================================================================================

                                  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, 2004

                                       OR

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

       FOR THE TRANSITION PERIOD FROM ______________ TO ____________________

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:
None
----

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

                        Common Shares, without par value
                       ----------------------------------
                                (Title of class)

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

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. 1,247,823 Common Shares
        -----------------------

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

Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17 [X] Item 18 [ ]

================================================================================

<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, 2004, which was
U.S.$1.00 = Rmb8.28. 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, 2004, which was US$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 "Billion Luck" or "China Natural" are to Billion Luck
Company Ltd., a British Virgin Islands company, which was a wholly-owned
subsidiary of the Company and became the surviving company after a merger
between China Resources and Billion Luck on December 9, 2004 (the "Redomicile
Merger"). Following the Redomicile Merger, Billion Luck changed its name to
China Natural Resources, Inc.

         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 China Natural after the Redomicile Merger.

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

         References to "Company" are to China Natural, and include, unless the
context requires otherwise, the operations of its predecessor and subsidiaries
(all as hereinafter defined).

         References to "First Supply" are to First Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.

         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
(formerly known as Hainan Zhongwei Agricultural Resources Company Limited and
Hainan Agricultural Resources Company Limited), a Sino-foreign joint stock
company organized in the PRC, and a wholly-owned subsidiary of the Company.

         References to "iSense" are to iSense Limited, a Hong Kong company whose
capital was 100% acquired by the Company on August 29, 2003.

         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.

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

<PAGE>

         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 "Second Supply" are to Second Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.

         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 China
Natural, after the Redomicile Merger, of which 320,000 shares are outstanding.

         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 Billion Luck.

         References to "Xubu" are to Shenzhen Xubu Investment Co. Ltd., a
company organized in the PRC and, until its sale in February 2004, a
wholly-owned subsidiary of HARC.

         References to "Zhongwei Trading" are to Hainan Zhongwei Trading Company
Limited, a company organized in the PRC, whose capital is owned 95% by HARC and
5% by Billion Luck.

         References to "Zhuhai Zhongwei" are to Zhuhai Zhongwei Development
Company Limited, a company organized in the PRC and, until its sale in April
2003, a wholly-owned subsidiary of HARC.

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.

<PAGE>

                                     PART I

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

         Not applicable.

[Item 2] OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

[Item 3] KEY INFORMATION

A. SELECTED FINANCIAL INFORMATION

         The following selected financial data of the Company and its
subsidiaries for the years ended December 31, 2000, 2001, 2002, 2003 and 2004,
are derived from the audited consolidated financial statements for the periods
indicated and should be read in conjunction therewith.

<TABLE>
<CAPTION>
                                                   In thousands, except share amounts

                                                        Year ended December 31,
                                           2000        2001        2002        2003       2004
                                          -------------------------------------------------------
                                            Rmb         Rmb         Rmb         Rmb        Rmb
<S>                                       <C>         <C>         <C>         <C>       <C>
OPERATING STATEMENT DATA
Net sales                                     306       4,093       1,948       3,049       3,970
Operating expenses                         14,715       9,995       7,267       6,401       8,019
Loss from continuing operations
    before income taxes                    13,623      24,628      56,200      29,100      22,429
Loss from continuing operations            16,509      26,206      56,200      29,100      22,440
Loss from discontinued operations           2,057       5,136       4,032       2,637           -
Net loss                                   23,200      30,144      60,232      31,737      22,440
Basic and diluted loss per share
  Continuing operations                     29.56       29.85       67.08       30.20       18.79
  Discontinued operations                    2.87        6.13        4.81        2.74           -
                                          -------     -------     -------     -------   ---------
                                            32.43       35.98       71.89       32.94       18.79
                                          =======     =======     =======     =======   =========
Weighted average number of shares
  Basic and diluted                       715,349     837,797     837,797     963,478   1,194,118

BALANCE SHEET DATA
Total assets                              333,184     157,217      89,112      66,684      46,869
Current assets                            127,646      35,636      16,520      15,122      13,147
Current liabilities                        48,012      17,636       9,656       6,015       3,816
Working capital                            79,634      18,000      6,8,64       9,107       9,331
Long term debt                                  -           -           -         321         206
Minority interests                        115,480           -           -           -           -
Shareholders' equity                      169,692     139,581      79,456      60,348      42,847
</TABLE>

         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. Applicable PRC law requires
that, before distributing profits to investors, companies such as the Company
must (1) satisfy all taxes; and (2) allocate a specified

<PAGE>

percentage of after-tax profits to surplus reserve (10% of after-tax profits)
and collective welfare fund (5-10% of after-tax profits). 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 Billion Luck by the Company in December 1994, the Company has not
received any distributions from any of its subsidiaries and has not made any
distributions to its shareholders.

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                              2000       2001       2002       2003       2004
----------------------------     ------     ------     ------     ------     ------
<S>                              <C>        <C>        <C>        <C>        <C>
High                             8.2799     8.2786     8.2776     8.2778     8.2775
Low                              8.2768     8.2763     8.2760     8.2765     8.2763
Average for period               8.2783     8.2772     8.2770     8.2771     8.2768
End of period                    8.2774     8.2765     8.2770     8.2767     8.2765
</TABLE>

<TABLE>
<CAPTION>
MONTH                            Dec 04     Jan 05     Feb 05     Mar 05     Apr 05     May 05
----------------------------     ------     ------     ------     ------     ------     ------
<S>                              <C>        <C>        <C>        <C>        <C>        <C>
High                             8.2766     8.2765     8.2765     8.2766     8.2766     8.2773
Low                              8.2763     8.2763     8.2765     8.2764     8.2764     8.2768
</TABLE>

         The exchange rate on May 31, 2005 was 8.2767.

B.       CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

D.       RISK FACTORS

RISKS ASSOCIATED WITH FOREIGN OPERATIONS

o        Our principal subsidiaries operate in the People's Republic of China,
         and are, by law, subject to administrative review by various national,
         provincial and local agencies of the Chinese government - governmental
         oversight and/or changes to existing rules and regulations could
         adversely affect our results of operations.

o        Our operations and financial results could be adversely affected by
         economic, political, legal and social conditions, including changes in
         the policies of the PRC government, such as changes in laws and
         regulations (or the interpretation thereof), as well as measures which
         may be introduced to regulate or stimulate the rate of economic growth.
         There can be no assurance that these measures will be successful or
         that they will not adversely affect our ability to operate profitably.

o        The PRC does not have a comprehensive system of laws and enforcement of
         existing laws may be uncertain and sporadic, and the implementation and
         interpretation thereof inconsistent. Even where adequate law exists in
         the PRC, it may be difficult to obtain swift and equitable enforcement
         of such law, or to obtain enforcement of a judgment by a court of
         another jurisdiction. Decided legal cases are without binding legal
         effect, although judges are often guided by prior decisions. The
         interpretation of PRC laws may 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 Company's subsidiaries
         in China are subject to PRC

<PAGE>

         regulations governing PRC companies. In particular, the realization of
         our future plans in China will also be subject to PRC government
         approvals.

o        Following the merger, 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.

o        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).

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

o        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.

OTHER RISKS OF OPERATIONS

o        We have discontinued many of our operations and we are currently
         dependent upon the success of one line of business - our advertising,
         promotion and public relations operations; and while our advertising
         business generates operating revenues, those revenues are not
         sufficient to offset expenses, resulting in continued losses from
         operations.

o        Unless we are able to reduce expenses, increase our profit margins
         and/or acquire profitable operations, we will likely continue to incur
         losses and investors in our shares may be unable to recoup their
         investment.

o        We intend to investigate and evaluate potential investment
         opportunities, including acquisition candidates. However, (a) we may be
         unable to acquire business operations that prove to be profitable and
         (b) we will continue to incur administrative and professional expenses
         in connection with our evaluation and acquisition of business
         operations, without corresponding revenues from those operations prior
         to acquisition.

o        There is no active trading market for our shares and we do not know if
         an active trading market will develop. An active market will not
         develop unless broker-dealers develop interest in trading our shares,
         and we may be unable to generate interest in our shares among
         broker-dealers until we generate meaningful revenues and profits from
         operations. Until that time occurs, if it does at all, purchasers of
         our shares may be unable to sell them publicly. In the absence of an
         active trading market (a) investors may have difficulty buying and
         selling our shares or obtaining market quotations, (b) market
         visibility for our common stock may be limited; and (c) a lack of
         visibility for our common stock may depress the market price for our
         shares.

o        As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX
         404"), the SEC has adopted rules requiring

<PAGE>

         public companies to include a report of management on the company's
         internal controls over financial reporting in their annual reports,
         including Form 20-F. In addition, the independent registered public
         accounting firm auditing a company's financial statements must also
         attest to and report on management's assessment of the effectiveness of
         the company's internal controls over financial reporting as well as the
         operating effectiveness of the company's internal controls. We are not
         yet subject to these requirements. However, in the event we identify
         significant deficiencies or material weaknesses in our internal
         controls that we cannot remediate in a timely manner or we are unable
         to receive a positive attestation from our independent auditors with
         respect to our internal controls, investors and others may lose
         confidence in the reliability of our financial statements and our
         ability to obtain equity or debt financing could suffer.

[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 China
Natural, formerly known as Billion Luck, who exchanged all of the issued and
outstanding shares of capital stock of China Natural for 108,000 shares of China
Resources' Common Stock. As a result of the acquisition, the former shareholders
of China Natural acquired 90% of the then issued and outstanding shares of
Common Stock of China Resources, and China Resources became the owner of all the
outstanding shares of capital stock of China Natural. China Natural was
incorporated in the British Virgin Islands on December 14, 1993.

         On December 9, 2004, China Resources merged with and into China Natural
(the "Redomicile Merger"). The Redomicile Merger was effected by an exchange of
shares of China Resources into shares of China Natural on a one-for-one basis.
As a result of the Redomicile Merger, the Company became domiciled in the
British Virgin Islands and China Natural has succeeded to the rights and
obligations of China Resources under its existing agreements and relationships.

         The Company's principal place of business is located at Room 2105, West
Tower, Shun Tak Centre, 200 Connaught Road C., Sheung Wan, Hong Kong, telephone
(852) 2810-7205.

B.       BUSINESS OVERVIEW

         Since 2000, the Company has been primarily engaged in identifying,
acquiring and operating business opportunities and, when management deems it
advisable, disposing of acquired businesses. Since the disposition of businesses
may, from time-to-time, consist of the sale of assets, the Company maintains
ownership over numerous direct and indirect currently inactive wholly owned
subsidiaries, organized under the laws of various jurisdictions, that may be
used in connection with business opportunities in the future.

         As of December 31, 2004, the Company's only active business operations
consisted of its advertising, promotion and public relations business. The
Company has been engaged in advertising, promotion and public relations services
since the third quarter of 2003 through the acquisition of iSense. 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 advertising business is not seasonal in nature. Since its
incorporation, iSense has serviced over 50 customers. For the period from
acquisition to December 31, 2003, one advertising customer accounted for 11% of
total sales. For the year ended December 31, 2004, five advertising customers
accounted for 84% of total sales. All sales were made in Hong Kong dollars.

         The Company commenced operations of its supermarket in the PRC, through
Zhuhai Zhongwei, in the fourth quarter of 1999. As the contribution of
supermarket operations to the Company's profitability was insignificant since
its establishment, the Company disposed of its entire interest in Zhuhai
Zhongwei on April 22, 2003 for consideration of RMB6,000,000 (US$725,000). On
August 29, 2003, the Company acquired a 100% equity interest in iSense for total
consideration or RMB5,994,000 (US$724,000) through the issuance of 100,000
shares of the Company's unregistered restricted common stock to the former sole
equity owners of iSense. The Company acquired iSense to provide advertising,

<PAGE>

promotion and public relations services in Hong Kong and mainland China to both
local and international customers. The Company also trades copper occasionally
through HARC in the PRC. In light of the foregoing transactions, operating
results of prior years should not be viewed as being indicative of operating
results that may be expected in future years. The Company is actively seeking
other business opportunities to enhance shareholder values.

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

         Prior to the Redomicile Merger, the Company's common stock was traded
on the Nasdaq SmallCap market under the symbol "CHRB". Following the Redomicile
Merger, the trading symbol was changed to "CHNR".

         The following describes activities conducted by the Company's
subsidiaries during the year ended December 31, 2004.

iSENSE
------

         iSense was Incorporated in March 2000 in Hong Kong and is an integrated
marketing company. On August 29, 2003, the Company acquired all of the issued
and outstanding capital stock of iSense for total consideration of RMB5,994,000
(US$724,000), in exchange for the issuance of 100,000 shares of the Company's
unregistered restricted common stock to the former sole equity owners of iSense.
The number of shares issued was based upon the US$7.24 closing price of the
Company's common stock (as quoted on the Nasdaq SmallCap Market) on August 22,
2003. The Company acquired iSense to provide advertising, promotion and public
relations services in Hong Kong and mainland China to both local and
international customers.

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$12.1 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.

SUNWIDE
-------

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

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 (formerly known as Sky Creation Technology Limited), 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, however, they are poised to recommence
their healthcare-related website to the extent that the e-commerce industry
stabilizes and demonstrates signs of revival.

<PAGE>

C.       ORGANIZATIONAL STRUCTURE

         The following chart illustrates the equity ownership by percentage of
each of the Company's subsidiaries as of December 31, 2004:


<Table>
<Caption>

      <S>                      <C>                           <C>                   <C>

                     __________________________________
                    |                                  |
                    |         CHINA NATURAL            |__________________________________
                    |        RESOURCES, INC.           |                     |            |
                    |a British Virgin Islands company  |                     |            |
                    |__________________________________|                     |            |
                                     |                                       |            |
                                     |                                       |            |
          ___________________________|_________________________              |            |
         |                           |                         |             |            |
         | 100%                      | 100%                    | 100%        |            |80%
   ______________             _______________          __________________    |    __________________
  |              |           |               |        |                  |   |   |                  |
  |    ISENSE    |           |     HARC      |        |      SUNWIDE     |   |   |   SILVER MOON    |
  |  a Hong Kong |           |    a PRC      |        | a British Virgin |   |   | a British Virgin |
  |    company   |           |   company     |        |  Islands company |   |   | Islands company  |
  |______________|           |_______________|        |__________________|   |   |__________________|
                                     |                                       |            |
                                     |                                       |            |
                 ___________________________________________                 |            |
                |                    |                      |                |            |
                |                    |                      |                |            |
           100% |               100% |                      | 95%            |            | 100%
       __________________    __________________    __________________        |    ________________
      |                  |  |                  |  |                  |       |   |                |
      |   FIRST SUPPLY   |  |  SECOND SUPPLY   |  | ZHONGWEI TRADING |5%     |   |   MEDI-CHINA   |
      |  a PRC company   |  |  a PRC company   |  |  a PRC company   |_______|   |  a Hong Kong   |
      |    (inactive)    |  |    (inactive)    |  |    (inactive)    |           |    company     |
      |__________________|  |__________________|  |__________________|           |________________|

</Table>

D.       PROPERTY, PLANTS AND EQUIPMENT

         The Company's administrative offices and its principal subsidiaries are
located in Hong Kong and Hainan 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, 2002, 2003 and
2004, the Company paid its share of rental expenses to Anka Consultants Limited
amounting to RMB284,000 (US$34,000), RMB242,000 (US$30,000) and RMB232,000
(US$28,000), respectively. The office sharing agreement provides that the
Company share certain costs and expenses in connection with its use of the
office.

         Pursuant to an informal arrangement, iSense shares offices with an
unaffiliated third party for a monthly rental of RMB2,438 (US$294). The total
area of the office is approximately 140 square meters.

         The Company is also a party to a rental agreement entered into between
HARC and Haikou Nanyang Building Co. Ltd., an unaffiliated third party, covering
office space in Hainan with a total gross area of 138 square meters. The rental
agreement was for a period of 2 years from June 4, 2003 to June 3, 2005 at a
monthly rental of RMB3,988 (US$482).

         For the years ended December 31, 2002, 2003 and 2004, the Company
incurred capital expenditures of nil, RMB958,000 (US$116,000) and RMB111,000
(US$13,000), respectively. The capital expenditures for 2003 and 2004 were
mainly for acquisition of motor vehicles.

[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, 2004 consolidated financial statements and accompanying notes.

A.       OPERATING RESULTS

SALES AND GROSS PROFIT-COPPER

         From 2002 to 2004 the Company occasionally traded copper. For the year
ended December 31, 2002, sales and gross profit amounted to RMB1,948,000
(US$235,000) and RMB3,000 (US$362), respectively. For the year ended December
31, 2003, sales and gross profit amounted to RMB1,904,000 (US$230,000) and nil,
respectively. For the year ended December 31, 2004, sales and gross profit
amounted to RMB1,842,000 (US$222,000) and RMB1,000 (US$121), respectively.

<PAGE>

SALES AND GROSS PROFIT- ADVERTISING AND PROMOTION

         The Company has been engaged in advertising, promotion and public
relations services since its acquisition of iSense on August 29, 2003. For the
year ended December 31, 2003, net sales and gross profit amounted to
RMB1,145,000 (US$138,000) and RMB277,000 (US$33,000), respectively. For the year
ended December 31, 2004, net sales and gross profit amounted to RMB2,128,000
(US$257,000) and RMB588,000 (US$71,000), respectively.

VALUATION ALLOWANCES

         For the year ended December 31, 2002, valuation allowances included the
impairment loss on the Company's investment in Hainan Sundiro Motorcycle Co.
Ltd. ("Sundiro") amounting to RMB46,615,000 (US$5,630,000), and the write off of
VAT receivable of RMB1,563,000 (US$189,000). For the year ended December 31,
2003, valuation allowances included the impairment loss on the Company's
investment in Sundiro amounting to RMB19,000,000 (US$2,295,000), the write off
of VAT receivable of RMB3,126,000 (US$377,000) and the write off of loan and
interest receivables of RMB2,684,000 (US$324,000). For the year ended December
31, 2004, valuation allowances included the impairment loss on the Company's
investment in Sundiro amounting to RMB13,000,000 (US$1,570,000) and the write
off of loan and interest receivables of RMB304,000 (US$37,000).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses decreased by RMB866,000
(US$105,000) or 11.9% to RMB6,401,000 (US$773,000) in 2003 from RMB7,267,000
(US$878,000) in 2002. The decrease was mainly due to reduction of salaries and
traveling expenses. Selling, general and administrative expenses increased by
RMB1,618,000 (US$195,000) or 25.3% to RMB8,019,000 (US$968,000) in 2004 from
RMB6,401,000 (US$773,000) in 2003. The increase was mainly due to increased
legal and professional fees in connection with the redomicile.

INTEREST INCOME, NET

         Interest income decreased by 52.1% from RMB654,000 (US$79,000) in 2002
to RMB313,000 (US$38,000) in 2003. The decrease was mainly attributable to the
default of a short-term loan and related interest receivable of RMB2,684,000
(US$324,000). Interest income decreased by 93.6% from RMB313,000 (US$38,000) in
2003 to RMB20,000 (US$2,000) in 2004. The decrease was mainly attributable to
the default of a short-term loan and related interest receivable of RMB304,000
(US$37,000).

OTHER INCOME/(EXPENSES), NET

         Net other expenses in 2002 mainly represented the net loss on trading
of marketable securities of RMB1,622,000 (US$196,000). Net other income in 2003
mainly consisted of a net gain on trading of marketable securities of
RMB1,157,000 (US$140,000). Net other income in 2004 mainly consisted of a net
gain on trading of marketable securities of RMB373,000 (US$45,000) and the
recovery of bad debts and related costs of RMB2,850,000 (US$344,000).

INCOME TAXES

         Prior to the Redomicile Merger, it was management's intention to
reinvest all income attributable to the Company earned by its operations outside
the US. Accordingly, no US federal and state income taxes have been provided in
the consolidated financial statements. Following the Redomicle Merger,
management believes that the Company is no longer subject to US taxes.

         Income taxes in 2002 consisted of PRC federal income tax computed at
15% on assessable income for foreign investment enterprises operating in Zhuhai.
Income taxes in 2004 consisted of Hong Kong profits tax computed at 17.5% on
assessable income of iSense.

<PAGE>

SALES AND GROSS PROFIT- SUPERMARKET OPERATIONS (DISCONTINUED OPERATIONS)

         For the year ended December 31, 2002, net sales and gross profit from
supermarket operations amounted to RMB7,222,000 (US$872,000) and RMB417,000
(US$50,000), respectively. The Company ceased its supermarket operations
following the disposition of its entire interest in Zhuhai Zhongwei on April 22,
2003. Net sales included in discontinued operations totaled RMB1,758,000
(US$212,000) with gross profit of RMB201,000 (US$24,000) for the year ended
December 31, 2003. Profit from discontinued supermarket operations is reported
net of income tax expense, if any.

B.       LIQUIDITY AND CAPITAL RESOURCES

         The Company's and its subsidiaries' primary liquidity needs are to fund
operating expenses, and to expand business operations.

         Net cash (used in)/provided by operating activities was (RMB5,403,000)
(US$653,000), RMB4,540,000 (US$548,000) and (RMB4,883,000) (US$590,000) in
fiscal 2002, 2003 and 2004, 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 following summarizes the Company's financial condition and
liquidity at the dates indicated:

                                                     At December 31,
                                                 ----------------------
                                                   2003         2004
                                                 ---------    ---------
         Current ratio                                2.5x         3.4x
         Working capital                         9,107,000    9,331,000
         Ratio of long-term debt to total
           shareholders' equity                      .005x       0.005x

         Net cash provided by investing activities was RMB11,990,000
(US$1,448,000), RMB42,000 (US$5,000) and RMB449,000 (US$54,000) in fiscal 2002,
2003 and 2004, respectively. Net cash flows from the Company's investing
activities in 2002 were attributable to repayment of a short term loan from a
third party. Net cash provided by/(used in) financing activities was
(RMB11,298,000) (US$1,364,000), RMB3,665,000 (US$442,000) and RMB4,773,000
(US$576,000) in fiscal 2002, 2003 and 2004, respectively. Net cash flows from
the Company's financing activities in 2003 and 2004 were attributable to
proceeds from issuance of common stocks from the exercise of stock options.

         Except as disclosed above, there have been no significant changes in
the financial condition and liquidity during the years ended December 31, 2003
and 2004. The Company believes that available 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.

<PAGE>

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 the date of this Report, 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.

F.       TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         The Company has no contractual obligations and commercial commitments
as at December 31, 2004 except the following:

                                  Total     <1 year    2-5 years
                                 -------    -------    ---------
         Operating leases        360,000         20            -
         Capital lease           386,000    180,000      206,000

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.

INTANGIBLE ASSETS

         The Company's intangible assets consisted of goodwill arising from the
acquisition of iSense. Management performs an analysis to determine the
recoverability of the asset's carrying value and management will provide a
provision if impairment loss of intangible assets is determined.

INVESTMENTS

         Investments in equity securities, not being a subsidiary and which do
not have a readily determinable fair value, are accounted for by the cost
method. The Company periodically reviews investments for other than temporary
declines based on market prices, earning trends, dividend payment, assets
quality and the long-term prospect of the investment. The Company will make a
provision if other than temporary declines of the investment are determined.

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.

<PAGE>

REVENUE RECOGNITION

         Revenue from product sales is recognized at the point of sale for
retail sales and upon the delivery of goods or completion of services for other
sales, when all performance obligations have been completed and there is
reasonably assured collectibility. Dividend income is recognized upon the
establishment of the right to receive such payment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------

         In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123 (R) Share Based Payment which addresses the accounting for
share-based payment transactions. SFAS No. 123 (R) eliminates the ability to
account for share-based compensation transactions using APB No.25, and generally
requires instead that such transactions be accounted and recognized in the
statement of income based on their fair values. SFAS No. 123 (R) will be
effective for public companies that file as small business issuers as of the
first interim period that begins after December 15, 2005. The Company is
evaluating the provisions of SFAS No. 123 (R). Depending upon the numbers and
terms of options that may be granted in future periods, the implementation of
this standard could have a material impact on the Company's financial position
and results of operations.

[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
---------------    ---   ----------------------------------------------
Ching Lung Po      58    Chairman of the Board of Directors, President
                         and Chief Executive Officer

Tam Cheuk Ho       42    Director and Chief Financial Officer

Wong Wah On        41    Director, Secretary and Financial Controller

Lam Kwan Sing      35    Non-employee Director

Ng Kin Sing        42    Non-employee Director

Lo Kin Cheung      40    Non-employee Director

         Mr. Ching Lung Po has served as a director of China Natural since June
2, 1999 and as its Chairman of the Board, President and Chief Executive Officer
since November 22, 2004. He served as a director of China Resources since
February 4, 1998 until completion of the Redomicile Merger. He was appointed
Chairman of the board of directors of China Resources on January 25, 1999, and
as its Chief Executive Officer and President on February 1, 1999 and June 1,
1999, respectively. Mr. Ching has also been the Chairman of the Board of
Directors and President of OVM International Holding Corp. (Pink Sheets:
OVMI.pk), since September 1996. Mr. Ching has been involved for more than 20
years in the management of production and technology for industrial enterprises
in the PRC. He worked in Heilongjiang Suihua Electronic Factory as an engineer
from 1969 to 1976 and was the Head of the Heilongjiang Suihua Industrial Science
& Technology Research Institute from 1975 to 1976. Mr. Ching joined the
Heilongjiang Qingan Factory in 1976 and has been the General Manager since 1976.
In 1988, Mr. Ching started his own business and established the Shenzhen Hongda
Science & Technology Company Limited in Shenzhen, which manufactures electronic
products. Mr. Ching graduated from the Harbin Military and Engineering Institute
and holds the title of Senior Engineer.

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

<PAGE>

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 Society of Accountants and the Chartered
Association of Certified Accountants. He is also a certified public accountant
in Hong Kong. He holds a Bachelor's degree in Business Administration from the
Chinese University of Hong Kong. Mr. Tam is also a director of Anka Capital
Limited, a privately-held corporation, through which he is a principal
shareholder of the Company.

         Mr. Wong Wah On has been a director of China Natural 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 Chartered Association of Certified Accountants and the
Hong Kong Society of Accountants, and an associate of the Institute of Chartered
Secretaries and Administrators. He is also a certified public accountant in Hong
Kong.

         Mr. Lam Kwan Sing has been a director and a member of China Natural'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 Pacific
Challenge 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 China Natural'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. Lo Kin Cheung has been a director and a member of China Natural's
audit committee since November 22, 2004. He served as a director and a member of
the Audit Committee of China Resources from May 30, 2000 until completion of the
Redomicile Merger. From September 2001 to present, Mr. Lo has been the chief
financial officer of Lee Fung - Asco Printers Holdings Limited, a Hong Kong
listed company, where he is responsible for the overall corporate financial
operations. From March 1998 to August 2001, Mr. Lo was the executive director of
Wiltec Holdings Limited, a Hong Kong listed company, where he was responsible
for corporate development and day-to-day operations. From July 1986 until March
1998, Mr. Lo was the principal at Ernst & Young, Hong Kong. He is a fellow of
both the Hong Kong Society of Accountants and the Chartered Association of
Certified Accountants. He holds a Bachelor's degree of Science from the
University of Hong Kong.

B.       COMPENSATION

         The following table sets forth the amount of compensation that was
paid, and the grant of options to purchase shares of common stock during the
fiscal year ended December 31, 2004, to each of the individuals listed in Item
6(A) above.

<PAGE>

<TABLE>
<CAPTION>
                                          Number of options to         Exercise
Name                Compensation (US$)    purchase common stock    price (US$/share)    Expiration date
-------------       ------------------    ---------------------    -----------------    ---------------
<S>                       <C>                      <C>                    <C>             <C>
Ching Lung Po              30,769                       -                    -                       -
Tam Cheuk Ho              230,769                  40,000                 5.68            May 19, 2007
Wong Wah On               153,846                  40,000                 5.68            May 19, 2007
Lam Kwan Sing                   -                       -                    -                       -
Ng Kin Sing                     -                       -                    -                       -
Lo Kin Cheung                   -                       -                    -                       -
</TABLE>

         On February 1, 1999, the Company entered into a Service Agreement with
Ching Lung Po. In accordance with the terms of the Service Agreement, Mr. Ching
has been employed by the Company as Chief Executive Officer and to perform such
duties as the Board of Directors shall from time to time determine. Mr. Ching
shall receive a base salary of HK$2,160,000 (US$276,923) annually. The
Employment Agreement has a term of two years and shall be automatically renewed
unless earlier terminated as provided therein. On June 1, 2002, the Company
entered into a Supplemental Service Agreement with Ching Lung Po, reducing his
base salary to HK$240,000 (US$30,769) per annum with all other terms of the
Service Agreement remaining in full force and effect.

         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 February 1, 1999, the Company entered into an Employment Agreement
with Wong Wah On. 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 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.

         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.

<PAGE>

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, 2004:

<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
Plans Approved by
Security Holders

   1995 Stock Option Plan                      0                     N/A                         81,955
   2003 Equity Compensation Plan               0                     N/A                        231,955

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

Total                                          0                                                313,910
                                             ===                                                =======
</TABLE>

STOCK OPTION PLANS

         The Company has adopted two equity incentive plans. The purposes of the
plans 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 stock.

A brief description of each plan is as follows:

         1995 Plan: The Company has 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 to officers,
directors, key employees, consultants and affiliates of the Company. The number
of shares that may be granted on exercise of options granted under the 1995 Plan
may not exceed 20% of our outstanding shares determined at the time of grant.

         The Board of Directors, or a committee appointed by the Board (the
"Committee"), is vested with authority to (i) select persons to participate in
the Plan; (ii) determine the form and substance of grants made under the 1995
Plan to each participant, and the conditions and restrictions, if any, subject
to which grants will be made; (iii) interpret the 1995 Plan; and (iv) adopt,
amend, or rescind such rules and regulations for carrying out the 1995 Plan as
it may deem appropriate. Options granted under the 1995 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 may not be less than 80% of the fair market value of the underlying
shares as of the date of grant.

         As of December 31, 2004, options to purchase 233,000 shares of Common
Stock had been granted under the 1995 Plan, of which options to purchase 230,000
shares of Common Stock were exercised and options to purchase 3,000 shares of
Common Stock lapsed. Options to purchase 81,955 shares were available for grant
as of December 31, 2004. The 1995 Plan terminated on March 31, 2005; however,
outstanding options on the date of termination remain subject to the provisions
of the 1995 Plan until they are exercised or expire.

         In connection with the Redomicile Merger, China Natural succeeded to
and assumed the obligations of China Resources under the 1995 Plan.

         2003 Plan. 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. Stock Grants may be made upon

<PAGE>

such terms and conditions as the Board or Committee designated by the Board
determines. Stock Grants may include deferred stock awards under which receipt
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 stock 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 year ended December 31, 2004, options to purchase 80,000
shares of Common Stock were granted under the 2003 Plan and were exercised. A
total of 231,955 shares were available for grant as of December 31, 2004. The
2003 Plan terminates on December 18, 2013.

         In connection with the Redomicile Merger, China Natural succeeded to
and assumed the obligations of China Resources under the 2003 Plan.

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

         At the annual meeting of members on December 31, 2004, Messrs. Ching
Lung Po and Ng Kin Sing were elected to serve in Class I Directors until the
annual meeting to be held in 2005 and until their successors have been duly
elected and qualified, and Messrs. Lam Kwan Sing and Lo Kin Cheung serve as
Class II until the annual meeting to be held in 2006 and until their successors
have been duly elected and qualified; and Messrs. Tam Cheuk Ho and Wong Wah On
serve in Class III until the annual meeting to be held in 2007 and until their
successors have been duly elected and qualified.

         The officers of the Company are elected annually at the first Board of
Directors meeting following the annual meeting of shareholders, and hold office
until their respective successors are duly elected and qualified, unless sooner
displaced.

         The Company does not pay fees to directors for their attendance at
meetings of the Board of Directors or of committees; however, the Company may
adopt a policy of making such payments in the future. The Company will reimburse
out-of-pocket expenses incurred by directors in attending Board and Committee
meetings. During the fiscal year ended December 31, 2004, 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
---------------

         The Company's audit committee, whose members currently consists of Lo
Kin Cheung, Lam Kwan Sing and Ng Kin Sing, reviews the professional services
provided by the independent auditors, the independence of the auditors from

<PAGE>

management, annual financial statements and the Company's internal accounting
controls. The audit committee also reviews other matters with respect to the
accounting, auditing and financial reporting practices and procedures as it may
find appropriate or may be brought to its attention. Each of the Company's audit
committee members is an "independent" director, as such term is used in (a)
Section 10A-3(m)(3) of the Exchange Act, and (b) Nasdaq Marketplace Rule 4200-1.

Nominating and Corporate Governance Committee; Shareholder Nominees for Director
--------------------------------------------------------------------------------

         Our board of directors has established a nominating and corporate
governance committee that operates pursuant to a written charter. 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;
          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 current members of the nominating and corporate governance
committee are Ng Kin Sing, Lam Kwan Sing and Lo Kin Cheung. 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 Securities Exchange Act of 1934,
and Nasdaq Marketplace Rule 4200-1.

         The nominating and corporate governance committee will consider
candidates for directors proposed by security holders, 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.

Compensation Committee
----------------------

         The Company does 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, awards of stock options and
reimbursement of certain business related costs and expenses.

<PAGE>

Nasdaq Requirements
-------------------

         Our common shares are currently listed on the Nasdaq SmallCap Market
and, for so long as our securities continue to be listed, we will remain subject
to the rules and regulations established by Nasdaq as being applicable to listed
companies. Nasdaq recently adopted amendments to its Rule 4350 to impose various
corporate governance requirements on listed securities. Section (a)(1) of Rule
4350 provides that foreign private issuers such as our company are required to
comply with certain specific requirements of Rule 4350, but, as to the balance
of 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 Rule
4350. In addition, we have elected to voluntarily comply with certain other
requirements of 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 Rule 4350. However, we have determined not
to comply with the following provisions of Rule 4350 since the laws of the
British Virgin Islands do not require compliance:

          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; 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 Rule 4350.

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,
                                                           2004            2003            2002
<S>                                                         <C>             <C>             <C>
Hong Kong    Accounting, administration and management       4               4               4
             Advertising and promotion                       2               2               -
             Others                                          1               1               1
----------------------------------------------------------------------------------------------
                                                             7               7               5

The PRC      Accounting, administration and management       2               8              19
             Purchasing and supplies                         -               -              17
             Cashier                                         1               2               5
             Others                                          2               3               9
----------------------------------------------------------------------------------------------
                                                             5              13              50

----------------------------------------------------------------------------------------------
Total                                                       12              20              55
----------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

E.       SHARE OWNERSHIP

         The following table sets forth, as of May 31, 2005, the share ownership
of the Company's Common Shares and Series B Preferred Shares by each of our
directors and executive officers.

         As of May 31, 2005, there were 1,247,823 Common Shares and 320,000
Series B Preferred Shares issued and outstanding. Each Series B Preferred Share
is entitled to one vote on each matter submitted to a vote of shareholders.
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 or pursuant to
agreement or understanding.

<TABLE>
<CAPTION>
                              Amount and Nature of Beneficial Ownership(4)
                   -----------------------------------------------------------------
                         Common Shares                         Preferred Shares             Percent
                   ---------------------------            --------------------------          of
Name               # of Shares      % of Class            # of Shares     % of Class         Vote
---------------------------------------------------------------------------------------------------
<S>                  <C>                <C>                  <C>               <C>            <C>
Ching Lung Po         40,000             3.2%                320,000(1)        100%           23.0%

Tam Cheuk Ho         224,897(2)         18.0%                     --            --            14.3%

Wong Wah On          224,897(3)         18.0%                     --            --            14.3%

Lam Kwan Sing             --              --                      --            --              --

Ng Kin Sing               --              --                      --            --              --

Lo Kin Cheung             --              --                      --            --              --
</TABLE>

----------------------
(1)      Shares registered to Winsland Capital Limited, a company beneficially
         owned by Mr. Ching..
(2)      Includes 144,897 shares registered to Anka Capital Limited, a company
         owned 50% by Mr. Tam. Mr. Tam disclaims beneficial ownership of the
         shares owned by Anka Capital Limited, except to the extent of his
         pecuniary interest in the shares.
(3)      Includes 144,897 shares registered to Anka Capital Limited, a company
         owned 50% by Mr. Wong. Mr. Wong disclaims beneficial ownership of the
         shares owned by Anka Capital Limited, except to the extent of his
         pecuniary interest in the shares.
(4)      The inclusion of any shares as deemed beneficially owned does not
         constitute an admission of beneficial ownership by the named
         shareholder.

[Item 7]    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.       MAJOR SHAREHOLDERS

         The following table sets forth, as of May 31, 2005, 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 and Series B Preferred Shares.

         As of May 31, 2005, there were 1,247,823 Common Shares and 320,000
Series B Preferred Shares issued and outstanding. Each Series B Preferred Share
is entitled to one vote on each matter submitted to a vote of shareholders.
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 or pursuant to
agreement or understanding.

         There has been no significant change in the percentage ownership held
by any major shareholder during the past three years. The Company's major
shareholders do not have different voting rights than other shareholders of the
Company.

<PAGE>

<TABLE>
<CAPTION>
                                         Amount and Nature of Beneficial Ownership(4)
                             -----------------------------------------------------------------
                                   Common Shares                         Preferred Shares             Percent
                             ---------------------------            --------------------------          of
Name                         # of Shares      % of Class            # of Shares     % of Class         Vote
-------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                  <C>               <C>            <C>
Ching Lung Po                   40,000             3.2%                320,000(1)        100%           23.0%

Tam Cheuk Ho                   224,897(2)         18.0%                     --            --            14.3%

Wong Wah On                    224,897(3)         18.0%                     --            --            14.3%

Anka Capital Limited           144,897            11.6%                     --            --             9.2%

Winsland Capital Limited            --              --                 320,000           100%           20.4%
</TABLE>

----------------------
(1)      Shares registered to Winsland Capital Limited, a company beneficially
         owned by Mr. Ching.
(2)      Includes 144,897 shares registered to Anka Capital Limited, a company
         owned 50% by Mr. Tam. Mr. Tam disclaims beneficial ownership of the
         shares owned by Anka Capital Limited, except to the extent of his
         pecuniary interest in the shares.
(3)      Includes 144,897 shares registered to Anka Capital Limited, a company
         owned 50% by Mr. Wong. Mr. Wong disclaims beneficial ownership of the
         shares owned by Anka Capital Limited, except to the extent of his
         pecuniary interest in the shares.
(4)      The inclusion of any shares as deemed beneficially owned does not
         constitute an admission of beneficial ownership by the named
         shareholder.

         As of December 31, 2004, our Common Shares and Series B Preferred
Shares were held of record by a total of approximately 190 persons, of which
718,000 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, 2002, 2003 and 2004, the Company paid rental
expenses to Anka Consultants Limited amounted to RMB285,000 (US$34,000),
RMB249,000 (US$30,000) and RMB232,000 (US$28,000), respectively.

         At December 31, 2003, the Company owed RMB1,603 (US$194) to an officer
for unpaid salary. This was paid in full during 2004.

         At December 31, 2003 and 2004, the Company owed RMB296 (US$36) to
related companies. These amounts are unsecured, interest-free and are repayable
on demand.

         At December 31, 2003 and 2004, the Company owed RMB333,000 (US$40,000)
and RMB205,000 (US$25,000), respectively, to a director of iSense for advances
received. These advances are unsecured, interest-free and are repayable on
demand.

C.       INTERESTS OF EXPERTS AND COUNSEL

         Not applicable.

[Item 8]    FINANCIAL INFORMATION

A.       CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         The Company's Consolidated Financial Statements for the fiscal years
ended December 31, 2002, 2003 and 2004 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

<PAGE>

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 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

         Not applicable.

[Item 9]    THE OFFER AND LISTING

A.       OFFER AND LISTING DETAILS

         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."

         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, 2004..................      $13.37       $3.30
                  December 31, 2003..................       13.30        1.70
                  December 31, 2002..................        2.99        1.20
                  December 31, 2001..................        4.00        2.15
                  December 31, 2000..................       17.75        2.75

         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 2003 and 2004. The prices are inter-dealer prices, without retail markup,
markdown or commission, and do not necessarily reflect actual transactions.

                      Period                                High         Low
                      ------                                ----         ---

         2004 Fiscal Year, quarter ended:
                  March 31, 2004.....................      $13.37       $7.67
                  June 30, 2004......................        7.90        5.47
                  September 30, 2004.................        5.77        3.30
                  December 31, 2004..................        8.05        3.48
         2003 Fiscal Year, quarter ended:
                  March 31, 2003.....................       $2.59       $1.50
                  June 30, 2003......................        4.87        1.70
                  September 30, 2003.................       13.30        4.60
                  December 31, 2003                          8.87        4.86

         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 from July 2004 through December 31, 2004. The prices are inter-dealer
prices, without retail markup, markdown or commission, and do not necessarily
reflect actual transactions.

<PAGE>

                      Period                                High         Low
                      ------                                ----         ---

         Month ended:
                  December 31, 2004..................       $6.07       $5.25
                  November 30, 2004..................        8.05        3.54
                  October 31, 2004...................        4.30        3.48
                  September 30, 2004.................        4.72        3.60
                  August 31, 2004....................        4.00        3.39
                  July 31, 2004......................        5.77        3.30

B.       PLAN OF DISTRIBUTION

         Not applicable.

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

         Not applicable.

E.       DILUTION

         Not applicable.

F.       EXPENSES OF THE ISSUE

         Not applicable.

[Item 10]   ADDITIONAL INFORMATION

A.       SHARE CAPITAL

         Not applicable.

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.

<PAGE>

         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
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 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

<PAGE>

affirmative vote of a majority of those present and entitled to vote shall be
required in order to approve action by shareholders. 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.

         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
apprise themselves of all reasonably available information, and a duty of
loyalty, under which they must protect the interests of the corporation

<PAGE>

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

<PAGE>

         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.

         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

<PAGE>

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

         Not applicable.

G.       STATEMENT BY EXPERTS

         Not applicable.

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.

I.       SUBSIDIARY INFORMATION

         Not applicable.

<PAGE>

[Item 11] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

o        All of the Company's sales and purchases are made domestically and are
         denominated in either Renminbi and 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 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.

o        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, 2004, the Company's cash
         equivalents are mainly Renminbi and Hong Kong Dollar deposits with
         financial institutions, bearing market interest rates without fixed
         term.

o        As of December 31, 2004, the Company had short-term investments in
         marketable securities in the Hong Kong stock market with a total market
         value of RMB54,000 (US$7,000). These investments expose the Company to
         market risks that may cause the future value of these investments to be
         lower than the original cost of such investments at the time of
         purchase.

o        As at December 31, 2004, the Company owned an equity interest of 5.3%
         of Hainan Sundiro Motorcycle Co. Ltd. ("Sundiro"). The Company monitors
         its investment in Sundiro by reference to the fair market value of
         Sundiro's publicly traded shares. These investments expose the Company
         to market risks as the future value of these investments may be lower
         than the original cost of such investments at the time of purchase.

[Item 12] DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

                                     PART II

[Item 13] DEFAULTS, DIVIDENDS 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

         The Company's management has concluded its evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. 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.

         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 error 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,

<PAGE>

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

         Two members of the Company's audit committee are "audit committee
financial experts." In general, an "audit committee financial expert" is an
individual member of the audit committee who (a) understands generally accepted
accounting principles and financial statements, (b) is able to assess the
general application of such principles in connection with accounting for
estimates, accruals and reserves, (c) has experience preparing, auditing,
analyzing or evaluating financial statements comparable to the breadth and
complexity to the Company's financial statements, (d) understands internal
controls over financial reporting and (e) understands audit committee functions.
The Company's "audit committee financial experts" are Lam Kwan Sing and Lo Kin
Cheung. Each "audit committee financial expert" is independent within the
meaning of Section 10A-3(m)(3) of the Exchange Act and Nasdaq Marketplace Rule
4200.

[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 a Code of Ethics that 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 has been filed as an exhibit to this
annual report.

[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
2003 and 2004.

                          Fiscal 2004    Fiscal 2003
                          -----------    -----------

Audit Fees                 $  64,300      $  50,000
Audit-Related Fees                 -              -
Tax Fees                           -              -
All Other Fees                     -              -

                           ---------      ---------
Total                      $  64,300      $  50,000
                           =========      =========

<PAGE>

         Audit Fees -- This category includes the audit of our annual financial
statements, review of financial statements included in our Forms 10-QSB
Quarterly Reports 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
2004 were pre-approved by the Audit Committee.

[Item 16D] EXEMPTION FROM THE LISTING STANARDS 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.

<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, 2002, 2003 and 2004

               b.   Consolidated balance sheets as of December 31, 2003 and 2004

               c.   Consolidated statements of shareholders' equity for the
                    years ended December 31, 2002, 2003 and 2004

               d.   Consolidated statements of cash flows for the years ended
                    December 31, 2002, 2003 and 2004

               e.   Notes to consolidated financial statements.

[Item 18] FINANCIAL STATEMENTS

Not applicable.

[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 herewith).

         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.) *

         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.) *

<PAGE>

         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 Zhuhai
                     Zhongwei Development Co. Ltd. by and between HARC and Li
                     Qing Quan dated April 22, 2003 (Certified English
                     translation of original Chinese version filed as Exhibit
                     10.15 to Quarterly Report on Form 10-QSB for the quarter
                     ended March 31, 2003, and incorporated herein by
                     reference.)

         4.7         Agreement for the Sale and Purchase of Shares in Zhuhai
                     Zhongwei Development Co. Ltd. by and between Lin Jia Ping
                     and Li Qing Quan dated April 22, 2003 (Certified English
                     translation of original Chinese version filed as Exhibit
                     10.16 to Quarterly Report on Form 10-QSB for quarter ended
                     March 31, 2003, and incorporated herein by reference.)

         4.8         Acquisition Agreement by and among the Registrant, Isense
                     Limited, Ngan Chiu Wai Jenny and Kwok Kwan Hung dated
                     August 25, 2003 (Filed as Exhibit 10.17 to Quarterly Report
                     on Form 10-QSB for quarter ended September 30, 2003, and
                     incorporated herein by reference.)

         4.9         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.)

         4.10        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.)

         6           Computation of Earnings Per Share for Fiscal Year ended
                     December 31, 2004 (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.

<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: June 10, 2005                          By:/s/ Ching Lung Po
                                                ---------------------------
                                             Ching Lung Po, President

<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,
         2002, 2003 and 2004

b.       Consolidated balance sheets as of December 31, 2003 and 2004

c.       Consolidated statements of shareholders' equity for the years ended
         December 31, 2002, 2003 and 2004

d.       Consolidated statements of cash flows for the years ended December 31,
         2002, 2003 and 2004

e.       Notes to consolidated financial statements.

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

                                                                  Pages

Report of independent registered public accounting firm            F-1

Consolidated statements of operations                              F-2

Consolidated balance sheets                                     F-3 - F-4

Consolidated statements of shareholders' equity                    F-5

Consolidated statements of cash flows                           F-6 - F-7

Notes to consolidated financial statements                     F-8 - F-27

<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, 2003 and 2004, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 2002, 2003 and 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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, 2003 and 2004, and the results
of their operations and their cash flows for the years ended December 31, 2002,
2003 and 2004, in conformity with accounting principles generally accepted in
the United States of America.

GHP Horwath, P.C.
Denver, Colorado

May 6, 2005

                                      F-1

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                          Notes    2002        2003      2004       2004
                                                                   RMB         RMB       RMB        US$
<S>                                                         <C>   <C>        <C>        <C>         <C>
NET SALES                                                           1,948      3,049      3,970        479

COST OF SALES                                                      (1,945)    (2,772)    (3,381)      (408)
                                                                  -------    -------    -------    -------

GROSS PROFIT                                                            3        277        589         71

DEPRECIATION                                                          (90)      (192)      (248)       (30)

IMPAIRMENT LOSS ON GOODWILL                                  2          -          -     (4,696)      (567)

VALUATION ALLOWANCE                                         16    (48,178)   (24,810)   (13,304)    (1,607)

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES, including
     expenses incurred to related parties of RMB285,
     RMB249 and RMB232 in 2002, 2003 and 2004,
     respectively                                                  (7,267)    (6,401)    (8,019)      (968)

INTEREST INCOME                                                       654        313         20          2

OTHER (EXPENSE)/INCOME, NET                                  5     (1,322)     1,713      3,229        390
                                                                  -------    -------    -------    -------

LOSS FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                                             (56,200)   (29,100)   (22,429)    (2,709)

INCOME TAXES                                                            -          -        (11)        (1)
                                                                  -------    -------    -------    -------

LOSS FROM CONTINUING OPERATIONS                                   (56,200)   (29,100)   (22,440)    (2,710)

DISCONTINUED OPERATIONS
   Income from operations of
     discontinued supermarket segment (including
     gain on disposal of RMB327, net of taxes of Nil
     in 2003 and net of taxes of RMB50 in 2002), and
     loss from discontinued Xubu operations                  3     (4,032)    (2,637)         -          -
                                                                  -------    -------    -------    -------

NET LOSS                                                          (60,232)   (31,737)   (22,440)    (2,710)
                                                                  =======    =======    =======    =======
LOSS PER SHARE:
Basic and diluted
   Loss from continuing operations                                 (67.08)    (30.20)    (18.79)     (2.27)
   Loss from discontinued operations                                (4.81)     (2.74)         -          -
                                                                  -------    -------    -------    -------

                                                                   (71.89)    (32.94)    (18.79)     (2.27)
                                                                  =======    =======    =======    =======
</TABLE>

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

                                      F-2

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    December 31,
                                                             2003       2004    2004
                                                     Notes   RMB        RMB     US$
<S>                                                    <C>  <C>       <C>       <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents                                   10,472    12,039    1,454
Trading securities                                      7      598        54        7
Trade receivables                                              722       640       77
Other receivables, deposits and prepayments                    182       122       15
Short term loans receivable                             8    1,060       292       35
Assets held for sale                                    3    2,088         -        -
                                                            ------    ------    -----

TOTAL CURRENT ASSETS                                        15,122    13,147    1,588
                                                            ------    ------    -----

PROPERTY AND EQUIPMENT                                  9    1,266     1,122      136

INVESTMENTS                                            10   44,000    31,000    3,744

GOODWILL                                                4    6,296     1,600      193
                                                            ------    ------    -----

TOTAL ASSETS                                                66,684    46,869    5,661
                                                            ======    ======    =====

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                               467       514       62
Other payables and accrued liabilities                 11    2,308     2,610      315
Amount due to an officer                               15    1,603         -        -
Current portion of capital lease                       12      151       180       22
Amounts due to related parties                         15      629       501       61
Income taxes                                            6        -        11        1
Liabilities related to assets held for sale                    857         -        -
                                                            ------    ------    -----

TOTAL CURRENT LIABILITIES                                    6,015     3,816      461

Capital lease, net of current portion                  12      321       206       25
                                                            ------    ------    -----

TOTAL LIABILITIES                                            6,336     4,022      486
                                                            ------    ------    -----
                                  (Continued)
</TABLE>

                                      F-3

<PAGE>

                         CHINA NATURAL RESOURCES, INC.

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           DECEMBER 31, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                2003        2004          2004
                                                      Notes     RMB         RMB           US$
<S>                                                    <C>    <C>         <C>           <C>
COMMITMENTS                                            20

SHAREHOLDERS' EQUITY
Preferred stock, authorized -10,000,000 shares:
     Series B preferred stock, US$0.001
     par value in 2003 and no par in 2004:             14
       Authorized - 320,000 shares
       Issued and outstanding - 320,000 shares                       3           3            -
Common stock, US$0.001 par value in 2003
     and no par in 2004:
   Authorized - 200,000,000 shares
   Issued and outstanding - 1,143,823 shares
     in 2003 and 1,247,823 shares in 2004              13            9          10            2
Additional paid-in capital                                     181,681     186,622       22,538
Reserves                                               19       28,028      28,028        3,385
Accumulated deficit                                           (149,529)   (171,969)     (20,769)
Accumulated other comprehensive income                             156         153           19
                                                              --------    --------      -------

TOTAL SHAREHOLDERS' EQUITY                                      60,348      42,847        5,175
                                                              --------    --------      -------

TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                                         66,684      46,869        5,661
                                                              ========    ========      =======
</TABLE>

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

                                      F-4

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                              Number of shares
                           --------------------                                                              Accumulated
                            Series B              Series B            Additional                                other
                           Preferred    Common   Preferred    Common    paid-in               Accumulated   comprehensive
                             stock       stock     stock       stock    capital    Reserves     deficit        income       Total
                           -------------------------------------------------------------------------------------------------------
                                                    RMB         RMB       RMB        RMB          RMB            RMB         RMB
                                                                                  (note 20)
<S>                         <C>       <C>          <C>         <C>      <C>        <C>         <C>              <C>        <C>
Balance at January 1
  2002                      320,000     837,823      3             7    169,052     28,028      (57,560)         51        139,581

Net loss                                                                                        (60,232)                   (60,232)

Currency translation
  adjustments                                                                                                   107            107
                                                                                                                           -------
Comprehensive loss                                                                                                         (60,125)
                            -------   ---------    ---         -----    -------    -------     --------         ---        -------
Balance at December 31,
  2002                      320,000     837,823      3             7    169,052     28,028     (117,792)        158         79,456

Issuance of common
  stock upon exercise
  of options                            206,000                    1      6,636                                              6,637

Issuance of common stock
  in business acquisition               100,000                    1      5,993                                              5,994

Net loss                                                                                        (31,737)                   (31,737)

Currency translation
  adjustments                                                                                                    (2)            (2)
                                                                                                                           -------
Comprehensive loss                                                                                                         (31,739)
                            -------   ---------    ---         -----    -------    -------     --------         ---        -------
Balance at December 31,
  2003                      320,000   1,143,823      3             9    181,681     28,028     (149,529)        156         60,348

Issuance of common
  stock upon exercise
  of options                            104,000                    1      4,941                                              4,942

Net loss                                                                                        (22,440)                   (22,440)

Currency translation
  adjustments                                                                                                    (3)            (3)
                                                                                                                           -------
Comprehensive loss                                                                                                         (22,443)
                            -------   ---------    ---         -----    -------    -------     --------         ---        -------

Balance at December 31,
  2004                      320,000   1,247,823      3            10    186,622     28,028     (171,969)        153         42,847
                            =======   =========    ===         =====    =======    =======     ========         ===        =======
</TABLE>

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

                                       F-5

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                        2002     2003      2004      2004
                                                         RMB      RMB       RMB       US$
<S>                                                   <C>       <C>       <C>       <C>
OPERATING ACTIVITIES
Loss from continuing operations                       (56,200)  (29,100)  (22,440)  (2,710)
Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation                                        279       192       248       30
      Write off of property and equipment                   -         -         7        1
      Valuation allowance on investment                46,615    19,000    13,000    1,570
      Impairment of goodwill                                -         -     4,696      567
      Valuation allowance on loan receivable                -     2,226       304       37
      Valuation allowance on VAT receivable             1,563     3,124         -        -

Changes in operating assets and liabilities:
   Trading securities                                   4,559       587       544       66
   Trade receivables                                        -      (623)       82       10
   Other receivables, deposits and prepayments         (2,584)    6,360        47        5
   Amounts due from related companies                     636         -         -        -
   Amounts due to related parties                           -       263      (128)     (15)
   Accounts payable                                         -       270        47        6
   Other payables and accrued liabilities              (1,023)    2,126       302       36
   Amount due to an officer                               753       115    (1,603)    (194)
   Income taxes payable                                    (1)        -        11        1
                                                      -------   -------   -------   ------
Net cash (used in)/provided by operating activities    (5,403)    4,540    (4,883)    (590)
                                                      -------   -------   -------   ------
</TABLE>

                                   (Continued)

                                      F-6

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                                           2002       2003    2004     2004
                                                           RMB        RMB      RMB     US$
<S>                                                      <C>         <C>     <C>      <C>
INVESTING ACTIVITIES
   Purchases of property and equipment                         -      (321)     (28)     (3)
   Proceeds from disposal of property and equipment            -       151        -       -
   Short term loans advanced to third parties             (1,590)        -        -       -
   Repayment of a short term loan from a third party      13,580       212      477      58
                                                         -------    ------   ------   -----

Net cash provided by investing activities                 11,990        42      449      55
                                                         -------    ------   ------   -----

FINANCING ACTIVITIES
   Proceeds from issuance of common stock                      -     6,637    4,942     597
   Cash received in acquisition of a subsidiary                -       189        -       -
   Repayment of principal of capital lease                     -      (165)    (169)    (21)
   Repayment to a former vice president                  (11,298)   (2,996)       -       -
                                                         -------    ------   ------   -----

Net cash (used in)/provided by financing activities      (11,298)    3,665    4,773     576
                                                         -------    ------   ------   -----

Effect of exchange rate changes on cash                      107        (2)      (3)      -
                                                         -------    ------   ------   -----

Net cash provided by/(used in) discontinued operations       153       (11)   1,231     148
                                                         -------    ------   ------   -----

NET (DECREASE)/INCREASE IN CASH AND CASH
   EQUIVALENTS                                            (4,451)    8,234    1,567     189

CASH AND CASH EQUIVALENTS, AT BEGINNING
   OF YEAR                                                 6,689     2,238   10,472   1,265
                                                         -------    ------   ------   -----
CASH AND CASH EQUIVALENTS, AT END
   OF YEAR                                                 2,238    10,472   12,039   1,454
                                                         =======    ======   ======   =====

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION
   Interest-capital lease                                      -        39       28       3
                                                         =======    ======   ======   =====

SUPPLEMENTAL DISCLOSURE OF NON-CASH
   INVESTING ACTIITIES:
   Property and equipment acquired under capital lease         -       637       83      10
                                                         =======    ======   ======   =====

Business acquisition:
   Fair value of assets acquired                               -     6,599        -       -
   Liabilities assumed                                         -      (605)       -       -
                                                         -------    ------   ------   -----

   Common stock issued                                         -     5,994        -       -
                                                         =======    ======   ======   =====
</TABLE>

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

                                       F-7

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

         The following depicts China Natural Resources, Inc. and its
         subsidiaries (collectively the "Group") at December 31, 2004:

                              [ORGANIZATION CHART]

         China Natural Resources, Inc. ("CNRI"), (formerly known 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.

         Hainan Cihui Industrial Company Limited ("HARC") is a People's Republic
         of China ("PRC") company incorporated in 1994. During 2002 to 2004,
         HARC performed limited commodity trading. HARC is a wholly owned
         subsidiary of CNRI.

         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.

         First Goods and Materials Supply and Sales Corporation ("First Supply")
         and Second Goods and Materials Supply and Sales Corporation ("Second
         Supply") are wholly-owned subsidiaries of HARC. Hainan Zhongwei Trading
         Company Limited ("Zhongwei Trading") is owned 95% by HARC and 5% by
         CNRI. First Supply, Second Supply and Zhongwei Trading are inactive PRC
         companies.

                                      F-8

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.       ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)

         Silver Moon Technologies Limited ("Silver Moon") is a BVI company
         incorporated in 2000 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, however, they are
         poised to recommence their healthcare-related website to the extent
         that the e-commerce industry stabilizes and demonstrates signs of
         revival. Silver is 80% owned by CNRI and Medi-China is 100% owned by
         Silver Moon.

         On August 29, 2003, the Company acquired a 100% equity interest in
         iSense Limited ("iSense") for total consideration of RMB5,994 (US$724)
         (the "Purchase Consideration") through the issuance of 100,000 shares
         of the Company's unregistered restricted common stock to the former
         sole equity owners of iSense. The Company acquired iSense to provide
         advertising, promotion and public relations services in Hong Kong and
         mainland China to both local and international customers.

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 consolidated 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)      Trading securities
                  ------------------
                  Equity securities that are bought and held principally for the
                  purpose of selling them in the near term are classified as
                  trading securities and are reported at fair value, with
                  unrealized gains and losses included in current operations.

                                       F-9

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (e)      Property and equipment
                  ----------------------
                  Property and equipment are stated at cost less Expenditures
                  for accumulated depreciation. 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. Estimated useful lives are as
                  follows:

                  Buildings                                         25 years
                  Machinery, equipment and motor vehicles        4 - 5 years
                  Fixtures and furniture                             5 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)      Investments
                  -----------
                  Long-term investments, which are neither subsidiaries nor
                  equity investments are stated at cost less valuation
                  allowances.

         (g)      Goodwill
                  --------
                  Goodwill consists of the excess of cost over net assets
                  acquired of iSense Limited. Effective with the adoption of
                  Statement of Financial Accounting Standards ("SFAS") No. 142,
                  Goodwill and Other Intangible Assets ("SFAS No. 142"),
                  management of the Company evaluates the carrying value of
                  goodwill annually or whenever a possible impairment is
                  indicated.

                  The Company performs its impairment test annually during the
                  fourth quarter of the fiscal year. Due to an increase in
                  competition in the advertising industry, operating profits and
                  cash flows were lower than expected and the earnings forecasts
                  for the next five years were revised. In the fourth quarter of
                  2004, an impairment loss of RMB4,696 (US$567) were recorded.
                  The fair value of the advertising business was estimated using
                  the present value of expected future cash flows.

                                      F-10

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (h)      Stock-based compensation
                  ------------------------
                  Statement of Financial Accounting Standards ("SFAS") No. 123
                  "Accounting for Stock-Based Compensation" allows companies to
                  choose whether to account for employee stock-based
                  compensation on a fair value method, or to continue accounting
                  for such compensation under the intrinsic value method
                  prescribed in Accounting Principles Board Opinion No 25,
                  Accounting for Stock Issued to Employees ("APB 25"). The
                  Company applies APB Opinion No. 25 and related interpretations
                  in accounting for its stock-based employee compensation plans.
                  Accordingly, no compensation expense has been recognized for
                  options granted to employees at fair market value. The
                  following table illustrates the effect on net income/(loss)
                  and income/(loss) per share if the Company had applied the
                  fair value recognition provisions of FASB Statement No. 123,
                  Accounting for Stock-Based Compensation to its stock-based
                  employee plans.

                                                     Year ended December 31,
                                                    2002      2003      2004
                                                   ----------------------------
                                                     RMB       RMB       RMB

                  Net loss, as reported            (60,232)  (31,737)  (22,440)
                  Add: Total stock-based
                     employee compensation
                     expense determined under
                     fair value based method             -         -      (946)
                                                   -------   -------   -------

                                                   (60,232)  (31,737)  (23,386)
                                                   =======   =======   =======

                  Loss per share:
                  Basic and diluted- as
                     reported                       (71.89)   (32.94)   (18.79)
                                                   =======   =======   =======

                  Basic and diluted- pro forma      (71.89)   (32.94)   (19.58)
                                                   =======   =======   =======

                  The fair value of these options 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.

                  The Black-Scholes option pricing model was developed for use
                  in estimating the fair value of traded options which have no
                  vesting restrictions and are fully transferable. In addition,
                  option valuation models require the input of highly subjective
                  assumptions including the expected stock price volatility.
                  Because the Company's stock options have characteristics
                  significantly different from those of traded options, and
                  because changes in the subjective input assumptions can
                  materially affect the fair value estimate, in management's
                  opinion, the existing models do not necessarily provide a
                  reliable single measure of the fair value of its stock
                  options.

                                      F-11

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (i)      Revenue recognition
                  -------------------
                  Revenue from product sales is recognized at the point of sale
                  for retail sales and upon the delivery of goods or completion
                  of services for other sales, when all performance obligations
                  have been completed and collectibility is reasonably assured.

         (j)      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.

         (k)      Loss per share
                  --------------
                  Basic earnings (loss) per share amounts are calculated using
                  the weighted average number of shares of common stock
                  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, unless
                  the effect is to reduce a loss or increase earnings per share.
                  The basic and diluted weighted average shares outstanding
                  during each of the years ended December 31, 2002, 2003 and
                  2004 were 837,797, 963,478 and 1,194,118, respectively.

         (l)      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
                  functional currency other than 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 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 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.

                  The financial statements are stated in Renminbi. 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, 2004 of US$1.00 = RMB8.28. No representation is
                  made that the RMB amounts could have been, or could be,
                  converted into US$ at that rate on December 31, 2004 or at any
                  other date.

                                      F-12

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         (m)      Interest income
                  ---------------
                  Interest on short-term loans receivable is recorded when
                  earned.

         (n)      Recently issued accounting pronouncements
                  -----------------------------------------
                  In December 3004, the Financial Accounting Standards Board
                  ("FASB") issued SFAS No. 123 (R) Share Based Payment which
                  addresses the accounting for share-based payment transactions.
                  SFAS No. 123 (R) eliminates the ability to account for
                  share-based compensation transactions using APB No.25, and
                  generally requires instead that such transactions be accounted
                  and recognized in the statement of income based on their fair
                  values. SFAS No. 123 (R) will be effective for public
                  companies that file as small business issuers as of the first
                  interim period that begins after December 15, 2005. The
                  Company is evaluating the provisions of SFAS No. 123 (R).
                  Depending upon the numbers and terms of options that may be
                  granted in future periods, the implementation of this standard
                  could have a material impact on the Company's financial
                  position and results of operations.

3.       DISPOSITION OF ASSETS

         Pursuant to an agreement dated April 22, 2003, the Company disposed of
         its entire interest in Zhuhai Zhongwei Development Company Limited
         ("Zhuhai Zhongwei") to a third party affiliated with a former vice
         president. The Company recognised a gain of approximately RMB327
         (US$39) from the disposition. The sales price was RMB6,000 (US$725) and
         was fully settled by offsetting against amounts due to a company owned
         by the former vice president. As a result of the disposition, the
         Company has ceased supermarket operations. The results of operations of
         Zhuhai Zhongwei have been retroactively restated as discontinued
         operations. Revenues from discontinued supermarket operations were
         RMB7,222 (US$872), RMB1,758 (US$212) and nil for the years ended
         December 31, 2002, 2003 and 2004, respectively. Profit before income
         taxes from discontinued supermarket operations were RMB130 (US$16),
         RMB39 (US$5) and nil for the years ended December 31, 2002, 2003 and
         2004, respectively.

         On February 10, 2004, the Company's subsidiary, HARC, disposed of its
         entire interest in Shenzhen Xubu Investment Co. Ltd. ("Xubu") to an
         unaffiliated third party for total consideration of RMB17, 256
         (US$2,084) (the "Purchase Consideration"). The Purchase Consideration
         was offset by capital in the amount of RMB16,026 (US$1,935) that had
         been withdrawn from Xubu By HARC. The net Purchase Consideration of
         RMB1,231 (US$149) was received by the Company on May 5, 2004. The
         assets and liabilities of Xubu were classified as held for sale as of
         December 31, 2003 and consisted of fixed assets of RMB1,102 (US$133),
         cash of RMB812 (US$98), other receivables of RMB174 (US$21) and other
         payables of RMB857 (US$103). The results of operations of Xubu have
         been retroactively restated as discontinued operations. Revenues from
         discontinued Xubu operations were nil for the three years ended
         December 31, 2004. Losses before income taxes from discontinued
         operations were RMB4,112 (US$497), RMB3,003 (US$363) and nil for the
         years ended December 31, 2002, 2003 and 2004, respectively.

                                      F-13

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

4.       BUSINESS ACQUISITION

         In August 2003, the Company acquired a 100% equity interest in iSense
         Limited, a Hong Kong company ("iSense"), for total consideration of
         RMB5,994 (US$724) (the "Purchase Consideration"). The Company satisfied
         the Purchase Consideration by issuing 100,000 shares of the Company's
         unregistered restricted common stock to the former sole equity owners
         of iSense. The acquisition was accounted for as a purchase and goodwill
         (none of which is expected to be tax deductible) of RMB6,296 (US$760)
         was recorded on acquisition. The results of operations of iSense have
         been included in the consolidated financial statements since the date
         of acquisition.

         The following table summarises the estimated fair values of the assets
         acquired and the liabilities assumed at the date of the acquisition.

                                                               RMB

         Current assets                                         345
         Goodwill                                             6,296
         Current liabilities                                   (647)
                                                             ------

         Net assets acquired                                  5,994
                                                             ======

         The Company acquired iSense to provide advertising, promotion and
         public relations services in Hong Kong and mainland China to both local
         and international customers.

5.       OTHER INCOME/(EXPENSE), NET

         Other income/(expense), net represents:

                                                         Year ended December 31,
                                                          2002     2003     2004
                                                         -----------------------
                                                          RMB       RMB     RMB

         Net gain on trading of marketable securities       109    1,235     373
         Unrealized loss on marketable securities        (1,731)     (78)      -
         Recovery of bad debts and related costs              -        -   2,850
         Other                                              300      556       6
                                                         ------   ------   -----

                                                         (1,322)   1,713   3,229
                                                         ======   ======   =====

                                      F-14

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 and 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6.       INCOME TAXES

         Pre-tax loss from continuing operations for the years ended December
         31, 2002, 2003 and 2004 was taxable in the following jurisdictions:

                                                      Year ended December 31,
                                                      2002      2003     2004
                                                    ---------------------------
                                                      RMB       RMB       RMB

         PRC (excluding Hong Kong)                  (50,971)  (22,451)  (13,617)
         Other countries:
            USA (through the date of the Merger)     (6,574)   (5,978)   (7,129)
            Hong Kong                                 1,345      (671)   (4,581)
            BVI                                           -         -     2,898
                                                    -------   -------   -------

                                                    (56,200)  (29,100)  (22,429)
                                                    =======   =======   =======

         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 to 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 Hainan, Zhuhai and Shenzhen Special
         Economic Zones in the PRC, to income tax expense is as follows:

                                      F-15

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6.       INCOME TAXES (continued)

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                     2002       2003       2004
                                                    ----------------------------
                                                      RMB       RMB        RMB
<S>                                                 <C>        <C>        <C>
PRC federal statutory tax rate                          15%        15%         15%

Computed expected income taxes (tax benefit)        (9,027)    (4,365)     (3,364)
Higher effective income tax rates
   of other countries                                  784        997       1,322
Expiration of US NOLs upon Merger                        -          -      33,389
Net increase/(decrease) in valuation allowance       8,243      3,368     (31,336)
Non-deductible expenses                                 74          -           -
Others                                                 (24)         -           -
                                                    ------     ------     -------

Income tax expense for the year                         50          -          11
                                                    ======     ======     =======
</TABLE>

         The deferred tax asset of the Group is comprised of the following:

                                                          December 31,
                                                         2003      2004
                                                        ----------------
                                                         RMB       RMB

         Deferred tax asset:
            Net operating loss carry forwards            33,708    2,372
            Less: Valuation allowance                   (33,708)  (2,372)
                                                        -------   ------
                                                              -        -
                                                        =======   ======

         No undistributed earnings of the Group's foreign subsidiaries were
         available at December 31, 2003 and 2004. Prior to the Merger, upon
         distribution of those earnings in the form of dividends or otherwise,
         the Group would have been subject to U.S. income taxes. Determination
         of the amount of unrecognized deferred U.S. income tax liability was
         not practicable because of the complexities associated with its
         hypothetical calculation.

         Through December 31, 2003, the Group had net operating loss carry
         forwards ("NOLs") of approximately RMB36,000 (US$4,348) for U.S. income
         tax purposes that were to expire in various years through 2023. The
         NOLs expired effective with the Merger. At December 31, 2004, the
         Group's subsidiaries in the PRC had NOLs amounting to approximately
         RMB15,816 (US$1,910) for PRC income tax purposes that expire in 2007.

                                      F-16

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7.       TRADING SECURITIES

                                                   December 31,
                                                    2003   2004
                                                    RMB    RMB
         Trading securities listed on Hong Kong
            Stock Exchange
               At cost                             1,094    112
               Less: unrealized loss                (496)   (58)
                                                   -----    ---
         Fair value                                  598     54
                                                   =====    ===

8.       SHORT TERM LOANS RECEIVABLE

         As of December 31, 2003, short term loans receivable represented
         advances to an unaffiliated party of RMB1,060 (US$128). During the year
         ended December 31, 2004, loans of RMB477 were repaid and loans of
         RMB291 (US$35) and interest thereon of RMB13 (US$2) were written off.
         During the year ended December 31, 2003, loans of RMB2,226 (US$269) and
         interest thereon of RMB458 (US$55) were written off.

9.       PROPERTY AND EQUIPMENT

         Property and equipment consisted of:

                                                        December 31,
                                                        2003    2004
                                                        RMB     RMB
         At cost:
            Buildings                                    509     509
            Machinery, equipment and motor vehicles    1,050   1,150
                                                       -----   -----
                                                       1,559   1,659

         Accumulated depreciation                       (293)   (537)
                                                       -----   -----
                                                       1,266   1,122
                                                       =====   =====
                                      F-17

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

10.      INVESTMENTS

         Cost method investments comprise:

<TABLE>
<CAPTION>
                                                                December 31,
                                                               2003       2004
                                                                RMB        RMB
<S>                                                           <C>         <C>
Investment balance in Hainan Sundiro Motorcycle Co., Ltd.
   ("Sundiro") at beginning of years                           63,000     44,000
Valuation allowance                                           (19,000)   (13,000)
                                                              -------    -------

                                                               44,000     31,000
                                                              =======    =======
</TABLE>

         Cost method investments are interests in unlisted shares/equity of PRC
         companies in which the Group does not have a significant influence over
         their operating and financial policies. As of December 31, 2003 and
         2004, the Group owns an equity interest of 5.3% of Sundiro. The Company
         monitors its investment in Sundiro by reference to the fair market
         value of Sundiro's publicly traded shares. During the second half of
         2003 and 2004, the Company determined that there had been an other-than
         temporary decline in the value of its investment and recorded a
         write-down of RMB19,000 (US$2,295) and RMB13,000 (US$1,570),
         respectively.

11.      OTHER PAYABLES AND ACCRUED LIABILITIES

         Other payables and accrued liabilities consisted of:

                                        December 31,
                                       2003     2004
                                        RMB     RMB

         Other payables                1,668   1,789
         Accrued liabilities             640     821
                                       -----   -----

                                       2,308   2,610
                                       =====   =====

                                      F-18

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

12.      CAPITAL LEASE

         The Company leases two automobiles under capital leases which expires
         in November 2006 and April 2008, respectively. Total monthly lease
         payments are approximately RMB17 (US$2) with interest of 6% and 3.5%,
         respectively. At December 31, 2004, the total amount of assets
         including cash paid at lease inception of RMB321 (US$38) recorded under
         the capital leases was RMB1,064 (US$129) and accumulated depreciation
         related to the assets was RMB355 (US$43). Future minimum lease payments
         under the leases are as follows:

                                      Year ending    Amount
                                      December 31,    (RMB)
                                      ------------   ------

                                          2005          199
                                          2006          185
                                          2007           24
                                          2008            8
                                                        ---
                                                        416
             Less amount representing interest           30
                                                        ---
                                                        386
                          Less current portion          180
                                                        ---
                             Long-term portion          206
                                                        ===

13.      STOCK OPTIONS

         The Group 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.

         Pursuant to a special resolution of the Board of Directors on June 15,
         2001, 163,000 stock options were granted to officers, directors and key
         employees of the Group at an exercise price of RMB24.43 (US$2.95) per
         share (the fair market value of the common stock as of June 15, 2001).
         The options were exercisable from December 15, 2001 to June 14, 2004.
         During the year ended December 31, 2003, options to purchase 160,000
         shares of the Company's Common Stock for RMB24.43 (US$2.95) per share
         were exercised and the Company issued 160,000 shares for RMB3,906
         (US$472).

         During the year ended December 31, 2003, the board of directors granted
         options to certain employees to purchase 46,000 shares of the Company's
         Common Stock at an exercise price of RMB59.33 (US$7.165), exercisable
         through August 2006. In August 2003, the options to purchase the 46,000
         shares of the Company's Common Stock for US$7.165 per share were
         exercised and the Company issued the shares for RMB2,731 (US$330).

                                      F-19

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

13.      STOCK OPTIONS (continued)

         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.

         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
         RMB47.03 (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 RMB4,891 (US$591).

         A summary of the status of the Company's stock option plans as of
         December 31, 2002, 2003 and 2004 and the changes during the years then
         ended is as follows:

<TABLE>
<CAPTION>
                                  2002                    2003                     2004
                                  ----                    ----                     ----
                                      Weighted                Weighted                 Weighted
                                      Average                 Average                  Average
                                      exercise                exercise                 exercise
                                       price                   price                    price
                            Shares      RMB        Shares       RMB         Shares       RMB
<S>                        <C>        <C>         <C>           <C>        <C>           <C>
Outstanding at beginning
    of year                163,000    24.43        163,000      24.43         3,000      24.43
Granted                          -                  46,000      59.33       104,000      47.03
Exercised                        -                (206,000)     32.11      (104,000)     47.03
Expired                          -                                           (3,000)     24.43
                           -------                --------                 --------
Outstanding at end of
    year                   163,000    24.43          3,000      24.43             -          -
                           =======                ========                 ========
</TABLE>

14.      PREFERRED STOCK

         The preferred stock entitles the holders to voting rights to the same
         extent and in the same manner as shares of common stock; has no
         preemptive or other subscription rights and is not subject to any
         future calls or assessments. There are no redemption or sinking fund
         provisions applicable to the preferred stock and they have no rights to
         dividends or to distribution upon liquidation or dissolution of the
         Company.

                                      F-20

<PAGE>

                         CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

            (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

15.      RELATED PARTY BALANCES AND TRANSACTIONS

         At December 31, 2003, the Company owed RMB1,603 (US$194) to an officer
         for unpaid salary. This was paid in full during 2004.

         At December 31, 2003 and 2004, the Company owed RMB296 (US$36) to
         related companies. These amounts are unsecured, interest-free and are
         repayable on demand.

         At December 31, 2003 and 2004, the Company owed RMB333,000 (US$40,000)
         and RMB205,000 (US$25,000), respectively, to a director of iSense for
         advances received. These advances are unsecured, interest-free and are
         repayable on demand.

16.      VALUATION ALLOWANCES

         Valuation allowances consist of the following:

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                       2002       2003      2004
                                                       --------------------------
                                                         RMB       RMB       RMB
<S>                                                    <C>       <C>       <C>
Short-term loans receivable, and related interest           -     2,684       304
Investments (Sundiro)                                  46,615    19,000    13,000
VAT receivable allowance                                1,563     3,126         -
                                                       ------    ------    ------
                                                       48,178    24,810    13,304
                                                       ======    ======    ======
</TABLE>

17.      CONCENTRATION OF RISK

         Concentration of credit risk:

         Financial instruments that potentially subject the Group to significant
         concentration of credit risk consist principally of cash deposits,
         trade receivables, short term loans receivable, and cost method
         investments.

         (i)      Cash and cash deposits

                  The Group maintains its cash and cash deposits primarily with
                  various Hong Kong based financial institutions. The Group
                  performs periodic evaluations of the relative credit standing
                  of those financial institutions.

                                      F-21

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

17.      CONCENTRATION OF RISK (continued)

         (ii)     Trade receivables

                  The Group extends credit to its customers in the normal course
                  of business. The group performs ongoing credit evaluations and
                  generally does not require collateral. The Group maintains
                  reserves for potential credit losses based upon its loss
                  history and aging analysis. Such losses have been within
                  management's expectations. At December 31, 2003, three
                  customers accounted for 47%, 22% and 19% of trade receivables.
                  At December 31, 2004, five customers accounted for 31%, 22%,
                  14%, 12% and 10% of trade receivables. During the year ended
                  December 31, 2004, five customers accounted for 31%, 22%, 14%,
                  12% and 10%, respectively, of sales in the Company's
                  advertising segment. During the year ended December 31, 2003,
                  two customers accounted for 48% and 11%, respectively, of
                  sales in the Company's advertising segment. During the year
                  ended December 31, 2002, two customers accounted for 71% and
                  29%, respectively, of sales in the Company's commodity trading
                  segment. During the year ended December 31, 2003, two
                  customers accounted for 77% and 23%, respectively, of sales in
                  the Company's commodity trading segment. During the year ended
                  December 31, 2004, one customer accounted for 100% of sales in
                  the Company's commodity trading segment.

         (iii)    Short term loans receivable

                  The Group carefully assesses the recoverability of loans not
                  guaranteed or secured by collateral, and maintains reserves
                  for potential credit losses based upon its analysis and upon
                  its continued communication with its debtors. During the year
                  ended December 31, 2003 the Group wrote off short-term loans
                  receivable of approximately RMB2,226 (US$269). In 2004, the
                  Group recovered the loans receivable, related interest and
                  costs totalling RMB2,850 (US$344).During the year ended
                  December 31, 2004, the Group wrote off short-term loans
                  receivable of approximately RMB291 (US$35) and related
                  interest of approximately RMB13 (US$2).

         (iv)     Cost method investments

                  The Group's cost method investments consist of interests in
                  unlisted shares/equity of PRC companies in which the Group
                  does not have a significant influence over their operating and
                  financial policies.

                                      F-22

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

18.      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 amount reported in the consolidated balance sheet
                  for cash and cash equivalents approximate their fair value.

         (ii)     Marketable securities

                  The carrying amount reported in the consolidated balance
                  sheets for marketable securities represents their fair values.
                  The fair values for marketable securities are based on quoted
                  market prices.

         (iii)    Short term loans receivable, accounts payable and other
                  payables

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

         (iv)     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.

         (v)      Cost method investments

                  The Group believes that the carrying amounts represent the
                  Group's best estimate of current economic values of these
                  investments.

19.      RESERVES AND DISTRIBUTION OF PROFITS

         In accordance with the relevant PRC regulations and the Articles of
         Association of HARC (the "Articles of Association"), appropriations
         representing 10% of the net income as reflected in HARC's PRC statutory
         financial statements are allocated to the surplus reserve and 10% to
         the collective welfare fund.

         Subject to certain restrictions set out in the relevant PRC regulations
         and the Articles of Association, the surplus reserve may be distributed
         in the form of share bonus issues.

                                      F-23

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

19.      RESERVES AND DISTRIBUTION OF PROFITS (Continued)

         In accordance with the relevant PRC regulations and the Articles of
         Association, the collective welfare fund must be used for capital
         expenditure on staff welfare facilities. Such facilities are for the
         use of the staff and are owned by HARC.

         According to relevant laws and regulations in the PRC, distributable
         reserves of HARC and its subsidiaries are determined in accordance with
         the relevant PRC accounting rules and regulations. HARC had no retained
         earnings available for distribution as of December 31, 2003 and 2004.

         There were no appropriations to the surplus reserve or to the
         collective welfare fund for the years ended December 31, 2003 and 2004.

20.      COMMITMENTS

         The Company leases office space in Hainan and in Hong Kong. The lease
         in Hainan will expire in June 2005 and provides for monthly rent
         expense of approximately RMB4 (US$1). The Company leases additional
         Hong Kong office space from a company affiliated with certain directors
         of the Company on a month to month basis with monthly rent expense of
         approximately RMB18 (US$2). For the years ended December 31, 2002, 2003
         and 2004, the Company rental expenses paid to related parties amounted
         to RMB285 (US$34), RMB249 (US$30) and RMB232 (US$28), respectively.
         Total rental expenses under operating leases for the years ended
         December 31, 2002, 2003 and 2004 amounted to RMB1,030 (US$124), RMB840
         (US$101) and RMB306 (US$37), respectively.

         At December 31, 2004, future minimum payment of non-cancelable
         operating leases payable in 2005 are RMB20 (US$2).

                                      F-24

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

21.      FOREIGN CURRENCY EXCHANGE

         The RMB is not freely convertible into foreign currencies.

         Effective from January 1, 1994, a single rate of exchange is quoted
         daily by the People's Bank of China (the "Unified Exchange Rate").
         However, the unification 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 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.

22.      SEGMENT FINANCIAL INFORMATION

         The Company classifies its business into two operating segments, which
         are defined by the products offered as follows:

         Commodity trading (Copper)
         --------------------------
         The Group's materials, supplies and other commodity products division
         primarily traded materials, supplies and other commodity products to
         farms, manufacturers and other distributors in the PRC.

         Advertising
         -----------
         The Group's advertising division primarily provided advertising,
         promotion and public relations services in Hong Kong and mainland China
         to both local and international customers.

         The Group evaluates performance and allocates resources based on profit
         or loss from operations before interest, gains and losses on the
         Group's investment portfolio, and income taxes. The accounting policies
         of the reportable segments are the same as those described in the
         summary of significant accounting policies. Intersegment sales and
         transfers between reportable segments are not material to any period
         presented.

                                      F-25

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

22.      SEGMENT FINANCIAL INFORMATION (continued)

         Operating segment information
         -----------------------------

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                           2002       2003       2004
                                                         ------------------------------
                                                           RMB        RMB         RMB
<S>                                                      <C>        <C>         <C>
Net sales:
    Copper:
        Net sales to unaffiliated customers                1,948      1,904       1,842
    Advertising:
        Net sales to unaffiliated customers                    -      1,145       2,128
                                                         -------    -------     -------
Total consolidated net sales                               1,948      3,049       3,970
                                                         =======    =======     =======

Depreciation and amortization expenses:
    Copper                                                    30         34          34
    Advertising                                                -          4          19
                                                         -------    -------     -------

Total segment depreciation and amortization expenses          30         38          53

Reconciling item:
    Depreciation and amortization expenses
        attributable to corporate assets                      60        154         195
                                                         -------    -------     -------

Total consolidated depreciation and
    amortization expenses                                     90        192         248
                                                         =======    =======     =======

Segment profit:
    Copper                                                     3          -           1
    Advertising                                                -        231      (4,580)
                                                         -------    -------     -------
Total segment profit                                           3        231      (4,579)

Reconciling items:
    Corporate expenses                                   (56,857)   (29,644)    (17,881)
    Interest income                                          654        313          20
                                                         -------    -------     -------

Total consolidated loss from continuing operations       (56,200)   (29,100)    (22,440)
                                                         =======    =======     =======
</TABLE>

                                      F-26

<PAGE>

                          CHINA NATURAL RESOURCES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

22.      SEGMENT FINANCIAL INFORMATION (continued)

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                           2003           2004
                                                          ----------------------
                                                            RMB            RMB
<S>                                                       <C>             <C>
Segment assets:
    Copper                                                   942             597
    Advertising                                              779             876
                                                          ------          ------
Total segment assets                                       1,721           1,473

Reconciling items:
    Corporate assets                                      20,963          14,396
    Investments                                           44,000          31,000
                                                          ------          ------

Total consolidated assets                                 66,684          46,869
                                                          ======          ======

Expenditure for additions to long-lived assets:
    Copper                                                     -               7
    Advertising                                                -              21
                                                          ------          ------

Total segment expenditure for
    additions to long-lived assets                             -              28

Reconciling item:
    Corporate assets                                         321               -
                                                          ------          ------

Total consolidated expenditure for
    additions to long-lived assets                           321              28
                                                          ======          ======
</TABLE>

Long-lived assets of reportable segments and corporate assets consisting of
property and equipment are located in the PRC and Hong Kong.

                                      F-27