<S>                                                 <C>           <C>             <C>
         Raw materials                              2,425         3,088           396
         Work in progress                             392         1,132           145
         Finished goods                               971         1,011           130
                                                    -----         -----           ---
                                                    3,788         5,231           671
                                                    =====         =====           ===
</TABLE>

8.       PROPERTY AND EQUIPMENT

         Property and equipment consisted of:
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                    ---------------------------------
                                                     2005          2006          2006
                                                    -----         -----           ---
                                                      RMB           RMB           US$
<S>                                                 <C>           <C>             <C>
         At cost:
            Buildings and mine development         24,009        25,771         3,304
            Machinery and equipment                 4,860         6,119           784
            Motor vehicles                          1,473         2,631           337
            Mining rights                           9,229        12,586         1,614
                                                   ------        ------        ------

                                                   39,571        47,107         6,039

         Accumulated depreciation and depletion    (5,915)       (9,672)       (1,240)
                                                   ------        ------        ------

                                                   33,656        37,435         4,799
                                                   ======        ======        ======
</TABLE>

         At December 31, 2005 and 2006, accumulated depreciation and depletion
         included accumulated depletion of mining rights of RMB889 and RMB1,693,
         respectively.

                                      F-21
<PAGE>

9.       OTHER PAYABLES

         Other payables consisted of:
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                      ----------------------------------
                                                                                        2005          2006          2006
                                                                                      ------        ------         -----
                                                                                         RMB           RMB           US$
<S>                                                                                   <C>           <C>             <C>
         Fanchang County Economic Development
           Department (a)                                                              2,257         2,257           289
         Natural resources fee (b)                                                     4,508         7,217           925
         Staff compensation fund (c)                                                   4,110         3,875           497
         Provision for production maintenance (d)                                      4,274         6,577           843
         Safety management fee (e)                                                     1,788         4,622           593
         Provision for staff bonus and welfare (f)                                       947         1,725           221
         Provision for renewal of mining rights (g)                                        -         1,500           193
         Other                                                                           997           736            94
                                                                                      ------        ------         -----

                                                                                      18,881        28,509         3,655
                                                                                      ======        ======         =====
</TABLE>

          (a)   This balance represents a liability assumed by WFM upon its May
                2003 acquisition of its mining business from Anhui. The
                liability is for financing the working capital of Anhui.

          (b)   Natural resources fee represents fees payable to the PRC
                Government and is calculated as a percentage of sales. WFM has
                no asset retirement obligations in connection with its mining
                operations.

          (c)   The staff compensation fund represents a PRC government required
                contribution to a fund established to compensate employees for
                the loss of their state-sponsored pension and post employment
                benefits upon the acquisition of Anhui by WFM in May 2003. The
                fund will be distributed to employees at the termination of
                their employment with WFM. WFM is not required to make any
                additional contributions to the fund.

          (d)   The provision for production maintenance represents a PRC
                government required contribution for future mine maintenance and
                production. It is calculated based on tons of ore extracted.

          (e)   The safety management fee represents a PRC required contribution
                for accident prevention programs and accident related costs. The
                safety management fee is calculated as a percentage of sales.

          (f)   The provision for staff bonus and welfare represents a PRC
                government required contribution and is calculated as a
                percentage of PRC net income.

          (g)   The provision for renewal of mining rights represents fees
                payable to The Ministry of Land and Resources of Anhui Province
                for renewal of mining rights to Yang Chong Mine. Total fees for
                the renewal of the mining rights was RMB3 million. RMB1.5
                million was paid in January 2006 with RMB500,000 and RMB1
                million payable in November 2007 and November 2008,
                respectively.

                                      F-22
<PAGE>

10.      RELATED PARTY BALANCES AND TRANSACTIONS

         Amounts due from related companies and to and from a shareholder
comprise:

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                      ----------------------------------
                                                                                        2005          2006          2006
                                                                                      ------         -----         -----
                                                                                         RMB           RMB           US$
<S>                                                                                   <C>            <C>           <C>
         Due from a related company
            Anhui Xinke New Materials Co. Ltd. ("Xinke")  (a)                         20,503            --            --
                                                                                      ======         =====         =====

         Due to a related company:
            Wuhu Feishang Non-Metal Material
               Co. Ltd. ("WFNM")  (b)                                                  6,476         3,444           441
                                                                                      ======         =====         =====

         Due to a director
            Mr. Li Feilie  (c)                                                        23,644         8,594         1,102
                                                                                      ======         =====         =====
</TABLE>

         Transactions with related companies are summarized as follows:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                           ---------------------------------------------
                                                                            2004          2005          2006        2006
                                                                           -----         -----         -----         ---
                                                                             RMB           RMB           RMB         US$
<S>                                                                        <C>           <C>           <C>           <C>
         Sales of finished goods to WFNM                                     428            --            --          --
         Sales of finished goods to Pingxiang Iron and Steel
             Co. Ltd. ("Pingxiang")                                           57            --            --          --
         Purchases of raw materials from WFNM                                 82            --            --          --
         Sale of property and equipment to WFNM                            8,050            --            --          --
         Expenses paid on behalf of WFNM                                   2,670         1,809         2,032         389
         Interest income earned from Xinke                                    --           503            --          --
         Interest income received from Xinke                                               447            --          --
</TABLE>

         (a)  On February 23, 2005, the Company advanced RMB20,000 to Xinke. The
              balance increased to RMB20,503 at December 31, 2005 due to the
              accrual of interest income. On January 27, 2006, the balance was
              offset against dividends payable to Mr. Li Feilie.

         (b)  At December 31, 2004, WFNM owed WFM RMB11,122, and through
              November 30, 2005, WFM made additional advances of RMB8,140
              (including expenses paid on behalf of WFNM of RMB1,810) to WFNM
              and WFNM paid expenses of RMB623 on behalf of WFM. Also at
              December 31, 2004, WFM owed WFE RMB25,115. WFNM's obligation to
              WFM was assumed by WFE. On November 30, 2005, WFM and WFE agreed
              to offset RMB25,182, resulting in WFM, owing WFNM RMB6,476 at
              December 31, 2005. During the year ended December 31, 2006, WFNM
              paid expenses of RMB2,032 on behalf of WFM and advanced RMB1,000,
              resulting in WFM owing WFNM RMB3,444 at December 31, 2006. These
              advances are interest free, unsecured and are due on demand.

                                      F-23
<PAGE>

10.      RELATED PARTY BALANCES AND TRANSACTIONS (continued)

         (c)  The amount due to a director represents advances made by Mr. Li
              Feilie to the Company and expenses he paid on behalf of the
              Company of RMB431 and RMB11,213 in 2004 and 2005, respectively.
              During the year ended December 31, 2006, RMB14,899 was repaid and
              an additional advance of RMB759 was made.

         Xinke, WFNM and Pingxiang are controlled by Mr. Li Feilie who is also a
         director and beneficial shareholder of the Company.

         The balance with Xinke was unsecured, bore interest at 5.22% per annum
         and was repaid in March 2006 by offset against dividends payable to Mr.
         Li Felie. The balances with the other related companies and director
         are unsecured, interest-free and are repayable on demand.

         In addition, the Company leases Hong Kong office space from a company
         controlled by certain directors of the Company on a month to month
         basis with monthly rent expense of approximately RMB17 (US$2). For the
         years ended December 31, 2004, 2005 and 2006, rental expenses paid to
         related parties amounted to RMB232 (US$30), RMB211 (US$27) and RMB226
         (US$29), respectively.

                                      F-24
<PAGE>

11.      STOCK OPTIONS

         CNRI adopted a stock option plan (the "1995 Plan") as of March 31,
         1995. The 1995 Plan allows the Board of Directors, or a committee
         thereof at the Board's discretion, to grant stock options up to 20% of
         the Company's then-outstanding common stock to officers, directors, key
         employees, consultants and affiliates of the Group. Such shares may
         represent authorized but unissued shares as well as repurchased or
         forfeited shares for any grant under the 1995 Plan that was expired or
         unexercised. The Board of Directors has the ability to set a holding
         period of less than one year for non-qualified stock options.

         On December 18, 2003, the shareholders of the Company approved and
         adopted the 2003 Equity Compensation Plan (the "2003 Plan"). The 2003
         Plan allows the Board to grant various incentive equity awards not
         limited to stock options. The Company has reserved a number of shares
         of common stock equal to 20% of the issued and outstanding common stock
         of the Company, from time-to-time, for issuance pursuant to options
         granted ("Plan Options") or for restricted stock awarded ("Stock
         Grants") under the 2003 Plan. Stock Appreciation Rights may be granted
         as a means of allowing participants to pay the exercise price of Plan
         Options.

         On January 1, 2004, there were 3,000 options outstanding, with a
         weighted average exercise price of US$2.95. These options expired
         unexercised in 2004.

         During the year ended December 31, 2004, the board of directors granted
         options to certain employees and officers to purchase 104,000 shares of
         the Company's Common Stock, of which 24,000 shares are under the 1995
         Plan and 80,000 shares are under the 2003 Plan, at an exercise price of
         US$5.68, exercisable through May, 2007. In May 2004, the options to
         purchase the 104,000 shares of the Company's Common Stock for US$5.68
         per share were exercised and the Company issued the shares for US$591.
         The 1995 Plan terminated on March 31, 2005. There are no options
         outstanding at December 31, 2005 and 2006. The weighted average grant
         date fair value of options issued during the year ended December 31,
         2004 was RMB946 (US$121). The total intrinsic value of options
         exercised and vested during the year ended December 31, 2004 was nil.

                                      F-25
<PAGE>

12.      CONCENTRATION OF RISK

         Concentration of credit risk:

         Financial instruments that potentially subject the Company to
         significant concentration of credit risk consist principally of cash
         deposits, trade receivables and bills receivable.

         (i)      Cash and cash deposits

                  The Company maintains its cash and cash deposits primarily
                  with various PRC State-owned banks and Hong Kong based
                  financial institutions. The Company performs periodic
                  evaluations of the relative credit standing of those financial
                  institutions.

         (ii)     Trade receivables

                  The Company sells zinc and iron products to companies in the
                  PRC. Management considers that the Company's current customers
                  are generally creditworthy and credit is extended based on an
                  evaluation of the customers' financial conditions and,
                  therefore, generally collateral is not required. The Company
                  maintains reserves for potential credit losses based on its
                  loss history and aging analysis. Such losses have been within
                  management's expectations. At December 31, 2005 and 2006, the
                  largest five customers accounted for 99% and 100%,
                  respectively, of trade receivables. During the year ended
                  December 31, 2004, three customers accounted 47%, 24% and 10%,
                  respectively, of the Company's sales. During the year ended
                  December 31, 2005, three customers accounted 65%, 12% and 8%,
                  respectively, of the Company's sales. During the year ended
                  December 31, 2006, three customers accounted for 85%, 5% and
                  5%, respectively, of the Company's sales.

                  The Company's entire production of zinc for the years ended
                  December 31, 2004, 2005 and 2006 was sold to a single
                  customer, Huludao Zinc Industry Co. Ltd. ("Huludao"). WFM is a
                  party to a one-year non-binding sales contract with Huludao,
                  subject to renewal every year. While the sales contract has
                  been renewed on an annual basis in the past in the event WFM
                  and Huludao are unable to agree upon renewal terms or if WFM's
                  sales contract with Huludao is not renewed for any other
                  reason, WFM will have to identify one or more alternative
                  outlets for its mineral production.

         (iii)    Bills receivable

                  Bills receivable represent letters of credit obtained by the
                  customers of the Group to finance purchases which have been
                  presented to banks for payment after delivery of goods to
                  customers. As of December 31, 2005 and 2006, bills receivable
                  amounted to RMB450 and nil, respectively, and their
                  collectability was guaranteed by banks. The bills receivable
                  have normal terms of maturity of six months.

                                      F-26
<PAGE>

12.      CONCENTRATION OF RISK (continued)

         In addition, the Company sub-contracts its ore extraction work to a
         third party. To some extent, the Company's operations are affected by
         the performance of the contractor, whose activities are not within the
         Company's control. If the contractor fails to achieve the guaranteed
         monthly extraction volume, or the contractor otherwise fails to perform
         its obligations under its agreement with the Company, the agreement may
         be terminated by the Company; however, termination of the relationship
         could adversely affect the Company's operating results.

13.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used by the Group in
         estimating the fair value of its financial instruments:

         (i)      Cash and cash equivalents

                  The carrying amounts reported in the consolidated balance
                  sheet for cash and cash equivalents approximate their fair
                  value.

         (ii)     Trade receivables, bills receivable, other receivables,
                  accounts payable and other payables

                  The carrying amounts reported in the consolidated balance
                  sheet for trade receivables, bills receivable, other
                  receivables, accounts payable and other payables approximate
                  their fair values due to their short maturities.

         (iii)    Amounts due from/to related parties

                  The fair values of amounts due from/to the related parties
                  cannot be determined due to the related party nature of those
                  balances.

                                      F-27
<PAGE>

14.      RESERVES AND DISTRIBUTION OF PROFITS

         In accordance with the relevant PRC regulations and the Articles of
         Association of WFM (the "Articles of Association"), appropriations of
         net income as reflected in its PRC statutory financial statements are
         to be allocated to each of the general reserve and enterprise expansion
         reserve, respectively, as determined by the resolution of the Board of
         Directors annually.

         On February 28, 2005, the Board of Directors of WFM approved
         appropriations of RMB1,956 and RMB1,956 to the general reserve and the
         enterprise expansion reserve, respectively. The Board of Directors also
         declared dividends of RMB44,005.

         On January 27, 2006, the Board of Directors of WFM approved
         appropriations of RMB1,709 and RMB1,709 to the general reserve and the
         enterprise expansive reserve, respectively. The Board of Directors also
         declared dividends of RMB38,462. The dividends were based on PRC
         profits for 2005, prior to the Acquisition.

15.      FOREIGN CURRENCY EXCHANGE

         The RMB is not freely convertible into foreign currencies.

         From January 1, 1994 through July 2, 2005, a single rate of exchange
         was quoted daily by the People's Bank of China (the "Unified Exchange
         Rate"). Beginning July 23, 2005, the rate of exchange was revalued by
         2.1% and the RMB is now to fluctuate according to the value of a group
         of currencies (the "managed float"). However, the unification or
         managed float of the exchange rates does not imply convertibility of
         RMB into US$ or other foreign currencies. All foreign exchange
         transactions continue to take place either through the People's Bank of
         China or other banks authorized to buy and sell foreign currencies at
         the exchange rates quoted by the People's Bank of China.

                                      F-28