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

                                   FORM 10-KSB

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

     For  the  fiscal  year  ended  December  31,  2006

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

     For  the  transition  period  from  _____________  to  _____________

                        Commission file number:  0-24374

                                 FANTATECH, INC.
          ------------------------------------------------------------
              (Exact name of small business issuer in its charter)

                       Delaware                      62-1690722
            -------------------------------    ----------------------
            (State of other jurisdiction of       (I.R.S. Employer
             incorporation or organization)     Identification Number)

 Suite 1A, 18/F, Tower 1, China Hong Kong City, Tsimshatsui, Kowloon, Hong Kong
-------------------------------------------------------------------------------
          (Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:  (852) 2302 1636

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

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

                         Common Stock, par value $0.001
                    ----------------------------------------
                                (Title of Class)

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

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

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

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


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The  issuer's  revenues  for  the  fiscal  year  ended  December  31,  2006 were
$16,470,341.

The  aggregate  market value of the issuer's common stock held by non-affiliates
of the issuer was $22,202,595, based on the closing bid price of $1.15 per share
on  March  15,  2007.

The  issuer  had  30,096,117 shares of common stock issued and outstanding as of
March  15,  2007.

Transitional Small Business Disclosure Format:  Yes [ ]  No [X]

Documents incorporated by reference:  None.


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<TABLE>
<CAPTION>
                                   Table of Contents

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Part I

        Item 1.   Description of Business                                           5
        Item 1A   Risk factors                                                     15
        Item 1B   Unresolved Staff comments                                        18
        Item 2.   Description of Property                                          18
        Item 3.   Legal Proceedings                                                18
        Item 4.   Submission of Matters to a Vote of Security Holders              18

Part II

        Item 5.   Market for Common Equity and Related Stockholder Matters         19
        Item 6.   Management's Discussion and Analysis or Plan of Operation        20
        Item 7.   Financial Statements                                             32
        Item 8.   Changes In and Disagreements with Accountants on Accounting
                   and Financial Disclosure                                        32
        Item 8A.  Controls and Procedures                                          32
        Item 8B.  Other Information                                                32

Part III

        Item 9.   Directors, Executive Officers, Promoters and Control Persons;
                   Compliance with Section 16(a) of the Exchange Act               33
        Item 10.  Executive Compensation                                           36
        Item 11.  Security Ownership of Certain Beneficial Owners and
                   Management and Related Stockholder Matters                      38
        Item 12.  Certain Relationships and Related Transactions                   40
        Item 13.  Exhibits                                                         44
        Item 14.  Principal Accountant Fees and Services                           44

Signatures
</TABLE>


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Special  Note  Regarding  Forward-Looking  Statements:

This  Annual  Report  on Form 10-KSB for the fiscal year ended December 31, 2006
contains  "forward-looking"  statements within the meaning of Section 27A of the
Securities  Act  of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements that include the words "believes",
"expects",  "anticipates",  "intends",  "plans",  "may",  "will"  or  similar
expressions  that  are  intended  to  identify  forward-looking  statements.  In
addition,  any  statements  that  refer  to  expectations,  projections or other
characterizations  of  future  events or circumstances, including any underlying
assumptions,  are  forward-looking statements.  These forward-looking statements
may  include,  among  others,  statements  concerning the Company's expectations
regarding  its  business,  growth  prospects, sales trends, gross margin trends,
operating  costs,  the availability of funds to finance capital expenditures and
operations,  facility  expansion plans, competition, operating results and other
statements  of  expectations,  beliefs, future plans and strategies, anticipated
events  or  trends,  and  similar  expressions  concerning  matters that are not
historical  facts.  The forward-looking statements in this Annual Report on Form
10-KSB  for  the  fiscal  year ended December 31, 2006 involve known and unknown
risks,  uncertainties  and  other  factors  that could the cause actual results,
performance  or  achievements  of  the  Company  to differ materially from those
expressed  in  or  implied  by  the forward-looking statements contained herein.

Each  forward-looking  statement  should  be  read  in context with, and with an
understanding  of,  the  various  disclosures  of concerning the Company and its
business made elsewhere in this Annual Report on Form 10-KSB for the fiscal year
ended  December  31, 2006, as well as other public reports filed with the United
States  Securities  and  Exchange  Commission.  Investors should not place undue
reliance  on  any forward-looking statement as a prediction of actual results or
developments.  Except  as  required by applicable law or regulation, the Company
undertakes  no  obligation  to  update  or  revise any forward-looking statement
contained  in  this  Annual  Report  on  Form  10-KSB  for the fiscal year ended
December  31,  2006,  whether  as  a result of new information, future events or
otherwise.


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                                     PART I


ITEM  1.  DESCRIPTION  OF  BUSINESS

OVERVIEW

Fantatech,  Inc.  (hereinafter  referred  to  as the "Company", which term shall
include,  when  the  context  so  requires,  its  subsidiaries  and affiliates),
formerly  Lucas  Educational  Systems,  Inc.,  was  incorporated in the State of
Delaware.  The  Company  is  engaged  in  the  design,  manufacturing,  sale and
operation  of  hi-tech  entertainment  and  amusement  attractions  for  group
audiences,  including  simulation  attractions  and  equipment,  3D/4D theatres,
indoor  entertainment  centers  ("FunPlex")  and outdoor theme parks. All of the
Company's  operations  are located in the People's Republic of China ("China" or
the  "PRC").

ORGANIZATION

The  Company  operates  its business through its wholly-owned direct subsidiary,
Intsys  Share  Limited  ("Intsys"),  its  indirect  wholly-owned  subsidiaries,
Shenzhen  Digitainment  Co.,  Ltd.  ("SDCL"  or  "Digitainment")  and  Megabase
Investment  Limited  ("Megabase"),  and  its  controlled  companies,  including
Hytechnology  Inc.  ("Hytech  US"),  Chongqing  FantaWild  FunPlex Tour Co. Ltd.
("Chongqing  FTC")  and  Fantatech  Development  Inc. ("FDI").  Tianjin Longqiao
FantaWild  Kepu Ltd. ("Tianjin LFK") is an associated company in which FDI holds
a  50% equity interest and has no effective control over its Board of Directors.

In  November 2002, the Company acquired all of the issued and outstanding shares
of  Intsys  in  a reverse merger.  At the time of the acquisition, Intsys held a
65.41%  equity  interest in SDCL and a 70% equity interest in Hytechnology, Inc.
("Hytech  US").  SDCL  is  engaged  in the development and production of hi-tech
entertainment  and  amusement products, including 4D theatres, simulation games,
indoor entertainment centers, large size indoor attractions and theme parks, and
Hytech US is engaged in the sales and marketing of SDCL's products in the United
States.

In  August  2003, SDCL acquired a 40% equity interest in FDI.  Shenzhen Huaqiang
Industry  Company Limited ("SHICL") also holds a 40% equity interest in FDI, and
Shenzhen  Huaqiang Venture Capital Company Limited ("SHVCCL") holds a 20% equity
interest  in  FDI.  FDI is engaged in the sales and marketing of the products of
SDCL  in China and assists SDCL with soliciting contracts for the development of
hi-tech  entertainment  and  amusement  centers  and  theme  parks.  SHVCCL  has
assigned  all  of  its  management and control rights in FDI to SDCL.  SHICL and
SHVCCL  are  affiliates of Shenzhen Huaqiang Holdings Ltd ("SHQ").  The Chairman
and  President  of  SHQ  are  also  the  Company's  Chairman and Chief Executive
Officer.

In  October 2004, the Company acquired Megabase Investment Limited ("Megabase"),
a  BVI  corporation  that  owned  the  remaining  34.59% equity interest in SDCL
pursuant  to  the terms of a share exchange agreement.  Upon consummation of the
share  exchange  agreement,  Intsys  became  the  sole  owner  of  SDCL.

In  June  2005,  the  Company resolved to set up two management companies in the
cities  of  Chongqing and Tianjin in China, in order to manage the operations of
the  theme park in Chongqing and the large-size attraction "Dino-Rampage" in the
Tianjin  FunPlex,  respectively.  These  management  companies  are  intended to
facilitate  the  management  and  operations of the aforesaid large-size revenue
sharing  operations  and  will be budgeted to operate at a break-even level.  In
late  August  2005,  Chongqing  FTC,  with  registered  capital of approximately
$620,000,  which  is  owned  90%  by SDCL and 10% by FDI, formally commenced its
operations of coordinating the establishment of the Chongqing Theme Park and its
subsequent  management.  In  late  November  2005,  Tianjin LFK, with registered
capital  of  approximately $37,000, which is owned 50% by FDI and 50% by Tianjin
Longqiao  Property  Development  Co.  Ltd. ("Longqiao PDL"), a third party local


                                        5
<PAGE>
partner,  formally  commenced  its  operations.  There  are seven members of the
Board  of  Directors  of  Tianjin LFK, to which FDI has appointed two directors.
INDUSTRY  BACKGROUND

Theme  Park  entertainment  products  in  earlier  decades  focused primarily on
single-track  rides  such as roller coasters, rotating horses and corsairs which
produced  the  novelty  of  rectilinear or rotating mechanical movement.  Though
these  products  are  still  in  use  today,  the  development  and  maturity of
electronic  and  control  technology  allowed the adoption of many technological
effects  to  enhance the entertainment experience, as well as allowing increased
safety,  reliability,  enjoyment  and  excitement.

The  application  of computers greatly improved the performance of entertainment
facilities  and  further  allowed  the  utilization  of  technologies in digital
control,  sound,  light and digital imagery, and ultimately made it possible for
formation of a new generation of integrated entertainment facilities.  Beginning
in  the  1970s,  the  development  of  simulation  technology,  followed  by the
dynamic-simulation  amusement  attraction, proved to be the outcome of symbiotic
applications  of modern hi-tech computer-controlled, hydraulics, digital imagery
and  high  fidelity  sound.  Computer networking technology and the Internet are
the latest technologies to be applied to amusement products. Computer, video and
simulation  technology-based interactive and dynamic entertainment products have
become more prevalent in the entertainment industry during the last two decades.

BUSINESS  SCOPE

The  Company  is  in the high technology ("hi-tech") entertainment and amusement
business.  Apart  from  designing,  developing,  manufacturing  and  installing
hi-tech  simulation  attractions  and equipment for group audiences, the Company
also  designs  and  produces  special  3D/4D  theater  systems.  The Company has
experience in combining computer, digital video and film, simulation, artificial
intelligence  and  system  integration  technologies  to  produce  comprehensive
simulation  products  which can be installed in a wide variety of venues such as
hi-tech  amusement  centers  and  theme  parks,  urban  entertainment  centers,
location-based entertainment complexes, science centers and shopping malls.  The
Company  has  marketed  and sold a series of hi-tech amusement and entertainment
products,  as well as 4D theaters that are presently operated in different theme
parks,  entertainment  centers  and  shopping  malls  mainly  in various Chinese
Cities.  The  Company  also  exports  some  of  its  products to other countries
including  the  United  States,  Canada, Italy, Israel, Ukraine, Kuwait, Latvia,
India,  Philippines,  Kazakstan  and  Azerbaijan.

The  main  business  lines  of  the  Company  are  as  follows:

1.   Design,  development  and  manufacturing  of  hi-tech  entertainment  and
     amusement  equipment  and  products,  including  3D/4D  theater  systems;

2.   Design  and  construction of hi-tech theme parks and amusement centers, and
     provision  of  related  consultation  services;  and  3.  Investment in and
     operation  of  indoor  and  outdoor hi-tech entertainment centers and theme
     parks.

Majority  of  the  Company's  customers  are located in China, and sales to such
customers  are  generally  on  an open account basis with a deposit collected in
advance.  The  Company  purchases  raw materials and components for its products
from  various  suppliers  located  in  China.

PRODUCTS

The  Company  designs,  develops  and  manufactures four categories of products:
FantaWild FunPlexes, FantaWild 4D Theaters, large-size attractions and FantaWild
Theme  Parks, each which is designed and manufactured to provide virtual reality
and simulation entertainment.  A FantaWild Theme Park may consist of FunPlex, 4D
theater,  and  different  numbers  of  large-size  attractions.  "FunPlex"  and
"FantaWild"  are  the  brand names registered by the Company for these products.


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FantaWild  FunPlex

A  FantaWild  FunPlex  is  an indoor entertainment center specially designed for
shopping  malls  and recreation areas.  It can also be a special attraction zone
in  a  theme  park. The size of a FantaWild FunPlex is usually 25,000 to 100,000
square  feet, and each can be mounted with up to 50 separate pieces of amusement
equipment,  which form a unique family-based entertainment center.  A FunPlex is
normally  organized  into  8  zones/sections:  "FantaZone",  "Cartoon  City",
"VirtualSports",  "MechaZone",  "FunPlex  Photo  Studio",  "Dragon  of Destiny",
"FantaWild 4D Theater" and "Haunted House", catering to the diversified needs of
all  family  members.  Each  section  contains  attractions  that  will  provide
appropriate  entertainment experiences to adults, parents, teenagers, youths and
young children.  In addition, each FantaWild FunPlex has a Redemption Center for
purchase  of game cards and redemption of gifts. Each zone is modular and can be
expanded  or  swapped  with  another  zone.  Each  FunPlex  is  managed  by  a
computerized  system  which  generates  daily  reports  on  various  performance
measures,  including  revenues,  popular  games  and  peak  operating  hours.

As  of  December 31, 2006, the Company operated a total of fourteen FunPlexes in
different  Chinese  cities  through  Revenue-Sharing  arrangement  (see
"Revenue-Sharing  Operations" below). Although the Company continuously develops
new game equipment and platforms as well as new content in order to maintain the
attractiveness  of each FunPlex, the operating performance of all such FunPlexes
are  not satisfactory due to lower than expected numbers of visitors. Subsequent
to  an  evaluation of the carrying value of the equipment for the FunPlexes, the
Company has recorded an impairment loss of approximately $4,209,000 for the year
ended  December 31, 2006. (See Item 6. "Management 's Discussion and Analysis or
Plan  of  Operation").

FantaWild  4D  Theater  System

Theater  Systems.  The  Company's  FantaWild  4D  theater  systems  consist  of
proprietarily  designed  and  patented  cylindrical screens that provide a wider
viewing  angle  than  a  normal  3D  theater.  The 4D chairs can produce special
effects  such  as  vibration,  falling,  wind  blowing,  water  spraying and leg
tickling,  which can also be combined with other simulation effects like virtual
fog,  rain,  lightning, air bubbles, and smell, providing both visual, audio and
sensory  experiences  synchronized  with  the  on-screen action according to the
plots  of  the movies.  To satisfy the visual requirements of the audiences, the
Company  also  designs  and manufactures cylinder-polarizing glasses for viewing
the  cylindrical  pictures.  The  Company  has  already  sold  and  installed
approximately  56  sets  of  4-D  theaters  in  China  and  other  countries.

FantaWild  4D  Films.  The  Company  has  contracted with its 4D films supplier,
Hyvision  Digital  Film  Inc.  ("Hyvision"),  a  related  company, to create and
develop two to four new independent 4D films per year for exclusive distribution
and exhibition at its FantaWild 4D Theaters.  FantaWild 4D Theater customers can
lease films on a yearly basis through the Company.  Shenzhen Huaqiang Technology
Co.,  Ltd. ("SHT"), a significant shareholder (35.53%) of the Company, has a 20%
equity  interest  in  Hyvision.  The  Chief  Executive  Officer  and  the  Chief
Operating  Officer  of  the  Company  are  each  directors  of  Hyvision.

Large-Size  Attractions

Large-size  attractions  are  the  main components of a theme park or recreation
facility  which may help to bring in large numbers of tourists and entertainment
revenues.  The Company has designed and developed various large-scale simulation
attractions  which  incorporate  electric  motion  systems,  large  format  film
projection  and  audio  and  lighting devices, as well as special programming of
video  and  motion  control  systems  to  provide  an  integrated  adventure and
simulation  experience  to  the  audiences.


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<PAGE>
The  large-size  attractions  developed  by  the  Company  include  "4D  Ride
Dino-Rampage",  "Sky  Sailor", "Try To Remember", "Space Station", "Journey Into
Civilization",  "Special  Effects  Studio",  "Conch Bay", "The Milky Way Plaza",
"Mysterious  River  Valley",  "Solomon's  Seal"  and  the  "Vesuvius".

4D  Ride  Dino-Rampage  is  a  large-size indoor attraction which integrates the
elements  of  3D  animated  movie  clips, crafted dioramas, dynamic motion cars,
disaster  imitation  and  various  performance  tricks.

The Sky Sailor is a floating sphere 4D theater which integrates hi-tech elements
such  as spherical theater screen, large rotating mechanisms and on-site special
effects.  The  "Sky  Sailor" theater usually covers about 16,000 square feet, is
approximately  82  feet  long and is composed of a large hemispherical screen, a
dynamic  motion-chair  suspension system, a rotating platform, a special effects
system  and  3D  animated  movie  content.

As  of December 31, 2006, the Company operated two 4D Ride Dino-Rampage theaters
in  the cities of Tianjin and Chongqing, respectively. The Company also operated
two  Sky  Sailor theaters located in Beijing and in Chongqing, respectively. The
theme  park  in Chongqing has also been featured with attractions including "Try
to  Remember",  "Space  Station",  "Journey to Civilization" and "Special Effect
Studio".  In addition, during the year ended December 31, 2006, other large-size
attractions  such  as  "Mysterious River Valley", "Solomon's Seal", "Conch Bay",
"Milky Way Plaza" and "Vesuvius" were built for the first time by the Company in
Wuhu  and  Shantou  Theme  Park.

FantaWild  Theme  Park

FantaWild Theme Park is a hi-tech amusement theme park consisting of large-scale
emulated  and  mechanical  attractions  which  can  provide  integrated  and
comprehensive simulation experiences to visitors.  The Company has the necessary
resources  and  ability to design, develop and install all the attractions for a
FantaWild  Theme  Park.  Each  single  attraction in FantaWild Theme Park can be
installed  as  a  separate  attraction or in combination with other attractions.

During  the year ended December 31, 2006, the Company commenced the operation of
its first FantaWild Theme Park in the City of Chongqing ("FantaWild Chongqing").
FantaWild  Chongqing  consists of 10 large to medium-sized attractions installed
in  the  Chongqing theme park with an area of approximately 300,000 square feet.
On  January  24,  2006,  SDCL,  the  Company's indirect wholly-owned subsidiary,
entered  into  an equipment sale contract and an equipment installation contract
with  Wuhu  City Huaqiang Tour City Development Co., Ltd. ("Wuhu Huaqiang") with
respect  to the supply and installation of 22 large to medium- sized attractions
for  a  theme  park  to  be  built  in  the  City of Wuhu (See "Item 12. Certain
Relationship  and  Related  Transactions").  In  addition,  the Company was also
contracted  to build a theme park in the City of Shantou in 2006. It is expected
that the Wuhu Theme Park will be completed and commence its operation by October
2007,  while the Shantou Theme Park is targeted to be opened at more or less the
same  period. Both theme parks are a Revenue-Sharing Center of the Company. (See
"Revenue-Sharing  Operations"  below)

The  Company  operates  as both a manufacturer and a seller of hi-tech amusement
equipment  for  its  proprietary  FantaWild  FunPlexes,  FantaWild  4D Theaters,
large-size  attractions  and FantaWild Theme Parks, as well as being an operator
of  these  products through revenue-sharing operating arrangements, and with the
increasing  involvement  in  the  latter  in  view  of management's opinion with
respect  to the positive growth opportunities in the Chinese market. The Company
also  provides  its  products  to  customers  other  than  local  partners  of
revenue-sharing  operations.

REVENUE-SHARING  OPERATIONS

The  Company  supplies the equipment for each of its 4D theaters, FunPlex indoor
entertainment  centers, large- size outdoor attractions and theme parks (each, a
"Revenue-Sharing  Center")  through  cooperation  agreements  with local venture
partners  in  various cities in China.  The Company selects appropriate partners
and sells them a portion of the amusement equipment and machines required to set


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up  a  Revenue-Sharing Center. The Company generally provides the balance of the
amusement and entertainment equipment required for the Revenue-Sharing Center to
its local venture partners in exchange for approximately 30% to 78% share of its
gross  revenue,  depending  on  the size of the project.  The local partners are
responsible  for  operating,  promoting,  and  providing suitable venues for the
Revenue-Sharing  Centers.  In  general,  the  amount of equipment required to be
purchased by a local venture partner is calculated such that the Company's gross
margin  on  the  purchased equipment covers its internal cost for the balance of
the required equipment.  The Company also considers the credibility of the local
partner and the costs associated with the operating venues.  The Revenue-Sharing
Centers  therefore  require  only  a  minimal cash investment on the part of the
Company,  related  primarily  to  the  provision  of  maintenance services after
commencement  of  the  Revenue-Sharing  Center  operations.  With  respect to 4D
theaters,  the  Company generally contributes all of the equipment necessary for
the  theaters  while  the  local  partner provides suitable venues.  The Company
retains  all  title  to the equipment it provides to the Revenue-Sharing Centers
(except  for  equipment  purchased by the venture partner) and may repossess and
relocate  such  equipment  if  its  local  venture partners cannot fulfill their
obligations  under  the  cooperation  agreements.  The  Revenue-Sharing  Center
arrangements  generally have terms of five to ten years, which are approximately
the  estimated  useful  life  of  the  equipment  involved.

As  of  December  31, 2006, the Company had 26 revenue-sharing centers including
fourteen  FantaWild  FunPlexes  (two  of  which  were  launched in 2006), ten 4D
theaters  (three  of  which  were  launched  in 2006), one large-size attraction
(which  was  launched  in  2006) and one theme park (which was launched in 2006)
which  are located in different major cities in China.  Approximately 70% of the
Revenue-Sharing  Centers  were launched in 2004 and 2005.   In January 2007, the
FunPlex  centers  in  Zhuhai  and  Beijing, and the 4D theater in Guangzhou were
closed as the local partners intended to change the venues for other uses due to
poor  operating  performance  of  these  centers.  The  Company  agreed  to such
termination  since  these  centers  could not operate without the support of the
local  partners.  Although  the  Company  repossessed  all  of  the equipment it
contributed  to  these  centers  for  revenue sharing purposes, not all of those
equipment  have  reusable  value.  Accordingly,  the  net  carrying value of the
related  equipment  may  not  be  fully  recoverable.  Management of the Company
conducted  an  evaluation  of  the  carrying  value  of  its property, plant and
equipment,  including  those  equipment used for its Revenue-Sharing Operations.

In  view  of  the  non-profitable  performance  of  all  of the fourteen FunPlex
Revenue-Sharing  Centers during 2006 and the increasing efforts that the Company
has  placed  on  the  development  and  operation of theme parks, management has
examined  the  recoverable  value of the equipment used in these Revenue-Sharing
Centers,  including  the  review  of  the  type,  nature,  actual wear and tear,
mobility,  attractiveness,  transferability  as  well as market acceptability of
such  equipment, taking into account of the estimated undiscounted cash flow for
each of the centers. As a result of such evaluation, the Company determined that
an  impairment  loss  to the carrying value of the equipment associated with the
fourteen  FunPlexes  and  one  4D  theater  should  be  approximately $4,209,000
(representing approximately 33% of the total net carrying value of the equipment
for  the  revenue sharing operations). The impairment losses were charged to the
operating  results  for  the  year  ended  December  31,  2006

Based  on  the  above  evaluation,  the  Company believes in good faith that the
impairment charges were sufficient and adequate in reflecting the carrying value
of  its  equipment  in the revenue-sharing centers. The Company uses assumptions
regarding  the  estimated  future  cash flows and other factors to determine the
fair  value  of its fixed assets.  If these estimates or the related assumptions
change  adversely  in  the future, the Company may be required to record further
impairment  charges  for  the  relevant  assets.

Taking  into  account  of the termination of two FunPlexes and one 4D theater in
January  2007,  and the anticipated closure of more FunPlexes in 2007, the total
number  of  its  revenue-sharing centers will be reduced. However, management of
the  Company believes that with the closure of certain less profitable FunPlexes
in  2007  and subject to the successful opening of another two larger size theme
parks  in  2007,  the  revenue-sharing centers are better structured to continue
their  operations.


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<PAGE>
DESIGN  AND  CONSULTING  BUSINESSES

With  the  accumulation  of  technical  know-how  and  experience,  the  Company
considered  itself  mature  enough  to enter the hi-tech amusement equipment and
theme  park  design businesses in 2005.  During the year ended December 31, 2006
and 2005, the Company completed an interior decoration advisory services and the
project  design  contract  for  the  theme park to be built in the City of Wuhu,
respectively.  In 2006, the Company also rendered its marketing and consultation
services  to  Hyvision,  a related company, in relation to the marketability and
rental  of  3D/4D  digital  films  products.

PRODUCTION

The Company's manufacturing plants are located in Shenzhen, China, where most of
its  products  are  designed  and manufactured.  The Company also uses materials
readily  available  from  the market, which may include well-developed software,
computer  accessories  and  parts.  Certain  processes  which  involve intensive
manpower,  such  as  metal  works,  decorating  and  packaging, as well as heavy
assembling,  is  generally  sub-contracted  to  other  third  party  factories.
However,  final assembly, testing and quality control is completed and monitored
by  the  Company's  engineers.

The  Company's production processes are carried out and handled by the following
internal  departments:

-    Design Center
-    Research and Development Center
-    System Integration Center
-    Manufacture Center
-    Quality Control Department

TRANSPORTATION  AND  DISTRIBUTION

The Company's production plants are conveniently located in Shenzhen, a southern
major  city  in  China  with  a  well-developed  transportation  network  and
infrastructure.  Most  of  the products or equipment manufactured by the Company
are  transported  to its customers through rail, truck, ship or plane, depending
on the urgency of the project and location of the customer.  The Company has not
encountered  any  difficulties  in arranging the delivery of its products to its
customers  within  or  outside  of  China.

RAW  MATERIALS

Typical  raw  materials  used  by  the  Company  include:

-    Computer hardware including main board, CPU, hard disk, RAM and other parts
-    Electronic components
-    Optical projectors
-    Optical or mechanical transducers
-    Screens and displaying equipment
-    Air pressure containers
-    Hydraulic systems
-    Fiber or plastic parts
-    Metal components or parts

The  Company  purchases raw materials from both large international corporations
as  well as local suppliers in China.  As there are many suppliers for those raw
materials  and components, which are not unique, the Company has not experienced
any supply interruptions or shortages.  During the years ended December 31, 2006
and  2005,  the  top five vendors accounted for approximately 69.8% and 50.3% of
the  Company's  total purchases, respectively, of which 28.2% and 21.1% was from
Hyvision,  respectively.

The  Company  also  designs  and  makes  for  internal use some of the parts and
control  boards  required  for  its  specially  developed  products.


                                       10
<PAGE>
MARKETING  AND  SALES

The  sales  and  marketing  strategies of the Company revolve principally around
developing  a  reputable  brand  identity  and  maintaining  long-term  customer
relationships,  in addition to continuously innovating and improving the quality
of  its  products.  Products  are  marketed  through  a  direct  sales force and
marketing  staff  located  principally  in  Shenzhen,  China.  The  Company
participates  in  all  of  the  major  international amusement and entertainment
exhibitions,  such  as IAAPA, Euro Amusement Show, and TPFC, in order to promote
and  market  directly  to  international  customers  its  proprietary  products.

On  June  1, 2004, SDCL and FDI entered into an agreement pursuant to which SDCL
engaged  FDI,  its  controlled  associated  company,  as its sales agent for the
marketing  and  distribution of its amusement and simulation equipment and 3D/4D
theatres  in  China  (See  "Item  12.  Certain  Relationships  and  Related
Transactions").

CUSTOMERS

The  Company's  products  are  largely sold to customers in China, as well as to
overseas  customers,  including  recreation-oriented  companies, theme/amusement
parks,  entertainment  centers and individual investors.  During the years ended
December  31,  2006  and  2005,  approximately  5.6%  and  7.8% of the Company's
contracted  sales,  respectively,  were  from  the  customers located outside of
China,  which  included  Ukraine, Kazakstan, and Azerbaijan in 2006, and Latvia,
Lithuania,  and  India  in  2005.

Three  customers accounted for approximately 33.4%, 13.7% and 12.0% of sales for
the  year ended December 31, 2006, as compared to three customers accounting for
approximately  15.3%,  11.9%  and 10.4% of sales for the year ended December 31,
2005.  The  33.4%  sale  in  2006 was from Wuhu Huaqiang, a related party of the
Company.  As  of  December  31,  2006,  approximately 61.9% (2005: 85.0%) of the
Company's accounts receivable was generated by transactions with four customers,
of  which  one  customer  accounted for approximately 25.8% (2005: 37.2%) of the
accounts  receivable  balance.

The  Company  does  not  materially  rely  on any one customer since most of the
Company's  contracted  sales  are  generally  completed  within  twelve  months.
Although  most  of the FunPlexes are not operated profitably, total revenue from
all  Revenue-  Sharing  Centers  increased  approximately  310%  during  2006,
attributable  mainly  to  the  opening  of  the  Chongqing Theme Park.  With the
gradual  opening  of  the  theme  parks located in Shantou and Wuhu in 2007, the
Company  anticipates that the revenue from theme park operations will eventually
increase  due  to  their  relative  large-size  operation.  However, there is no
assurance  that  this expectation can materialize when the aforesaid theme parks
commence  their  operations.

REGULATION

The  Company  is subject to various production and labor laws, environmental and
pollution  control  regulations, public safety rules, taxation and other related
rules  as  promulgated  by  the  local  Chinese  government  relating  to  its
manufacturing  operation  and  production  facilities,  as  well as its business
operations  in China.  The products manufactured by the Company are also subject
to  various  product  safety requirements as stipulated by the local authorities
where  the  equipment  is  being  installed.  Some  of  these major national and
industry  product safety standards include GB8408 -"Safety of Amusement Machines
and  Amusement  Part  Equipments",  GB18160 - 'Specifications of Amusement Rides
Space  Gyro  Category",  GB18166  -  "Specifications of Amusement Rides Monorail
Category",  GB18167  - "Specifications of Amusement Rides Shooting Category" and
GB18163  "Specifications  of  Amusement  Rides  Astro-fighter  Category".


                                       11
<PAGE>
The  Company  believes that it is in compliance with all major governmental laws
and  regulations related to its products and facilities; and does not expect any
material expenditure in 2007 with respect to such regulations. However, there is
no  assurance  that  all  of  those  relevant  rules and regulations will not be
amended  by the government, which could require additional costs for the Company
to  comply  with  such  changes.
PRODUCT  QUALITY

The Company emphasizes quality control and utilizes management systems developed
to  maintain  the  premium quality of its amusement products, including supplier
authentication,  contract  examination,  product  design, production and testing
controls.  All  the  products  are  developed and produced according to relevant
international  and  national  technical  standards for safety usage as amusement
equipment.  The  Company  obtained  ISO  9000  quality  certification  for  its
production  and  manufacturing  management,  which  confirms that the production
process  and  management  method  meet  with internationally recognized level of
skills.  Through  ongoing  product development efforts, and with its experienced
engineering team, the Company is able to offer high quality 4D theaters systems,
as  well  as  indoor  amusement centers, theme park attractions and recreational
project  design.  The  Company  has  also  obtained the Manufacturing License of
Special  Equipment issued by the China Quality Inspection and Quarantine Bureau.

As  all  of the products designed and produced by the Company mainly generate an
audio-visual  simulation  experience,  and  have  been  inspected  rigorously
internally  and  externally,  together  with  the safety devices built into each
piece  of  equipment,  there  is  a  limited possibility of causing any material
injury  to  the  players.  The  Company  has not experienced any material claims
against  its  products  due  to  a  safety  incident.  Local  partners  of  each
Revenue-Sharing Center have acquired the necessary public liability insurance as
required  by  relevant  rules  and  regulations.

PRODUCT  DEVELOPMENT

The  Company  is in the hi-tech industry specializing in entertainment products,
which  requires  know-how  in  computer  technology,  video and film technology,
simulation,  artificial intelligence, and system integration. The development of
such know-how and technologies requires continuous investment of large amount of
resources,  to  which  the  Company  is  experiencing limitation and pressure on
allocating  sufficient technical and financial resources for continuous research
and  development  ("R&D").  Despite  of  such  constraints, the Company is still
committed  to  product  development  in  order to create new products and modify
existing  products to meet market demands, and to redesign existing products for
reduction of manufacturing costs while maintaining quality and safety standards.
The product development division, which is part of the production department, is
staffed  with  experienced  engineers  specialized  in  various  practice areas.
Product  development  costs are charged to cost of revenues as incurred.  During
the  years  ended  December 31, 2006 and 2005, the Company expended $554,256 and
$611,268,  respectively,  in  labor  and  materials  costs  for  R&D.

STRATEGY  AND  COMPETITION

The  Company's  strategy  is to enhance its brand identity and awareness, and to
attain  greater  economies  of  scale  in terms of its production as well as its
revenue-sharing  operations in FantaWild FunPlex, 4D theater and FantaWild Theme
Parks,  which  will  be built upon its research and development capabilities and
the  strength  of  its experienced team with a commitment to develop innovative,
cutting-edge 3D, 4D and other interactive simulation entertainment products that
can  create  a  new  standard  in  the  hi-tech entertainment industry in China.

The  Company  competes  with  a  number of 3D/4D theater providers, game machine
manufacturers  and  indoor  attraction  developers in the entertainment markets.
Management  of  the  Company  considers  SimEx,  Iwerks  and  IMAX  as the major
competitors  in  the  4D  theatre  field.  In addition, home video entertainment
products  also  pose  competitive  pressure  on  the  Company's indoor FunPlexes
centers. In order to increase its competitive edge, the Company concentrates its
focus  on  the  development  of  cylindrical  4D  theaters at competitive costs.
Moreover,  the  Company  markets  its  integrated and comprehensive abilities in


                                       12
<PAGE>
designing,  developing  and  producing  multiple  types of hi-tech entertainment
products,  large-size  attractions  and  theme  parks.

The  Company participates in the operation of entertainment centers, 4D theaters
and  theme  parks  through  its  Revenue-Sharing  Centers.  For  the  theme park
business,  there  are  other  kinds  of theme parks or fun parks in China, which
compete  with  the  Company's  operations.  However,  the  theme parks and other
Revenue-Sharing  Centers  operated  by  the  Company  will  continuously receive
technical  support  from  the  Company through updated content and new models to
maintain  their  appearance  and  attractiveness.

The  product  development  and  production base of the Company are located in an
area  which  offers  a  relatively  low  cost  structure  when  compared  to its
counterparts  abroad.  Accordingly,  the  Company  can provide its products at a
competitive  price.

PATENTS  AND  TRADEMARKS

The  Company has registered its patent in the area of stereo cylindrical imaging
with  the  United  States  Patent  and Trademark Office ("USPTO").  In addition,
other  inventions,  such  as  Amusement  Apparatus and Method as well as Virtual
Cycling  Method  and  Facilities  recognized  by the State Intellectual Property
Office of China for registration.  The trademark "FantaWild" has been registered
in  the  United  States  and  China.

EMPLOYEES

As of March 15, 2007 and 2006, the Company had the following number of employees
in  the  indicated  functional  areas:

<TABLE>
<CAPTION>
     Function                       2007  2006
     -----------------------------  ----  ----
<S>                                 <C>   <C>
     Management and administration    70    77
     Engineering and production      202   251
     Product development             116   132
     Sales and marketing              20    42
                                    ----  ----
          TOTAL                      408   502
                                    ====  ====
</TABLE>

The  majority  of  our employees are based in Shenzhen while some managerial and
sales  staff work occasionally in other Chinese cities or overseas for different
projects.  Each  full-time  Chinese employee is a member of a local trade union.
Labor  relations have remained positive and the Company has not had any employee
strikes  or  major  labor  disputes.  Unlike  trade unions in western countries,
trade  unions  in most parts of China are organizations mobilized jointly by the
government  and  corporate  management.

GOVERNMENTAL  REGULATION  ON  OPERATIONS  IN  CHINA

The  Company's  principal  executive  office  is  located  in  Hong Kong.  Major
business  operations  are  mainly  conducted in the Company's Shenzhen office in
China.  Accordingly,  the  Company's  business  operations  must  conform to the
Chinese  government's  rules  and  regulations.

The  Chinese  Legal  System

The  practical  influence  of the Chinese legal system on the Company's business
operations has two general implications.  First, as a matter of substantive law,
the  Foreign Invested Enterprise ("FIE") laws applicable to SDCL's operations in
China  provide legal protection from unnecessary governmental interference.  The
other  China subsidiaries or associated entities as invested by SDCL are treated
as  local  Chinese  corporations.  In  addition,  these  laws guarantee the full
entitlement  of  the  benefits  as  stipulated  in  the  Corporate  Articles and


                                       13
<PAGE>
Contracts  to  those  FIE  investors.  These  laws, however, do impose standards
concerning  corporate  formation  and  governance,  which  are not qualitatively
different from the general corporation laws of the United States. Similarly, the
Chinese  accounting  laws  mandate  accounting  practices,  which  are  mostly
consistent  with  United  States  Generally Accepted Accounting Principles.  The
Chinese accounting laws require that an annual "statutory audit" be performed in
accordance  with  Chinese accounting standards and that the books of accounts of
an FIE are maintained in accordance with Chinese accounting laws.  Article 14 of
the China Wholly Foreign-Owned Enterprise ("WFOE") Law requires a WFOE to submit
certain  periodic  fiscal reports and statements to designated financial and tax
authorities,  failing  which  the  enterprise  may  risk  the  revocation of its
business  license.

Secondly, while the enforcement of substantive rights may appear less clear than
the established procedures in the United States, the FIEs and WFOEs are regarded
as  Chinese  registered  companies, which enjoy the same status as other Chinese
registered  companies  in  business-to-business  dispute  resolution.  As  the
statutory  terms  of  the  Articles  of  Association  provide  that all business
disputes  pertaining  to FIEs are to be resolved by the Arbitration Institute of
the  Stockholm  Chamber  of  Commerce applying the Chinese substantive laws, the
Chinese  minority partner in the Company's joint venture companies like FDI will
not assume a privileged position regarding such disputes.  Any award rendered by
this arbitration tribunal is, by the express terms of the respective Articles of
Association,  enforceable  in  accordance with the "United Nations Convention on
the  Recognition and Enforcement of Foreign Arbitral Awards (1958)".  Therefore,
although  no  assurances  can  be given, the Chinese legal infrastructure, while
different  in  operation  from its United States counterpart, should not present
any  significant  impediment  to  the  operation  of  FIEs.

As  the  Chinese legal system develops, the promulgation of new laws, changes to
existing  laws,  and  the  preemption  of local regulations by national laws may
adversely  affect  foreign  investors,  such  as  the  Company.  The  Company's
activities  in  China  may  by  law be subject, in some cases, to administrative
review  and  approval  by various national, provincial and local agencies of the
Chinese  government.  While  China  has promulgated an administrative procedural
law  permitting  redress  to  the  courts with respect to certain administrative
actions,  the  interpretation  of  Chinese laws may be subject to policy changes
reflecting  domestic  political  factors.  Enforcement  of  existing laws may be
uncertain  and  sporadic,  and  implementation  and  interpretation  may  be
inconsistent,  leading  to  a  higher than usual degree of uncertainty as to the
outcome  of  litigation.  Even where adequate laws exist in China, it may not be
possible to obtain swift and equitable law enforcement, or to obtain enforcement
of  a  judgment  by  a  court  of  another  jurisdiction.

Economic  Policies  and  Reform  Issues

General  economic  conditions  in  China  could have a significant impact on the
Company.  The economy of China differs in certain material respects from that of
the  United States of America, including its structure, level of development and
capital  reinvestment, growth rate, government involvement, resource allocation,
rate  of  inflation  and  balance  of  payments  position.

Although the majority of China's productive assets are still owned by the state,
the adoption of an economic reform policy since 1978 has resulted in the gradual
reduction  in  the role of state economic plans and the allocation of resources,
pricing  and  management  of  such  assets,  with  increased  emphasis  on  the
utilization  of  market  forces,  and  rapid growth in the Chinese economy.  The
success  of  the  Company  depends in substantial part on the continued economic
growth  and  development  of  the  Chinese  economy.

Since  1979,  the Chinese government has reformed its economic systems.  As many
reforms  are  unprecedented or experimental, they are expected to be refined and
improved continuously.  Other factors, such as political changes, changes in the
rates  of  economic growth, unemployment or inflation, or the disparities in per
capita  wealth  between regions within China, could lead to further readjustment
of  the  reform measures.  This refining and readjustment process may negatively
affect  the  operations  of  the  Company's  Chinese  subsidiaries.


                                       14
<PAGE>
Over  the  last  few  years,  China's  economy  has recorded a high growth rate.
Recently,  there  have  been indications that rates of inflation have increased.
In  response, the Chinese government has taken macro adjustment measures to curb
this  excessively  expansive economy.  These measures have included restrictions
on  the  availability  of  domestic  credit,  which  may  reduce  the purchasing
capability of certain customers of the Company, and limited re-centralization of
the  approval  process  for property development and investment in steel plants.
These  austere  measures  alone  may  not  succeed in slowing down the economy's
excessive  expansion or control inflation, and may result in severe dislocations
of  resources  in  the  Chinese  economy.  The  Chinese  government  may  adopt
additional  measures to further combat inflation, including the establishment of
freezes  or  restraints  on  certain  projects  or  markets.

To  date,  reforms  to  China's  economic system have not adversely impacted the
Company's operations and are not expected to affect its operations negatively in
the  foreseeable  future; however, there can be no assurance that the reforms to
China's  economic system will continue or that the Company will not be adversely
affected by changes in China's political, economic, and social conditions and by
changes  in  policies  of  the  Chinese  government, such as changes in laws and
regulations,  measures  which may be introduced to control inflation, changes in
the  rate  or  method  of  taxation,  imposition  of  restrictions  on  currency
conversion  and  remittance abroad, and reduction in tariff protection and other
import  restrictions.

China's  Accession  into  the  World  Trade  Organization

On  November 11, 2001, China signed an agreement to become a member of the World
Trade  Organization  ("WTO"), the international body that sets most trade rules,
further integrating China into the global economy and significantly reducing the
barriers  to  international  commerce.  China has agreed upon its entry into the
WTO  to  reduce  tariffs and non-tariff barriers, remove investment restrictions
and  provide  trading and distribution rights for foreign firms. The tariff rate
reductions  and  other  enhancements  will  enable the Company to develop better
investment  strategies.  In  addition,  the  WTO's  dispute settlement mechanism
provides  a  credible  and  effective  tool  to enforce the commercial rights of
members.  Also,  with  China's  entry  into  the  WTO,  it  is believed that the
relevant  laws  on foreign investment in China will be amplified and will follow
common  international  practices.


ITEM  1A.  RISK  FACTORS

There  are  a  wide  range  of  factors  that could materially affect the future
developments  and  performance  of  the Company. Apart from the specific factors
affecting  certain  business  operations  identified in the description of these
operations  and  the  financial  results  of  these operations elsewhere in this
annual  report,  the  most  significant  risk  factors  affecting  the Company's
operations  include  the  following:

Changes  in the Chinese economic conditions could adversely affect the Company's
--------------------------------------------------------------------------------
businesses.
-----------

A  decrease  in  the  economic and income growth in China could adversely affect
demand  for  entertaining  products,  thus  reducing  the  Company's revenue and
earnings,  both  from  direct  sales  of amusement equipment and revenue sharing
operations.  A  decline  in  economic  conditions  could  reduce  attendance and
spending  at  the  Company's  theme  parks, FunPlex and 4D theaters, and in turn
decrease  investment  in those entertaining operations. In addition, if there is
an  increase  in  price levels generally, or for a particular sector such as the
housing  and  energy  sector, it could result in a shift in customer demand away
from the entertainment products, which could also adversely affect revenues and,
at  the  same  time,  increase  costs.

Fluctuations  in  the  exchange rate between the Chinese currency and the United
--------------------------------------------------------------------------------
States  dollar  could  adversely  affect  the  Company's  operating  results.
-----------------------------------------------------------------------------

The  functional  currency  of  the  Company's  operations in China is "Renminbi"
("RMB").  However,  the  Company's  operating  results are translated at average
exchange rates into United States ("US") dollars for results reporting purposes.
Accordingly,  fluctuations  in exchange rates may adversely affect the Company's
results  of operations and the value of assets and liabilities. Fluctuations may
adversely  affect  the  comparability  of  period-to-period  results.


                                       15
<PAGE>
In  order  for  the Company's subsidiaries in China to pay dividends to their US
parent,  a  conversion  of RMB into US dollars ("USD") is required which, if the
Chinese  government  disallowed  such conversion, would cause an interruption to
the  Company's operating cash flow. Under current Chinese law, the conversion of
RMB  into  foreign currency generally requires government approval. The relevant
government authorities may impose restrictions that could have a negative impact
in  the  future on the conversion process and upon the Company's ability to meet
its  cash  needs,  and  to  pay  dividends  to  its  shareholders. Although, the
Company's  major Chinese subsidiary, SDCL, is classified as wholly foreign-owned
enterprises  under  current  Chinese  laws  and  regulations,  which  permit its
declaration  of  dividends  and  repatriation of funds to its parent abroad, any
change  in  this  status  or  the  regulations could prevent SDCL from doing so.

Changes  in  regulations  applicable  to the Company's businesses may impair its
--------------------------------------------------------------------------------
profitability.
--------------

The  Company's  entertaining  products are subject to a series of mechanical and
electrical  safety regulations. The Company's revenue sharing centers, including
theme  parks, FunPlex and 4D theaters, are also regulated by public safety rules
and  regulations. Any changes in those relevant rules may require the Company to
spend additional amounts to comply with the new regulations, or may restrict its
ability  to  offer  products  and services as profitable as previously attained.

Changes  in  technologies  and  customer  preferences for entertainment products
--------------------------------------------------------------------------------
could  reduce  the  Company's  sales  and  in  turn  reduce  its  profitability.
--------------------------------------------------------------------------------

Each  of the Company's revenue sharing operations creates entertainment products
whose continue operation depends largely on customer tastes and preferences that
may  change  in  unpredictable ways. The success of the Company's operations and
businesses  depends  on  the  ability  to  consistently  create  and  distribute
entertaining  attractions,  facilities  and  products  that  meet  the  changing
preferences  of  the  overall  entertainment  market  in China. If the Company's
entertainment  products  do  not  receive  sufficient  customer  acceptance, the
Company's  sales  and  revenue  may  decline  and  in  turn adversely affect the
profitability.

The  continue  growth  of  the  Company's  businesses  depends on its ability to
develop, adopt and exploit new attractions and technologies to maintain customer
interest  in  its products as well as the attendance at its theme parks, FunPlex
and  4D  theaters. Latest development in home entertainment technologies affects
the  consumption  pattern,  the  time  and  manner  as  well  as  the demand for
entertainment  products  outside  home.  If  customers  favor  alternative
entertainment  options  rather  than the entertainment products that the Company
offers,  it  may  adversely  affect  the  Company's  revenue.

Changes in the financial and economic positions of the Company's related parties
--------------------------------------------------------------------------------
in  China  could  adversely  affect the Company's ability to obtain financing as
--------------------------------------------------------------------------------
well  as  the  supply  of  digital  films.
------------------------------------------

The  Company  has been relying on the financial clearing center ("FCC") operated
by  its  related  parties,  including  SHQ  and  SHT,  to  provide assistance in
obtaining  bank  financing  as  well as short term loans for its working capital
needs.  A  FCC  resembles an internal bank which accepts deposit from and grants
loans to its members at the prevailing market rate of interest.  It also obtains
loans  from  external  commercial  banks and in turn sub-lends to its members in
order  to  meet  their  working  capital  requirements  with  less  complicated
application  procedures  and  no  attendant  financial  charges.  The  Company's
Chinese  subsidiaries  are members of the FCCs operated by SHT and by SHQ, whose
primary  roles  are  coordinating  the  financial  arrangement  of  its members.

External  bank  financing  usually  secured  with  SHQ  acting  as the Company's
guarantor.  Any  adverse changes in the financial and economic conditions of SHQ
or  SHT  could  have  negative  impact  to the Company's source of financing and
borrowing  costs.


                                       16
<PAGE>
The  Company also depends on Hyvision to supply 4D digital films for integration
into its entertaining products. Should there be any change to Hyvision's ability
to  supply  such  films, it could affect the Company's production and operations
substantially.

The  Company may not be able to secure similar sizeable contracts when the sales
--------------------------------------------------------------------------------
contract  from  a  related  party  is  completed.
-------------------------------------------------

In  January  2006,  the  Company entered a sale contract with Wuhu Huaqiang Tour
City Development Co. Ltd., for supply of entertaining equipment of approximately
$15,650,000.  The  contract  is  expected to be completed in 2007 and 33% of the
revenue  recognized  in 2006 was from this contract. If the Company is unable to
obtain  new contracts of similar amount subsequent to 2007, its revenue could be
significantly  affected.

Increased  competitive  pressures  may reduce the Company's revenues or increase
--------------------------------------------------------------------------------
its  costs.
-----------

There  are increasing competition from alternative providers of the products and
services that the Company offers and from other forms of entertainment, tourism,
recreational activities and theme parks. The Company, therefore, must compete to
obtain  human  resources,  programming  and  other resources that it requires in
operating  its  business.  For  example:  the  Company's theme parks may have to
compete for guests with all other forms of entertainment, tourism and recreation
activities.  Competition  may divert consumers from the Company's products which
could  reduce the Company's revenue or increase its marketing costs. Competition
for  the  acquisition  of  resources  can  increase  the  cost of producing such
products  and  services.

The  seasonality  of  certain  of  businesses  segment could exacerbate negative
--------------------------------------------------------------------------------
impacts  on  the  Company's  operations.
----------------------------------------

The  Company's  theme  park  operation  is  exerting  increasing  impact  on the
Company's  overall  revenue  structure.  However,  revenue  from  this  segment
fluctuates  with  changes  in  attendance  resulting from the seasonal nature of
vacation travel. Peak attendance generally occurs during the summer months, when
school  vacations occur, and during national holiday periods.  Accordingly, if a
short term negative impact on the business occurs during a time of high seasonal
demand  (such as flooding and disease), it could cause a disproportionate effect
on  the  results  of  that  business  for  the  year.

A  variety  of  uncontrollable  events  may  reduce  attendance to the Company's
--------------------------------------------------------------------------------
entertaining  operations
------------------------

The  Company's  business  in  the sales of entertaining products and the revenue
sharing  operations,  particularly the outdoor theme parks, are highly dependent
on the general environment for domestic travel and tourism within China, as well
as  the  demand for entertainment products. These can be significantly adversely
affected  as  a  result  of  a  variety of factors beyond the Company's control,
including:  adverse  weather  conditions or natural disasters (such as excessive
heat or rain, typhoon and earthquakes); health concerns; and political or social
developments  in  China.  These  events,  and others such as fluctuations in raw
materials  and  energy  costs,  computer  virus  attacks  or  other  widespread
electronic,  electricity  or  telecommunications  failures,  may also damage the
Company's  ability  to provide products and services to its customers, which may
result  in  reduction  in  sales  and  revenue.

The  Company's  financial  results are based upon estimates and assumptions that
--------------------------------------------------------------------------------
may  differ  from  actual  results.
-----------------------------------

In  preparing  the  Company's  financial  statements  in  accordance  with  U.S.
generally  accepted accounting principles, several estimates and assumptions are
made  that  affect  the  accounting  for and recognition of assets, liabilities,
revenues  and  costs.  These  estimates  and  assumptions have to be made due to
certain information that are used in the preparation of the financial statements
are  dependent  on  future  events  and cannot be calculated with precision from
available  data.  The  estimates  and  the  assumptions  having  the  element of
uncertainty  and  subjectivity  are  related  to  the  accounting  for  asset
impairments,  revenue  and  cost  recognition  as  well  as  stages of contracts


                                       17
<PAGE>
completion  (including items listed as "billings in excess of cost and estimated
earnings on uncompleted contracts" and "cost and estimated earnings in excess of
billings  on  uncompleted  contracts").  Actual  results for all estimates could
differ  materially  from  the  estimates  and assumptions that the Company used,
which  could have a material adverse effect on the Company's financial condition
and  results  of  operations.

There  may  be  a  limited  public market for the Company's common stock and its
--------------------------------------------------------------------------------
stock  price  may  experience  volatility.
------------------------------------------

Trading  of  the Company's common stock had been limited and sporadic during the
last  three  years.  There can be no assurance that an active trading market for
the  Company's  common  stock  will  occur  in  the  future.

ITEM  1B.  UNRESOLVED  STAFF  COMMENTS

None


ITEM  2.  DESCRIPTION  OF  PROPERTY

The Company's principal executive office is situated at Suite 1A, 18/F, Tower 1,
China  Hong  Kong  City,  Tsimshatsui,  Kowloon, Hong Kong, which is leased from
Bilibest  Industries  Limited,  a  related company controlled by SHQ, through an
office  service  agreement.  Major  business  operations are conducted mainly in
Shenzhen,  China,  and  the  current  operating  leases  on several premises for
factory  and  office  are  as  follows:

<TABLE>
<CAPTION>
                                Approximate
                                    Area           Expiration     Approximate
Location            Usage    (in square meters)  Date of Leases  Annual Rental
----------------  ---------  ------------------  --------------  --------------
<S>               <C>        <C>                 <C>             <C>
<S>               <C>        <C>                 <C>             <C>
Hong Kong, China  Office                     30  Jun 2007        $       12,000
Shenzhen, China   Factory                11,169  July 2018       $      180,200
Shenzhen, China   Office                  1,770  Oct 2007        $       68,030
Shenzhen, China   Warehouse                 600  Jan 2007        $          770
Shenzhen, China   Storage                    31  Dec 2007        $        2,300
Shenzhen, China   Dormitory               2,268  Jan 2010        $       38,100
</TABLE>

ITEM  3.  LEGAL  PROCEEDINGS

The  Company  is  periodically  subject  to various pending and threatened legal
actions  which arise in the normal course of business.  The Company's management
believes that the impact of any such litigation will not have a material adverse
impact  on  the  Company's  financial  position  or  results  of  operations.


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

During  the three months ended December 31, 2006, no matters were submitted to a
vote  of  the  Company's  security  holders.


                                       18
<PAGE>
                                     PART II


ITEM  5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS

(a) Market Information

The Company's common stock is traded on the Over-The-Counter Bulletin Board
under the symbol "FNTN.OB".  During 2006 and 2005, trading activity in common
stock was generally limited and sporadic, and should not be deemed to constitute
an "established public trading market".

The following table sets forth the range of the adjusted closing prices of the
Company's common stock as quoted during the periods indicated.  Such prices
reflect prices, adjusted for stock splits, between dealers in securities and do
not include any adjustments for retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                       HIGH    LOW
                                       -----  -----
<S>                                    <C>    <C>
YEAR ENDED DECEMBER 31, 2006
-------------------------------------
Three months ended March 31, 2006      $2.00  $1.50
Three months ended June 30, 2006       $2.00  $1.50
Three months ended September 30, 2006  $2.00  $1.50
Three months ended December 31, 2006   $1.50  $1.15


YEAR ENDED DECEMBER 31, 2005
-------------------------------------
Three months ended March 31, 2005      $1.50  $0.20
Three months ended June 30, 2005       $1.00  $0.90
Three months ended September 30, 2005  $1.50  $0.90
Three months ended December 31, 2005   $1.50  $1.50
</TABLE>

(b)  Holders

As  of  March  15, 2007, there were 30,096,117 shares of common stock issued and
outstanding  as  held  by  approximately  456  shareholders  of  record.

(c)  Dividends

The  Company  has  never declared or paid any cash dividends on its common stock
and  does  not  anticipate  paying any cash dividends in the foreseeable future.
Management  of  the Company currently intends to retain future earnings, if any,
to  finance  the  operations  and  expansion  of  its  business.  Any  future
determination  to  pay  dividends  will  be  at  the  discretion of the board of
directors  and  will  be based upon the Company's financial condition, operating
results,  capital requirements, plans for expansion, restrictions imposed by any
financing  arrangements  and any other factors that the board of directors deems
relevant.

(d)  Securities  Authorized  for  Issuance  Under  Equity  Compensation  Plans

The  Company  has  not  adopted  any  stock option or equity compensation plans.


                                       19
<PAGE>



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

OVERVIEW

Effective  November  6,  2002,  the  Company acquired Intsys, which, through its
subsidiaries  and  affiliates,  is  engaged  in  the  design,  development,
manufacturing  and  sale of hi-tech entertainment and amusement products and the
related  operations,  including  4D  theaters,  indoor  entertainment  centers
("FunPlex"),  large-size  outdoor  attractions  and  theme parks.  The Company's
technical  team is experienced in the design and manufacturing of comprehensive,
integrated,  computerized  entertainment  products.

Most  of  the  Company's  customers  are  located  in  China,  and sales to such
customers  are  generally  on  an open account basis with a deposit collected in
advance.  The  Company  purchases  raw  materials  and  components  from various
suppliers  located  in  China.

During the year ended December 31, 2006, the Company launched two FunPlex indoor
entertainment  centers  in the cities of Tianjin and Xinjiang, three 4D theaters
in  the  cities  of  Changchun,  Kunming  and Beihai, and one large-size outdoor
attraction  in  the  city  of  Beijing. In late April 2006, the first theme park
built  by  the  Company,  featuring  ten  large-size  attractions, commenced its
operations  in the city of Chongqing. The Company has a revenue-sharing interest
in  this  facility.  As  at  December 31, 2006, there were a total of twenty-six
Revenue-Sharing  Centers  (fourteen  FunPlex  centers,  ten  4D  theaters,  one
large-size  outdoor  attraction,  and  one  theme  park)  operating in different
Chinese cities (including, in addition to the cities as listed above, the cities
of  Zhuhai,  Changzhi,  Dalian,  Yantai,  Dongguan,  Datong,  Taiyuan, Langfang,
Nanning,  Chifeng,  Nanjing,  Zhongshan, Shenyang, Huaian, Guangzhou and Wuhan).
The  first  4D  Ride  Dino-Rampage attraction built by the Company commenced its
operation  in  the  Beijing  FunPlex  amusement  center  in  November 2004.  The
large-size  Dino  Rampage  attraction  in  the  Tianjin FunPlex was completed in
December 2005, and commenced its operation in February 2006. Two Floating Sphere
4D  theatres named "Sky Sailer" in Beijing and Chongqing were put into operation
in  late  April  2006.

During  2006, none of the fourteen FunPlex Revenue-Sharing Centers were operated
profitably due to insufficient visitors. In January 2007, the FunPlex centers in
Zhuhai  and  Beijing,  and  the 4D theater in Guangzhou were closed as the local
revenue-sharing  partners  intended  to  change the venues for other uses due to
poor  operating  performance  of  these  centers.  The  Company  agreed  to such
termination  since  these  centers  could not operate without the support of the
local  partners.  Although  the  Company  repossessed  all  of  the equipment it
contributed  to  these  centers  for  revenue  sharing  purposes, not all of the
equipment  has  reusable  value.  Accordingly,  the  net  carrying value of such
equipment  may not be fully recoverable.  Management of the Company conducted an
evaluation of the carrying value of its property, plant and equipment, including
the  equipment  used  for  its  Revenue-Sharing  Operations.

In view of the non-profitable performance of the FunPlex Revenue-Sharing Centers
and  the  increasing  efforts that the Company has placed on the development and
operation  of  theme parks, management has examined the recoverable value of the
equipment  used  in  these  Revenue-Sharing Centers, including the review of the
type, nature, actual wear and tear, mobility, attractiveness, transferability as
well  as  market  acceptability  of  such  equipment, taking into account of the
estimated  undiscounted  cash  flow for each of the centers. As a result of such
evaluation, the Company determined that an impairment loss to the carrying value
of  the  equipment  associated  with  the  fourteen FunPlexes and one 4D theater
should  be approximately $4,210,000 (representing approximately 33% of the total
net  carrying  value  of  the equipment for the revenue sharing operations). The
impairment  losses  were  charged  to  the  operating results for the year ended
December  31,  2006

Based  on  the  above  evaluation,  the  Company believes in good faith that the
impairment charges were sufficient and adequate in reflecting the carrying value
of  its  equipment  in the Revenue-Sharing Centers. The Company uses assumptions
regarding  the  estimated  future  cash flows and other factors to determine the
fair  value  of its fixed assets.  If these estimates or the related assumptions
change  adversely  in  the future, the Company may be required to record further
impairment  charges  for  the  relevant  assets.


                                       20
<PAGE>
The consolidated financial statements of the Company include the accounts of the
Company  and  its  wholly-owned  and  majority-owned subsidiaries as well as the
controlled  associated  entities.  The  acquisition  of Intsys by the Company in
2002  was  treated  as  a recapitalization of Intsys with Intsys as the acquirer
(reverse  acquisition).  All material intercompany balances and transactions are
eliminated  on  consolidation.  The  consolidated financial statements have been
prepared  in  accordance  with  generally  accepted accounting principles in the
United States of America and are reported and presented in United States Dollars
("$"  or  "USD").

All  of  the  Company's  production  and majority of its business operations are
located in China and are conducted in Renminbi ("RMB"), which is the currency of
China.  Prior  to  July  21,  2005,  the  exchange  rate  remained  stable  at
approximately US$1.00 to RMB 8.30.  On July 21, 2005, the People's Bank of China
("PBC")  announced  that  the  RMB would no longer be valued with respect to the
United  States  Dollar,  but  against  a  'basket' of foreign currencies under a
managed floating exchange rate regime, and the new official parity exchange rate
of  USD  to  RMB was set at US$1.00 to RMB 8.11, to be allowed to float within a
band  of  "0.3  percent  around  the central parity rate as published by the PBC
daily.

As  of  December  31,  2006  and  2005,  the  Chinese  financial statements were
translated from RMB to USD at the prevailing exchange rate.  For the translation
of  assets  and  liabilities  (other  than  equity  and reserves), the published
closing  exchange  rate at December 31, 2006 and 2005 of US 1.00 to RMB 8.07 and
US  1.00  to  RMB 7.81 were applied, respectively, while for revenues, expenses,
gains  and losses, the weighted average exchange rate of US 1.00 to RMB 8.20 and
US  1.00  to  RMB  7.96 for the year ended December 31, 2006 and 2005 were used,
respectively.  The  resulting  translation  gains  or  losses were recorded as a
separate  component  of  stockholders'  equity.


CRITICAL  ACCOUNTING  POLICIES

The  discussion and analysis of the Company's financial condition and results of
operations  is based upon the Company's consolidated financial statements, which
have  been  prepared in accordance with accounting principals generally accepted
in  the United States of America.  The preparation of these financial statements
requires  the  use of estimates and assumptions that affect the reported amounts
of  assets  and  liabilities  and  the  disclosure  of  contingent  assets  and
liabilities  at  the date of the financial statements and the reported amount of
revenues  and  expenses  during  the  reporting period.  Management periodically
evaluates  the  estimates and judgments made, including those related to revenue
and  cost  recognition,  inventory,  income  taxes  and  impairment  of  assets.
Management  bases  their estimates and judgments on historical experience and on
various  factors  that  are  believed  to be reasonable under the circumstances.
Actual  results  may  differ  from  these  estimates  as  a  result of different
assumptions  or  conditions.

The following critical accounting policies affect the more significant judgments
and  estimates  used  in the preparation of the Company's consolidated financial
statements.

Revenue  and  cost  recognition

The Company principally derives its revenue from (1) contract sales of equipment
or  facilities  used in hi-tech amusement centers or theme parks, 3D/4D theaters
and the related products; (2) contracts in relation to the design of 4D theater,
amusement  center,  large-size attraction and theme park, as well as any related
consultation  services;  and  (3)  revenue  sharing  operations.

Revenue  is  recognized  when  the  following  four  criteria  are  met:

1.   persuasive  evidence  of  an  arrangement  exists,
2.   delivery  has  occurred  or  services  have  been  rendered,
3.   the  price  is  fixed,  and
4.   collectibility  is  reasonably  assured.


                                       21
<PAGE>
(1)  Contract  sales  of  equipment  or  facilities used in  hi-tech  amusement
     centers  or  theme  parks,  3D/4D  theaters  and  the  related  products

(a)  Sale  of  entertainment  and  amusement  products

Revenue from the sale of entertainment and amusement products is recognized when
the  products  are delivered to the customers, installed and tested.  Revenue is
adjusted  for  any  reduction in sales due to change in product specification or
sales  discounts  offered  to  the  customers.

(b)     Long-term  construction  contract  revenue  and  costs

Long-term  contract  revenue and costs are recognized as revenue and expenses in
the  statement  of  operations  by  reference  to  the  stage of completion of a
contract  (i.e.,  the  percentage  of completion method) when the outcome of the
contract  can  be  estimated reliably.  The stage of completion of a contract is
determined  based  on the proportion of costs incurred at the balance sheet date
compared  to  total  estimated  costs.  A loss on a contract is recognized as an
expense  immediately  when  it is probable that total contract costs will exceed
total  contract  revenue.

Costs  attributable  to  unpriced change orders are treated as costs of contract
performance  in the period in which the costs are incurred if it is not probable
that  the costs will be recovered through a change in the contract price.  If it
is  probable  that  the costs will be recovered through a change in the contract
price,  those  costs  would  be  treated as costs of contract performance in the
period  in  which they are incurred, and contract revenue would be recognized to
the  extent  of  the  costs incurred.  If it is probable that the contract price
will  be adjusted by an amount that exceeds the costs attributable to the change
order  and  the  amount  of  the  excess can be reliably estimated, the original
contract  price  would  also  be  adjusted  for  that  amount when the costs are
recognized  as  costs  of  contract  performance if its realization is probable.

During  the  process  of  recognizing  the  revenue  generated from the sales of
products  as  described  in  (1)  and  (2)  above, the Company has evaluated the
criteria  for  multiple  deliverables  in  using separate unit of accounting for
identifiable  delivered  items  in  accordance  with  EITF  No.  00-21  "Revenue
Arrangements  with  Multiple Deliverables", and concluded that the amusement and
entertainment  products  designed,  manufactured and installed by the Company do
not  meet the stand-alone test since no part of the products will be or are sold
in  the market by the Company or by other similar vendors.  There is no reliable
evidence of fair value of the undelivered items and the contracts for sales have
no  general  right  of  return  relative  to  the  delivered  items.

In  addition,  the Company has evaluated the scope and applicability of SOP 97-2
"Software  Revenue  Recognition"  and  determined that the revenue earned on the
Company's  amusement  products containing software is incidental to the products
as  a whole.  The Company does not engage in businesses of licensing, selling or
leasing,  or  otherwise  marketing  computer  software.  The  software  does not
require  significant  production,  modification and customization and is not the
focus of the marketing efforts, nor is it what the customer perceives to obtain.
The post-contract services associated with the Company's products do not involve
multiple  element  arrangements  and the estimated cost for the one year product
warranty  is  insignificant,  and  there are no upgrades/enhancements offered to
customers currently or historically.  Accordingly, the Company believes that its
revenue  requires  no  software  revenue  recognition.

The  Company considers that profits on contracts are derived from its efforts in
all  phases  of  operations, including areas such as procurement and management.
Costs  incurred  closely  relate  to  contract  performance  and  are  therefore
considered  the  best  measure  to  determine  recognition  of  contracted sales
revenue.  The  Company  periodically  reviews  its  calculation  methodology  to
evaluate  the  accuracy  of  the  results  of  the  input  measures.

(2)  Contracts  in  relation  to  the  design  of  4D theater, amusement center,
     large-size  attractions and theme park, as well as any related consultation
     services


                                       22
<PAGE>
Design  and  consultation  income  is  recognized  when  services  are rendered.

(3)  Revenue  from  revenue  sharing  operations

Income  is recognized based on the agreed percentage of revenue when the revenue
from  Revenue-Sharing  Centers becomes due and receivable.  The Company recorded
$4,086,680  and  $997,342  as  revenue  from its Revenue-Sharing Centers for the
years  ended  December  31,  2006  and  2005,  respectively.

Asset  Impairment

The  Company  reviews its long-lived assets, including the production facilities
and  the  amusement  and  entertainment  equipment  used  in the Revenue-Sharing
Centers,  as  well as identifiable intangibles for impairment whenever events or
changes  in  circumstances indicate that the carrying amount of an asset may not
be  recoverable  based  upon undiscounted cash flows expected to be generated by
such  assets over their expected useful lives.  If such assets are considered to
be  impaired, the impairment to be recognized is measured by the amount by which
the  carrying  amount  of  the  assets  exceeds  the  fair  value of the assets.

In  view  of  the  fact  that  the  business  activities  of Hytech US decreased
substantially  and  there  were  no sales contracts secured in 2005, the Company
recorded  a full impairment loss for trademark of $170,950 during the year ended
December  31,  2005.  There  was  no  impairment  of  assets  recorded  in 2006.

During  the  year  ended  December  31,  2006,  in  view  of  the non-profitable
performance  of  all  indoor FunPlex Revenue-Sharing Centers due to insufficient
visitors,  management  of  the  Company  conducted an evaluation of the carrying
value of its property, plant and equipment, including the equipment used for its
Revenue-Sharing Operations. Management has examined the recoverable value of the
equipment  used  in  these  Revenue-Sharing Centers, including the review of the
type, nature, actual wear and tear, mobility, attractiveness, transferability as
well  as  market  acceptability  of  such  equipment, taking into account of the
estimated  undiscounted  cash  flow for each of the Centers. As a result of such
evaluation, an impairment loss to the carrying value of the equipment associated
with  all  fourteen  FunPlex  Revenue-Sharing  Centers  and  one  4D  theater of
approximately $4,210,000 was recorded. The impairment losses were charged to the
operating  results  for  the  year  ended  December  31,  2006. The Company uses
assumptions  regarding  the  estimated  future  cash  flows and other factors to
determine the fair value of its fixed assets.  If these estimates or the related
assumptions  change  adversely  in  the  future,  the Company may be required to
record  further  impairment  charges  for  the  relevant  assets.


RECLASSIFICATIONS

For the year ended December 31, 2005, the Company has reclassified certain items
in  the statements of cash flows categorized under investing activities in order
to  conform  to  the  current year presentation.  These reclassifications had no
impact  on  the  Company's  working  capital resources and operating results for
2005.


CONSOLIDATED  RESULTS  OF  OPERATIONS

Years  Ended  December  31,  2006  and  2005

REVENUE

For the year ended December 31, 2006, net sales were $16,470,341, an increase of
$5,190,951  or 46.0%, as compared to net sales of $11,279,390 for the year ended
December  31,  2005.  Approximately  24.8%  and 8.8% of the net sales during the
years  ended  December  31,  2006 and 2005, respectively, were from the revenues
generated  from  all  of  the  Revenue-Sharing  Centers.


                                       23
<PAGE>
The  increase  in  net sales was primarily due to the increase in net contracted
sales  as  well  as  the increase in revenues generated from the Revenue-Sharing
Centers,  offset partially by the decrease in revenues generated from design and
consulting  services.  During  the  year  ended  December  31, 2006, the Company
recorded  net  revenue  from  its  design  and  consulting services of $685,364,
representing  a  decrease  of $1,537,807 or 69.2%, as compared to $2,223,171 for
the  year  ended  December  31,  2005.  The  revenue  from design and consulting
services  recorded  in  2006  were  mainly  attributable to services rendered to
related  parties, including Wuhu Huaqiang of approximately $393,000 and Hyvision
of  approximately  $292,000.  Of  the  design and consulting revenue recorded in
2005,  $1,341,463  was  from  the  design  of  a  theme  park for Wuhu Huaqiang.

For  the  year  ended  December  31,  2006,  net  contracted  sales increased by
$3,639,420 or 45.2% to $11,698,297, as compared to $8,058,877 for the year ended
December  31, 2005. This was primarily due to the increase in revenue recognized
from the sales contract in relation to equipment sold to the Wuhu Theme Park and
the  Shantou  Theme Park. In 2006, revenue recognized from the sale of equipment
to  Wuhu  Huaqiang  amounted  to  approximately  $5,500,000.  As the Company has
decided  not  to  enter  any  contracts  regarding  the establishment of FunPlex
Revenue-Sharing  Centers  due to the general unsatisfactory operating results of
the  existing  FunPlex  centers,  and in view of the Company's limited number of
sales  contracts  currently on hand, and based on the stage of completion of the
related  projects,  the  Company  may  not  be able to maintain the level of net
contracted  sales  in  2007  as  compared  to  2006.

For  the  year-  ended December 31, 2006, the Company recorded revenues from its
Revenue-Sharing  Centers  totaling  $4,086,680,  as compared to $997,342 for the
year  ended December 31, 2005, representing an increase of $3,089,338 or 309.8%.
The  increase  was  mainly  attributable  to the opening of Chongqing Theme Park
(which accounted for approximately $2,590,000 of the revenue).  As the scheduled
opening  of  the  theme  parks  in the cities of Wuhu and Shantou will be around
October  2007,  the Company anticipates that income from Revenue-Sharing Centers
will  not  have  any  significant  changes  in  2007  as  compared  to  2006.

GROSS  PROFIT

The  cost  of  revenue  in  relation to contracted sales mainly consisted of raw
materials,  electronic  parts,  factory consumables, sub-contracting charges and
related  supplies  purchased  for  fabrication  and  assembling of the amusement
equipment,  factory  rent,  workers  wages and salaries, and the depreciation of
production  facilities.  The  cost  of  revenue-sharing  operations  included
depreciation  for  the  fixed  assets used in the operations, maintenance costs,
salaries  for engineers, and the associated travel and lodging expenses.  Design
and  consulting  services  costs  consisted  mainly  of  salaries  of designers,
engineers,  marketing  personnel,  sub-contracting  charges,  travel and lodging
expenses  and  other  direct  costs.

For the year ended December 31, 2006, total gross profit was $4,621,796 or 28.1%
of  total net sales, as compared to total gross profit of $4,435,154 or 39.3% of
total net sales for the year ended December 31, 2005. Excluding the revenue from
the  Revenue-Sharing  Centers  and  design and consulting services, gross profit
margin  decreased  by 7.8%.  The decrease is primarily attributable to the lower
profitability  from  the  sale  contract  related  to the equipment sold to Wuhu
Huaqiang.  The  Company,  however,  has  obtained the right to receive 8% of the
theme  park's Distributable Income for a period of 15 years from commencement of
theme  park  operation  (see  Item  12.  Certain  Relationships  and  Related
Transactions).  The  Company anticipates that based on the construction schedule
of  the  Wuhu  Theme Park and the limited number of sales contracts on hand, the
gross  profit  margin  from  contracted sales will continue to be under pressure
during  2007.

For  the  year  ended December 31, 2006, total gross profit from Revenue-Sharing
Centers  was  $1,418,025 or 34.7% of the revenues from this segment, as compared
to total gross profit of $180,069 or 18.1% of the total segment revenues for the
year  ended  December 31, 2005.  The increase in segment gross profit margin was
solely attributable to the Chongqing Theme Park although all the FunPlex centers
were not operated profitably. The Company anticipates that the gross profit from
Revenue-Sharing  Centers  will  not  change  substantially  in  2007  until  the
completion  of  the  two  theme  parks  in  Wuhu and Shantou. The opening of the


                                       24
<PAGE>
Shantou  theme park, initially scheduled to occur early 2007, has been postponed
until  the  third quarter of 2007 due to delays in site preparation by the local
partner.  The  Wuhu  theme  park  is  expected  to be completed by October 2007.
Subject  to  the  successful  opening  of  the two theme parks in late 2007, the
Company anticipates that revenue and gross profit from theme park operations may
improve  gradually.  However, there is no assurance that the two new theme parks
in  Wuhu  and Shantou will receive the same level of visitors and revenue as the
Chongqing  theme  park  due  to  differences  in  demographic  and  economic
characteristics  of  local  customers.

For  the  year  ended  December  31, 2006 and 2005, gross profit from design and
consulting  services  was  $609,571 and $1,842,277, respectively, representing a
margin  of  88.9%  and  82.9%  of the design and consulting services segment net
revenue,  respectively.  Since  this  business is mainly utilizing the Company's
accumulated  technical  know-how  and experience in the hi-tech amusement center
and  theme  park  design, it has good satisfactory margin. The cost of sales for
design  and  consulting  services  are  mainly  cost  of  materials  purchased,
production  overheads  and  business  tax  on  income from design and consulting
services.  The  design  and  consulting  services  were provided by the in-house
project  managers  of  the  Company,  who  are experienced in preliminary setup,
design  and coordination work for setting up various revenue sharing centers and
the  salaries  of  these  project  managers  are  generally  classified  as
administrative  expense.  As  time  spent  by these in-house project managers on
provision  of  design  and consulting services is insignificant, the Company did
not have separate record for their time spent on providing design and consulting
services.  Hence,  the  cost of sales for design and consulting services had not
included  labor  cost.  As this is a new business segment for the Company, it is
difficult  to  estimate  the  market demand for this particular service, and the
Company  is therefore not in a position to predict sales revenue trends for this
segment.  Although  it  is  the  Company's  intention  to increase its marketing
efforts  in  this  area,  current  market  responses do not suggest immediate or
strong demand for such services. The gross profit from the design and consulting
services as recorded in 2006 was solely generated from transactions with related
parties  (See  Item  12.  Certain  Relationships  and  Related  Transactions).

SELLING  AND  MARKETING  EXPENSES

Selling  and marketing expenses increased by $859,539 or 93.4% to $1,779,689 for
the  year  ended  December  31, 2006, as compared to $920,150 for the year ended
December  31,  2005.  This was primarily due to the increase in expenses related
to  marketing,  promotional, sales representative office and exhibition in 2006.
The  Company  will  continue  its  marketing and promotional efforts in order to
maintain  its  business  in  China  and  also  in  overseas  markets.

GENERAL  AND  ADMINISTRATIVE  EXPENSES

For  the  year  ended  December  31,  2006,  general and administrative expenses
decreased  slightly  by $78,700 or 4.5% to $1,674,112, as compared to $1,752,812
for  the  year  ended  December  31,  2005.

LOSS  ON  DISPOSAL  OF  FIXED  ASSETS

For  the year ended December 31, 2006, the Company recorded a loss of $13,622 on
disposal  of  fixed  assets,  as compared to a loss of $3,552 for the year ended
December  31,  2005,  representing  the  disposal  of  certain obsolete devices.

The  Company  reviews its long-lived assets, including the production facilities
and  the  amusement  and  entertainment  equipment  used  in the revenue sharing
operations,  for impairment whenever events or changes in circumstances indicate
that  the  carrying  amount  of  an  asset  may  not  be  recoverable based upon
undiscounted  cash  flows  expected  to  be  generated by such assets over their
expected  useful  lives.  If  such  assets  are  considered  to be impaired, the
impairment  to  be  recognized  is  measured by the amount by which the carrying
amount  of  the  assets  exceeds  the fair value of the assets.  During the year
ended December 31, 2005, no impairment for fixed assets was required, except for
the  impairment  of  trademarks  as  discussed  below.

IMPAIRMENT  OF  TRADEMARKS  AND  FIXED  ASSETS

For  the  year  ended December 31, 2005, in view of the substantial reduction of
business  activities  in  Hytech  US  and no sales contracts secured in 2004 and
2005,  the  Company  conducted a re-evaluation of the trademarks associated with
Hytech  US  and  the  related  expected  future cash flows.  As a result of this
evaluation,  the  Company  recorded  a  full  impairment  of  $170,950  for  the
trademarks.  There  was no impairment of intangible assets recorded for the year
ended  December  31,  2006.


                                       25
<PAGE>
During  the  year  ended  December  31,  2006,  in  view  of  the non-profitable
performance of all FunPlex Revenue-Sharing Centers due to insufficient visitors,
management  of  the Company conducted an evaluation of the carrying value of its
property,  plant  and  equipment,  including  the  equipment  used  for  its
Revenue-Sharing Operations. Management has examined the recoverable value of the
equipment  used  in  these  Revenue-Sharing Centers, including the review of the
type, nature, actual wear and tear, mobility, attractiveness, transferability as
well  as  market  acceptability  of  such  equipment, taking into account of the
estimated  undiscounted  cash  flow for each of the centers. As a result of such
evaluation, an impairment loss to the carrying value of the equipment associated
with all fourteen FunPlex centers and one 4D theater of approximately $4,210,000
was  recorded.  The  impairment losses were charged to the operating results for
the  year  ended  December  31, 2006. The Company uses assumptions regarding the
estimated future cash flows and other factors to determine the fair value of its
fixed assets.  If these estimates or the related assumptions change adversely in
the future, the Company may be required to record further impairment charges for
the  relevant  assets.

(LOSS)  INCOME  FROM  OPERATIONS

The  Company  recorded  a  loss of $3,054,830 from operations for the year ended
December  31,  2006, as compared to the income from operations of $1,587,690 for
the  year  ended  December  31,  2005.  The  operating loss incurred in 2006 was
primarily  attributable  to  the  impairment  loss  made on equipment related to
Revenue-Sharing Centers, and partly due to the increase in selling and marketing
expenses.

OTHER  INCOME  (EXPENSE)

For  the  year ended December 31, 2006, interest income was $14,134, as compared
to  interest  income  of  $19,709  for  the  year  ended  December 31, 2005, due
primarily  to  the  decrease  in  the  average bank deposit balance in 2006 as a
result  of  the  increase in resources allocated to projects under construction.

For  the  year  ended December 31, 2006, interest expense was $131,244, a slight
decrease as a result of the reduced average bank borrowings and short-term loans
during  2006,  as  compared  to  interest expense of $162,857 for the year ended
December  31,  2005.

Other  income  was $427,907 for the year ended December 31, 2006, as compared to
other  income of $127,670 for the year ended December 31, 2005.  Other income is
comprised  of  miscellaneous  income  earned from the sub-letting of part of the
Company's  factory  space  temporarily  available,  from the sales of consumable
items and repair services for the equipment sold by the Company, and the receipt
of a discretionary incentive subsidy from the local government.  The increase in
other  income  was  attributable  to  an increase in the discretionary incentive
subsidy  received  by  the  Company.

As  the  Company successfully developed a set of innovative simulation games, it
received  the  recognition  of  the  Shenzhen Technology Bureau. The Company was
eligible  and  applied  for  an  incentive subsidy under the Bureau's Technology
Subsidy Scheme.  During the year ended December 31, 2006, the Shenzhen Technical
Bureau  granted  a  subsidy  of  approximately  $170,000  to  the  Company as an
encouragement  for  enterprises  in  China  to  invest  in  products  with  high
technology  content,  including a partial refund of the bank loan interest of an
amount  of  $110,000  incurred  by  the  Company.  In  addition,  the  Company's
proprietary  FantaWild  4D  digital  broadcasting  system  also  received  high
appreciation  from  the  Ministry  of  Finance  and  was  granted  a  subsidy of
approximately  $50,000.  The  Company  is  also entitled to incentive subsidy of
approximately  $6,000  from  Shenzhen Trade and Industry Bureau to recognize the
Company's  success  in  exporting  self-developed high-tech products to overseas
markets.  Moreover,  the  Company's  all-digital  cylindrical screen stereo film
system  received the recognition of the Ministry of Information Industry and was
granted  a  subsidy of approximately $126,000. The Company recorded in aggregate
approximately  $352,000  and  $58,500 as incentive subsidies from the government
for  the  years  ended  December  31,  2006  and  2005,  respectively.


                                       26
<PAGE>
MINORITY  INTERESTS

During  the  year  ended  December  31,  2006, the Company recorded the minority
interests'  share  of income of $113,148, as compared to the minority interests'
share  of  income  of  $167,562  for  the  year  ended December 31, 2005.  As of
December  31,  2006, the minority interests represented an effective shareholder
interest  of  60%  in  FDI,  30%  in  Hytech  US  and  6%  in  Chongqing  FTC.

INCOME  TAX  EXPENSE

The  Company  is subject to income taxes on an entity basis on income arising or
derived  from the tax jurisdiction in which each entity is domiciled.  Fantatech
Inc. and Hytechnology Inc. are both Delaware corporations and are subject to the
corporation  income  taxes  of the United State of America.  Intsys and Megabase
are  not  liable  for  income  taxes in BVI.  The Company's Chinese subsidiaries
(SDCL)  and  associates  (FDI)  located  in  the City of Shenzhen are subject to
Enterprise  Income  Tax  ("EIT")  in China at a rate of 15% on net income, while
Chongqing FTC is subject to an EIT rate of 33%.  Based on the local tax rules in
Shenzhen,  SDCL  was  entitled  to  a tax holiday for the first two years of its
operations (1999 and 2000) and a 50% reduction of the rate for the third through
eighth  years of operations (2001 to 2006) due to the high technology content of
its  businesses.  For  the years ended December 31, 2006 and 2005, the provision
for  taxes  on  earnings  of  the  Chinese subsidiaries, calculated based on the
prevailing  accounting  standards  in  China,  was  $197,782  and  $169,531,
respectively.

EQUITY  LOSS  RELATED  TO  AN  ASSOCIATED  COMPANY

For  the  year  ended  December  31,  2006,  the Company recorded a $18,656 loss
reflecting  the Company's share of the net loss incurred by Tianjin LFK (limited
to the total amount of investment) during the year ended December 31, 2006. (See
Note  10  to  the  Consolidated  Financial  Statements.)

NET  (LOSS)  INCOME

The Company recorded net loss of $3,085,594 for the year ended December 31, 2006
as  compared  to  net income of $1,224,543 for the year ended December 31, 2005.
The  net  loss,  despite the net revenue in 2006 increased by 46% as compared to
the  net  revenue  in  2005,  was  primarily due to the impairment loss on fixed
assets  and partly attributable to the increase in selling and marketing expense
as  well  as  the  decrease  of  revenue  from  design  and consulting services.


FINANCIAL  CONDITION,  LIQUIDITY  AND  CAPITAL  RESOURCES

General

The  Company  has financed its operations over the past few years primarily from
loans  from related and unrelated parties, as described below under "Financing".

The Company anticipates that, based on current plans and assumptions relating to
its  existing operations, its projected cash flow from operations, combined with
cash  on  hand, bank lines of credit, and other external credit sources, and the
credit  facilities  provided  by  affiliates  or  related parties, its financial


                                       27
<PAGE>
resources  will  be  sufficient  to  support  the  Company's  working  capital
requirements  for its current operations for the next twelve months. The Company
will  continue  its  efforts in arranging external short-term bank loans for its
working  capital  requirements  and  to  seek  additional capital to support its
operations.

The  Company  is  also  monitoring  the  process  of invoicing its customers for
project  progress  payments  in  order to reduce the carrying amounts of work in
progress  and the costs incurred in excess of billings on uncompleted contracts.
Based  on  management's evaluation of the Company's short-term cash requirements
and  liquidity  resources,  management  anticipates  that  the  pressure  on the
Company's  cash  flows  will gradually be reduced for the next twelve months. In
addition, the projected progress payment related to the sale of equipment to the
theme  parks in Wuhu and Shantou, respectively, will improve the working capital
position  of  the  Company  during  the  remainder  of  2007.


Operations

During  the year ended December 31, 2006, the Company's operations provided cash
resources  of  $8,376,463,  as  compared  to  net  cash  provided  by  operating
activities  of $2,488,272 for the year ended December 31, 2005.  During the year
ended  December  31,  2006,  the Company's cash balance decreased by $59,764, to
$2,306,157 at December 31, 2006, as compared to $2,365,921 at December 31, 2005.
Including cash deposited at the affiliate operated FCC, the Company's total cash
and  cash  deposited  at  affiliates  decreased  by  $381,322,  to $2,306,327 at
December  31,  2006, as compared to $2,687,649 at December 31, 2005.  During the
year  ended  December  31,  2006, the Company's net working capital decreased by
$3,161,478,  to  ($1,137,569) at December 31, 2006, as compared to $2,023,909 at
December 31, 2005, reflecting a current ratio of 0.90:1 at December 31, 2006, as
compared  to  1.24:1 at December 31, 2005, representing the total current assets
were  insufficient  to  cover  the  total current liabilities as at December 31,
2006.

The  decrease  in  the  Company's  net  working capital was due primarily to the
Company's  continuing  investment  in  fixed assets for revenue-sharing centers,
including  4D  theaters,  FunPlex centers and theme parks. During the year ended
December  31,  2006,  the  Company has been concentrating its efforts in the two
theme park projects in Wuhu and Shantou, which are both Revenue-Sharing Centers.
Although  the  two projects are progressing within the anticipated schedule, the
related  progress  revenue will not be recognized until the delivery of relevant
equipment  to  the respective sites. Accordingly, the progress payments from the
customers  totaling approximately $2,520,000 are recorded as current liabilities
(approximately  $860,000  was  invoiced  but not recognized, while approximately
$1,660,000 was recorded as deposit received). As a result, the Company has a net
working  capital deficiency of approximately $1,140,000 as of December 31, 2006.
The  Company  expects  that  the net working capital deficiency is temporary and
will  gradually  return to a positive level once the Company starts to recognize
the  progress  revenue  upon  delivery of the equipment. In addition, during the
year  ended  December  31,  2006,  the  Company recorded a net increase in fixed
assets of approximately $8,650,000 for revenue-sharing operations, which largely
accounted  for  the  decrease  in  total current assets, and in turn temporarily
affecting  the  Company's  current  ratio  as  of  December  31,  2006.

With the scheduled delivery of equipment to the Shantou and Wuhu theme parks and
their expected opening by October 2007, together with the revenue generated from
other  Revenue-Sharing Centers, the Company expects that its net working capital
will  gradually  be  improved  through  2007  and  thereafter.

Trade  receivables,  net  of  allowance  for  doubtful  accounts,  decreased  by
$1,653,905  or 85.3% to $285,529 at December 31, 2006, as compared to $1,939,434
at  December  31,  2005,  which  was  attributable  to the settlement of amounts
receivable  arising  from  equipment  sold.  The  amount  receivable  related to
equipment  sold to Wuhu Huaqiang was classified as related party receivable. The
Company  has  provided  a general allowance for doubtful accounts of $90,214 and
$32,027  at  December  31,  2006  and  2005,  respectively.


                                       28
<PAGE>
Inventories  decreased  by $622,381 or 20.5% to $2,414,706 at December 31, 2006,
as  compared  to  $3,037,087  at  December  31, 2005, which was the result of an
increase in resources used to complete the contracts on hand, especially the two
theme  parks  in  Wuhu  and  Shantou.

As  at  December  31,  2006,  costs and estimated earnings in excess of billings
decreased  by  $23,249  or 3.2% to $699,277, as compared to $722,526 at December
31, 2005.  The billings in excess of costs and estimated earnings also increased
by $690,832 or 113.6% to $1,298,936 at December 31, 2006 as compared to $608,104
at  December  31.  The  increase  was  attributable to the postponed delivery of
equipment  to  the  Shantou  theme  park due to delay in site preparation by the
local  partner.

During  the  year ended December 31, 2006, the total amount of accounts payable,
accrued  liabilities  and  other payables increased by $2,052,398 or 74.9% to an
aggregate  of  $4,792,625, as compared to $2,740,227 at December 31, 2005, which
was  due  to  the  increase  in purchases by the Company in order to fulfill the
uncompleted contracts, as well as the increase in VAT payable as a result of the
increase  in  contracted  sales.

The  amount  receivable from related parties increased by $2,519,964 or 1,300.8%
to  $2,713,685  at  December  31,  2006, as compared to $193,721 at December 31,
2005,  due  primarily to the increase in trade receivable from Wuhu Huaqiang and
Hyvision  in  respect  of  revenue  from  equipment sold and consulting service,
respectively.  The  amount payable to related parties increased by $2,393,798 or
307.5%  to  $3,172,147 at December 31, 2006, as compared to $778,349 at December
31,  2005,  primarily  as  a  result  of  the increase of amount payable for the
purchase of digital film products and other components from Hyvision, as well as
the  payment made on behalf of the Company by Hytechnology Limited ("Hytech HK")
and  Bilibest  Industries  Ltd.,  both  are  affiliates  of  SHQ.

Investing

For  the  year ended December 31, 2006, the Company's investment activities used
cash  resources  of  $6,151,020, as compared to $425,547 cash used by investment
activities  for the year ended December 31, 2005. The increase was mainly due to
the  significant  reduction  in  deposits  at  affiliates'  FCCs.

Additions  to  property,  plant and equipment during the year ended December 31,
2006  aggregated  $6,522,110,  of  which  $6,225,693  was  for investment in the
Company's  Revenue-Sharing  Centers.  In  addition,  there  was  a  transfer  of
construction  in  progress  of  approximately  $2,500,000 to property, plant and
equipment  as  the  Company  has  materially  completed  the construction of the
equipment used in the Chongqing Theme Park and other Revenue-Sharing Centers. At
December  31,  2006,  the  Company  had capital expenditure commitments for 2006
relating to contracts on hand of approximately $1,460,000.  The Company believes
that it will be able to fund expected capital expenditures through internal cash
flow  and  external  resources.

As  at  December 31, 2006 and 2005, the Company maintained cash deposits of $170
and  $321,728  at  the FCC operated by SHQ.  The cash deposits at the FCC can be
withdrawn  at  any  time  without  any  restrictions.

Financing

In  order  to finance the Company's continuing working capital requirements, the
Company  has  financed  its  operations  with  loans  from related and unrelated
parties.

In  August  2005, the Company obtained a bridge loan of approximately $1,000,000
from  SHT,  a significant shareholder (35.53%) of the Company, at the prevailing
market  interest  rate  of  5.58%  per  annum.  This  bridge  loan was repaid in
September  2005  with  the  proceeds  from  another temporary short-term loan of
$2,224,419  granted  by  the  FCC operated by SHT.   The loan from SHT's FCC was
unsecured  and  due  and  payable  on December 29, 2005, had an interest rate of
5.22%  per  annum, and was guaranteed by SHT.  On November 26, 2005, the Company
repaid  in  full  the  principal  and accrued interest on the short-term loan of
$2,224,419  granted  by  the  FCC  operated  by  SHT.


                                       29
<PAGE>
In  September  2005,  the  Company obtained additional working capital financing
through the FCC of SHQ in the form of short-term loans totaling $1,853,683.  The
loans  from  SHQ's  FCC  were also unsecured, payable in one year at an interest
rate  of  5.58%  per  annum,  and were guaranteed by SHQ.  In November 2005, the
Company  repaid  in  full  the  principal and accrued interest on the short-term
loans  aggregating  $1,853,683  granted  by  the  FCC  operated  by  SHQ.

In  November  2005,  the  Company  obtained  a  one-year  short-term  loan  of
approximately $2,478,315 (the "Loan") from the Shenzhen Development Bank Limited
("SDB").  The  Loan  is  unsecured  and  accrues interest at a rate of 5.58% per
annum.  The Loan was guaranteed by SHQ and replaced, in part, certain short-term
loans obtained by SDCL during 2005. In November 2006, the Company repaid in full
the matured principal and accrued interest of the Loan. A new short-term loan of
approximately  $2,561,000  was  subsequently granted by SDB in January 2007. The
new loan is unsecured and accrues interest at a rate of 6.12% per annum, and was
also  guaranteed  by  SHQ.


CONTRACTUAL  OBLIGATIONS

The  following  table  summarizes  the  Company's  contractual obligations as of
December  31,  2006:

<TABLE>
<CAPTION>
Contractual obligations  Payments due by period
-----------------------  ----------------------
<S>                      <C>                     <C>
Operating Leases
                                 2007            $  319,681
                                 2008               223,130
                                 2009               218,329
                                 2010               180,191
                                 2011               205,933
                         thereafter till 2018     1,338,564
                         ----------------------  ----------
                         Minimum lease payment   $2,485,828
                                                 ==========
</TABLE>

Bank  Loans

As  of  December  31, 2006, the Company had no outstanding short-term bank loan.

Capital  Expenditure  Commitments

At  December  31,  2006, the Company's commitments for capital expenditures were
approximately $1,460,000.  This commitment relates to costs to acquire machinery
and  equipment  which  are  used  in  the  Company's revenue sharing operations.


OFF-BALANCE  SHEET  ARRANGEMENTS

As  of December 31, 2006, the Company did not have any transactions, obligations
or  relationships  that  could  be  considered  off-balance  sheet arrangements.


INFLATION/CURRENCY  MATTERS

The  fluctuations of currency exchange rates between Renminbi ("RMB") and United
States  dollar  ("USD")  could  adversely  affect  the  Company's  results  of
operations. The Company's businesses, which are conducted primarily in China and


                                       30
<PAGE>
the  sale  of  its  products  to  corporations  in China, are settled in RMB but
translated  into  USD  for  reporting  purposes.

The  Chinese  government  controls  its foreign reserves through restrictions on
imports  and  conversion  of RMB into foreign currency.  The RMB to USD exchange
rate had been relatively stable since January 1, 1994, when the unitary exchange
rate  system  was introduced in China, replacing the dual-rate system previously
in  effect.  In  connection  with  the  creation of a unitary exchange rate, the
establishment  of the Chinese Foreign Exchange Trading System inter-bank foreign
exchange market.  Foreign-funded enterprises must satisfy their foreign exchange
requirements through licensed banks and financial institutions at the prevailing
exchange  rates  quoted  by  the  People's  Bank  of  China.

As  China  was admitted as a member of the World Trade Organization, the central
government  of  China is expected to adopt a more rigorous approach to partially
deregulate  the  currency conversion restriction, which may in turn increase the
exchange  rate  fluctuation  of  the  RMB.

On  July  21,  2005,  the  People's Bank of China ("PBC") announced that the RMB
would  no  longer  be tied directly to the USD but against a 'basket' of foreign
currencies  under  a managed floating exchange rate regime, and the new official
parity  exchange  rate of USD to RMB was set at US 1.00 to RMB 8.11 (previously,
US1.00 to RMB 8.30), to be allowed to float within a band of "0.3 percent around
the  central  parity  rate as published by the PBC daily.  This quotation of the
exchange  rates  does  not imply free convertibility of RMB to USD.  All foreign
exchange transactions in China continue to take place either through the Bank of
China  or  other  banks  authorized  to  buy  and sell foreign currencies at the
exchange  rate  quoted by the PBC.  Approval of foreign currency payments by the
Foreign  Exchange  Management Bureau or other institutions requires submitting a
payment application together with invoices, shipping documents, signed contracts
and  other  relevant  documentation.

The  RMB may continue to appreciate in value against the USD in the near future.
Exchange  rate  fluctuations  may  adversely  affect  the Company's revenue, the
majority of which are from the sales of products in China and are denominated in
RMB,  but  are  translated  into  USD  for  financial  reporting  purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

In  July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in  Income  Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income  taxes  recognized  in an enterprise's financial statements in accordance
with  FASB  Statement  No. 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition  threshold  and  measurement  attribute  for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  This  Interpretation  also  provides  guidance  on  derecognition,
classification,  interest  and  penalties,  accounting  in  interim  periods,
disclosure,  and  transition.  This Interpretation is effective for fiscal years
beginning  after December 15, 2006, with earlier adoption permitted. The Company
is  currently  evaluating  the  provisions  of  FIN  48.

In  September  2006, the FASB issued Statement of Financial Accounting Standards
("SFAS")  No.  157,  Fair  Value Measurements. SFAS No. 157 establishes a common
definition  for  fair  value  to be applied to US GAAP guidance requiring use of
fair  value,  establishes  a  framework  for  measuring  fair value, and expands
disclosure  about  such  fair  value measurements. SFAS No. 157 is effective for
fiscal  years  beginning  after  November  15,  2007.  The  company is currently
evaluating  the  provisions  of  SFAS  No.  157.

In  September,  2006,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting Bulletin No. 108 "Considering the Effects of Prior Year Misstatements
When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"),
which  provides  interpretive  guidance  on  how the effects of the carryover or
reversal  of  prior  year  misstatements  should  be considered in quantifying a
current  year  misstatement.  The adoption of SAB 108 did not have a significant
impact  on  the  consolidated  financial  statements.


                                       31
<PAGE>
ITEM  7.  FINANCIAL  STATEMENTS.

The  consolidated  financial statements are listed at the "Index to Consolidated
Financial Statements" elsewhere in this document and are included as an appendix
hereto.



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

None


ITEM  8A.  CONTROLS  AND  PROCEDURES

(a)  Evaluation  of  Disclosure  Controls  and  Procedures

Members  of  the  Company's  management,  including  its principal executive and
financial officers, have evaluated the effectiveness of the Company's disclosure
controls  and  procedures,  as  defined  by  paragraph (e) of Exchange Act Rules
13a-15 or 15d-15, as of December 31, 2006, the end of the period covered by this
annual report. Based upon that evaluation, the Company's principal executive and
financial  officers  have  concluded  that the Company's disclosure controls and
procedures  are  effective.

(b)  Changes  in  Internal  Controls

There were no changes in the Company's internal control over or in other factors
identified  in  connection  with  the  evaluation  required  by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that occurred during the year ended December
31,  2006  that have materially affected, or are reasonably likely to materially
affect,  our  internal  control  over  financial  reporting


ITEM  8B.  OTHER  INFORMATION

Not  applicable.


                                       32
<PAGE>
                                    PART III


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

The  following table and text sets forth the names and ages of all the directors
and  executive  officers  of  the  Company  as  of March 15, 2007.  The Board of
Directors  is comprised of only one class of members.  All of the directors will
serve  until  the next annual meeting of stockholders and until their successors
are elected and qualified, or until their earlier death, retirement, resignation
or  removal.  Executive  officers  serve  at  the  discretion  of  the  Board of
Directors, and are appointed to serve until the first Board of Directors meeting
following  the  annual  meeting  of  shareholders.  Also  provided  is  a  brief
description  of  the  business experience of each director and executive officer
and the key management personnel during the past five years and an indication of
directorships  held by each director in other companies subject to the reporting
requirements  under  the  United  States  securities  laws.  There are no family
relationships  between  or  among  any  of  the directors or executive officers.

<TABLE>
<CAPTION>
Name            Age                  Position held
--------------  ---  ----------------------------------------------
<S>             <C>  <C>
Guangwei Liang   44  Director, Chairman and Chief Executive Officer
Ming Li          50  Director and Chief Operating Officer
Aiguo Deng       71  Director
Zibo Niu         33  Director
Hui Zhao         39  Director, Audit and Compensation Committee
Xiaojun Xie      45  Director, Audit and Compensation Committee
Jun Zhao         40  Director, Audit and Compensation Committee
Zhigang Rong     43  Secretary
Gary Lui         46  Chief Financial Officer
</TABLE>

Biographies  of  Directors  and  Executive  Officers

GUANGWEI  LIANG
Mr.  Liang  has  served as a Director and Chief Executive Officer since November
2002,  and was subsequently appointed the Chairman on August 2, 2006.  Mr. Liang
has  over  15  years  experience  in  the  manufacturing  industry.  He  holds a
Bachelors Degree in Computer Science and Application from Shenzhen University, a
Masters  Degree in Law and a Doctoral Degree in Economics from Wuhan University.
Since  1986,  he  has  served  in  the  management level for several electronics
corporations  in  China.  He  is  also  the  Chairman  and President of Shenzhen
Huaqiang  Holdings  Company  Limited,  a Director of Hyvision Digital Film Inc.,
Shenzhen  Huaqiang  Industry  Company  Limited  and Wuhu City Huaqiang Tour City
Development  Co.,  Ltd.

MING  LI
Mr. Li has served as a Director and Chief Operating Officer since November 2002.
Mr.  Li  has  over  20  years  experience  in  manufacturing  and  hi-technology
industries.  From  1984  to  1988,  he  participated  in  a  visiting program at
Stevenson  Polytechnic in the United States and worked for several United States
corporations.  Since  1998,  he  has  served  in  the  management  level  for
hi-technology  corporations in China.  He is also a Director of Hyvision Digital
Film  Inc. and Shenzhen Huaqiang Industry Company Limited, and is an Independent
Director  of  Wuhu  City  Huaqiang  Tour  City  Development  Co.,  Ltd.

AIGUO  DENG
Mr.  Deng  was  appointed a Director of the Company on April 11, 2005.  Mr. Deng
has  extensive experience in the electronic and programming industries in China.
He  has  more  than 40 years experience in electronic, computer, programming and
manufacturing  industries.  Mr.  Deng  holds  various  senior  consulting  and
management  positions  in  several electronic and software development Groups in
China.  He  is  currently  the  Chairman  of  the Shenzhen Software and Programs
Manufacturers'  Association.


                                       33
<PAGE>
ZIBO  NIU
Mr.  Niu  was  appointed  a  Director of the Company on August 2, 2006. Mr.  Niu
holds  a  Masters  Degree  from  University  of  Science and Technology of China
and  has  9  years  of  experience  in  the  electronic  and  high  technology
industries.  Mr.  Niu  is currently a director of Megabase Investment Limited, a
wholly  owned  subsidiary  of  the  Company  and a director of Shenzhen Huaqiang
Technology  Co.  Ltd,  a  significant  shareholder  of  the  Company.

HUI  ZHAO
Mr.  Zhao  was  appointed  a  Director  and  a member of the Audit Committee and
Compensation  Committee of the Company since April 11, 2005.  Mr. Zhao graduated
from  the  Beijing  University  of  Aeronautics  and  Astronautics with major in
Manufacturing  Engineering.  During  the last 10 years, Mr. Zhao has served at a
management  level  for  various  technological,  engineering  and  electronics
companies  in  China.  He  currently  holds  senior  management positions in two
technology  and  engineering  companies  in  China.

JUN  ZHAO
Mr.  Zhao  was  appointed  as a Director and a member of the Audit Committee and
Compensation Committee of the Company in August 2004.  Mr. Zhao holds a Bachelor
Degree  in  Economics from Xinjiang Institute of Finance and Economics.  He is a
qualified  accountant  and  CPA.  Since 1989, Mr. Zhao has experience in finance
and  accounting  gained  from  various  China professional bodies and commercial
corporations.  He  is  currently  a CFO and Audit Supervision Manager of a China
corporation  in  Shenzhen.

XIAOJUN  XIE
Mr.  Xie  was  appointed  as  a Director and a member of the Audit Committee and
Compensation  Committee  of  the Company in August 2004.  Mr. Xie graduated from
Xiangtan  University  specializing  in  law.  In  1992,  he  was  granted  the
Professional  Lawyer  Practicing  Certificate.  Mr. Xie has been a lawyer in the
Hunan Tianfu Law Office and the Vice Director of Guangdong Shenglong Law Office.
He  is  currently  a  lawyer  in  the  Guangdong  Renren  Law  Office.

ZHIGANG  RONG
Mr.  Rong  served  as  a  Director of the Company from June 2003 until April 11,
2005,  and  he  has  been the Secretary of the Company since December 2003.  Mr.
Rong  holds  a  Bachelors  Degree  of  Computer  Science and a Masters Degree of
Information System Engineering from National University of Defense Technology in
China.  He is a qualified lecturer and senior engineer.  Mr. Rong is experienced
in  R&D  and  corporate management.  Since 1993, Mr. Rong has served as Manager,
Vice  General  Manger  and  General Manager of several technical companies.  Mr.
Rong  is  currently  a Director of FDI and Hyvision Digital Film Inc., and is an
Independent  Director  of  Wuhu  City  Huaqiang  Tour City Development Co., Ltd.

GARY  LUI
Mr.  Lui  was  appointed  as  the Chief Financial Officer of the Company in June
2005.  Mr.  Lui  has  over 19 years working experiences in various financial and
managerial  positions.  He  holds  a  Bachelor  Degree  in  Social Science and a
Master's  Degree  in  Applied  Finance.  From  1987  to 1995, Mr. Lui worked for
public  accounting  firm  as  an  Accountant,  and  for other private and public
companies as Financial Controller, General Manger and Project Controller.  Prior
to  joining  the  Company,  Mr.  Lui  was the Vice-President and Chief Financial
Officer  of  a  China-based  brewing  company listed on the OTC BB in the United
States.  Mr. Lui is currently a member of the Association of Chartered Certified
Accountants  and  the  Hong Kong Institute of Certified Public Accountants.  Mr.
Lui  is  also  an  Independent  Director of Courage Marine Group Ltd., a Bermuda
registered  shipping  company  listed  on  the  Singapore  Stock  Exchange.

Audit  Committee  and  Audit  Committee  Financial  Expert

The  Company  currently  has  a  separately  designated standing Audit Committee
established  in  accordance  with  Section 3(a)(58)(A) of the Exchange Act.  The
Audit  Committee  currently consists of Xiaojun Xie, Jun Zhao and Hui Zhao.  The
Board of Directors has determined that Mr. Zhao is an "audit committee financial
expert", as defined in Item 401(e)(2) of Regulation S-B.  Mr. Zhao is considered
"independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange  Act.


                                       34
<PAGE>
The  Company's  management  is  responsible for the preparation of the Company's
financial  statements  and  for  maintaining  an  adequate  system of disclosure
controls  and  procedures and internal control over financial reporting for that
purpose.  The  Company's  independent auditors are responsible for conducting an
independent  audit  of  the  Company's annual financial statements in accordance
with  generally  accepted  accounting  principles  and  issuing  a report on the
results  of  the  audit.  The  Audit  Committee  is  responsible  for  providing
independent,  objective  oversight  of  these  processes.

During  the  year  ended  December  31,  2006,  the Audit Committee reviewed and
approved  each  of  the  Company's  quarterly  reports on Form 10-QSB. The Audit
Committee  has  also  reviewed  and  approved  the  Company's  audited financial
statements  for  the  year  ended  December  31,  2006  and  has discussed these
financial  statements  with  the  Company's management and communicated with the
Company's  independent  auditor.

The Audit Committee has adopted policies and procedures relating to the approval
of  all  audit  and non-audit services that are to be performed by the Company's
independent  auditors or other professional and advisory bodies.  These policies
generally  require  that the Company will not engage its independent auditors or
other  professional  bodies  to  render  audit  or non-audit services unless the
service  is  specifically  approved  in  advance  by  the  Audit  Committee.

Involvement  in  Legal  Proceedings

None  of the Company's directors or executive officers has, during the past five
years, (1) had any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy  or  within  two  years  prior  to that time; (2) been convicted in a
criminal  proceeding  or  subject  to  a  pending  criminal proceeding; (3) been
subject  to any order, judgment, or decree, not subsequently reversed, suspended
or  vacated,  of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities, futures, commodities or banking activities; or (4) been
found  by  a court of competent jurisdiction (in a civil action), the SEC or the
Commodity  Futures  Trading  Commission,  to  have  violated  a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or  vacated.

Section  16(a)  Beneficial  Ownership  Compliance

Section  16(a)  of the Securities Exchange Act of 1934, as amended, requires the
Company's  executive officers and directors and persons who own more than 10% of
a  registered  class  of the Company's equity securities to file various reports
with  the  Securities  and Exchange Commission concerning their holdings of, and
transactions  in,  securities  of  the Company.  Copies of these filings must be
furnished  to  the  Company.

To the best of the Company's knowledge, based solely on its review of the copies
of  the  Section  16(a)  reports  furnished to it, the Company believes that all
individual  filing  requirements  applicable  to  the  Company's  directors  and
executive  officers  were  complied  with  under  Section  16(a)  during  2006.

Indebtedness  of  Directors  and  Executive  Officers

None  of  the  Company's  directors  or  executive  officers or their respective
associates  or affiliates is indebted to the Company except for cash advances in
relation  to  business  trips and exhibitions as set forth at "Item 12.  Certain
Relationships  and  Related  Transactions".


Legal  Proceedings  with  Affiliates

The Company is not involved in any legal proceedings with any director, officer,
affiliate  or  stockholder  of  the  Company.


                                       35
<PAGE>
Code  of  Ethics  and  Business  Conduct

The  Company  has  adopted  a  written Code of Ethics that applies to its senior
management  as  well  as all employees.  A copy of the Company's Code of Ethics,
adopted  by  the  Company's  Board  of Directors, was filed as an exhibit to the
Company's  Annual  Report  on Form 10-KSB for the fiscal year ended December 31,
2004.  A copy of the Company's Code of Ethics is available to any shareholder by
addressing  a  request  to  the  attention  of  the Secretary of the Company and
mailing  such  request to the Company's corporate offices.  Any amendment to the
Code  of  Ethics  or any waiver of the Code of Ethics will be disclosed promptly
following  the  date of such amendment or waiver pursuant to a Current Report on
Form  8-K  filing  with  the  Securities  and  Exchange  Commission.

Changes  in  Procedures  to  Nominate  Directors

Since  the date of the Company's last disclosures pursuant to Item 7(d)(s(ii)(G)
of  Schedule  14A of the Securities Exchange Act of 1934, as amended, there have
been  no  material  changes  to  the  procedures  by  which security holders may
recommend  nominees  to  the  Company's  Board  of  Directors.


ITEM  10.  EXECUTIVE  COMPENSATION

The  following  table  sets  forth  the  compensation paid by the Company to its
Principal  Executive  Officer, Principal Financial Officer and other most highly
compensated  executive  officers  during the last two fiscal years.  None of the
executive  officers  received  annual  compensation  in  excess  of  $100,000.

<TABLE>
<CAPTION>
                                           SUMMARY COMPENSATION TABLE


                                                                                 Change in
                                                                                  Pension
                                                                                 Value and
                                                                               Nonqualified
                                                                Non-equity       Deferred
Name and                                    Stock   Options   Incentive Plan   Compensation     All Other
Principal                 Salary   Bonus   Awards    Awards    Compensation      Earnings     Compensation    Total
Position            Year    ($)     ($)      ($)      ($)           ($)             ($)            ($)         ($)
------------------  ----  -------  ------  -------  --------  ---------------  -------------  -------------  -------
<S>                 <C>   <C>      <C>     <C>      <C>       <C>              <C>            <C>            <C>
Guangwei Liang      2006   78,000      --       --        --               --             --             --   78,000
Chief Executive     2005   60,000      --       --        --               --             --             --   60,000
Officer, Director   2004   10,000      --       --        --               --             --             --   10,000
and Chairman

Ming Li             2006   32,996      --       --        --               --             --             --   32,996
Chief Operating     2005   31,829      --       --        --               --             --             --   31,829
 Officer, Director  2004   29,548      --       --        --               --             --             --   29,548

Gary Lui            2006   52,000      --       --        --               --             --             --   52,000
Chief Financial     2005   40,000      --       --        --               --             --             --   40,000
 Officer            2004     NA        --       --        --               --             --             --     NA

Zhigang Rong        2006   33,755      --       --        --               --             --             --   33,755
Secretary           2005   32,561      --       --        --               --             --             --   32,561
                    2004   28,735      --       --        --               --             --             --   28,735
</TABLE>

Option  Grants  and  Outstanding  Equity  Awards

None  of  the  executive  officers  or employees received any plan-based grants,
options,  equity  or  non-equity  incentive  awards,  qualified or non-qualified
deferred  compensation  during  the  year  ended  December  31,  2006  and 2005.

There  were  no  stock-based or equity awards, including option awards and stock
awards  outstanding  as  of  December  31,  2006  and  2005.


                                       36
<PAGE>
DIRECTOR  COMPENSATION

During  the  year  ended  December  31, 2006, the Company held limited number of
meetings  of  its  Board  of  Directors.  However,  most  corporate actions were
conducted by unanimous written consent of the Board of Directors.  Directors are
reimbursed  for any out-of-pocket expenses incurred in attending board meetings.
The  Company  has  no  arrangement  for  compensation  of  its Directors for any
services  provided as a director, including services for committee participation
or  for  special assignments. Currently, the Compensation Committee is reviewing
its  director  compensation  policy.


COMPENSATION  COMMITTEE

The  Compensation  Committee currently consists of Xiaojun Xie, Jun Zhao and Hui
Zhao  as  its  members.  Mr.  Xie has served as the Chairman of the Compensation
Committee.  The  Compensation  Committee  held one meeting during the year ended
December 31, 2006. The Compensation Committee is responsible to assist the Board
in  establishing  the compensation policies and the monitoring of such policies.
The  Committee  also  recommends  the salaries and incentive compensation of the
Company's  executive  officers,  directors  and  employees.

The Company's compensation program is intended to enable the Company to attract,
motivate,  reward  and  retain  management  talent required to achieve corporate
objectives and thereby increase stockholder value. It is the Company's policy to
provide  incentives  to  the  senior  management  to achieve both short-term and
long-term  objectives and to reward exceptional performance and contributions to
the  development  of  the  Company's  business.

The  Company's  compensation program for its executive officers is administrated
and reviewed by the Compensation Committee. Historically, executive compensation
consists  of  a combination of base salary and discretionary bonuses. Individual
compensation  levels  are  designed  to  reflect  individual  responsibilities,
performance  and  experience,  as  well  as  the  Company's  performance.  The
determination  of  discretionary  bonuses is based on various factors, including
implementation  of  the  Company's  business  plan,  acquisition  of  assets,
development  of  corporate opportunities and general salary level in the Chinese
market.

Although  the  Compensation  Committee believes that executives and non-employee
directors  should  have  a  substantial  equity  ownership,  both  through share
ownership  and through stock options, to provide long-term incentives which link
executive  compensation to the Company's long-term performance and return to its
shareholders,  the Committee and the management of the Company consider that, as
majority  of  the  employees  are  resided  in China, and in view of the current
business  development  of  the  Company, an equity or option incentive plan will
only  be  introduced  in  due course, since the current level of compensation is
sufficient  to  retain  the  management  team.

The  Compensation  Committee  will  annually  review and approve, subject to the
acceptance  of  the  Board  of  Directors,  the  salaries  that were paid to the
executive  officers.  It  will  also  review  any adjustment of salary for other
employees.  In  recommending  the salaries structure, the Compensation Committee
takes  into  account  of  factors  such as the general compensation data and job
market in China, the qualitative elements bearing on an individual's experience,
responsibilities,  management  and  leadership  abilities  as  well  as  job
performance.  Effective January 1, 2007, the Compensation Committee approved and
increased  the  base  salary  for  certain  well-performed senior management and
employees,  ranging  from  3%  to  8%, as well as the compensation for executive
officers  for  2006.

STOCK  OPTIONS

On  January  7,  2004,  the  Company  granted stock options to acquire 2,000,000
shares  of  common  stock  to  its key employees exercisable for a period of ten
years at $1.00 per share.  The market price of the Company's common stock at the


                                       37
<PAGE>
grant  date  was  $0.80 per share.  Unexercised options are terminated one month
after  termination  of  employment.

Effective  October  10,  2005, the Board of Directors of the Company resolved to
cancel  all  of  the  issued and outstanding stock options which were previously
granted  to  the  Company's  key  employees.  In October 2005, all of the option
holders  entered  into  Option  Surrender  and  Cancellation Agreements with the
Company  and agreed to surrender unconditionally and irrevocably the options for
cancellation  with  no  additional  monetary  compensation  from  the  Company.

The  Company  has  not  adopted  any  stock option or equity compensation plans.


EMPLOYMENT  AGREEMENTS  AND  ARRANGEMENT

There  are  currently  no  consulting  agreements  between  the  Company and its
executive  officers  or  directors.  Apart  from  following  the general Chinese
employment  rules,  regulations  and  practices,  the  Company does not maintain
separate  formal  employment agreements with its executive officers. The Company
intends  to  enter into an employment agreement with each executive officer upon
the completion of review and recommendation by the Compensation Committee. It is
expected  that  the  proposed  agreements  will  contain  provisions  which  are
comparable to those of similarly situated companies in the industry with respect
to  confidentiality,  non-competition,  intellectual  property  and  terms  of
reference.

As  stipulated  by  the Chinese government employment regulations, the Company's
Chinese  subsidiaries  and  associated companies have a compulsory obligation to
contribute  to  a  defined  central  retirement plans for all of their full-time
employees including senior management.  During the years ended December 31, 2006
and 2005, the monthly contributions were calculated at 9% and 11%, respectively,
of  the basic salaries of the full-time employees.  The pension costs charged to
operations  during  the  years  ended  December  31,  2006  and 2005 amounted to
$105,438  and  $110,438  ,  respectively.


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

As  used  in  this  section,  the  term  beneficial  ownership with respect to a
security  is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended,  as  consisting  of sole or shared voting power (including the power to
vote  or  direct the vote) and/or sole or shared investment power (including the
power  to  dispose of or direct the disposition of) with respect to the security
through  any  contract,  arrangement,  understanding, relationship or otherwise,
subject  to  community  property  laws  where  applicable.

As  of  March  15,  2007, the Company had a total of 30,096,117 shares of common
stock  issued  and  outstanding, which is the only issued and outstanding voting
equity  security  of  the  Company.

The  following  table  sets  forth,  as  of  March  15, 2007:  (a) the names and
addresses  of  each  beneficial  owner  of  more  than  five percent (5%) of the
Company's  common  stock  known  to  the Company, the number of shares of common
stock  beneficially  owned by each such person, and the percent of the Company's
common  stock  so  owned;  and  (b) the names and addresses of each director and
executive  officer, the number of shares of common stock beneficially owned, and
the  percentage of the Company's common stock so owned, by each such person, and
by  all directors and executive officers of the Company as a group.  Each person
has sole voting and investment power with respect to the shares of common stock,
except  as  otherwise  indicated.  Beneficial  ownership  consists  of  a direct
interest  in  the  shares  of  common  stock,  except  as  otherwise  indicated.


                                       38
<PAGE>
<TABLE>
<CAPTION>
                                                                    Percent of
Name and Address                    Amount and Nature of         Shares of Common
of Beneficial Owner                 Beneficial Ownership       Stock Outstanding (1)
-----------------------------       --------------------       ---------------------
<S>                            <C>  <C>                   <C>  <C>

Shenzhen Huaqiang Technology
  Company Limited ("SHT")      (2)            10,694,432  (4)                 35.53%

Ming Li
Director and Chief
  Operating Officer            (3)                26,613                       0.09%

Zhigang Rong
Secretary                      (3)                26,613                       0.09%

Hui Zhao
Director and member
  of Audit Committee and
  Compensation Committee       (3)                 8,871                       0.03%

Guangwei Liang
Director, Chairman and
Chief  Executive Officer       (3)                    --                         --

Aiguo Deng
Director                       (3)                    --                         --

Zibo Niu
Director                       (3)                32,984                       0.11%

Xiaojun Xie
Director                       (3)                    --                         --

Jun Zhao
Director                       (3)                    --                         --

Gary Lui
Chief Financial
  Officer                      (3)                    --                         --

All directors and executive
  officers (9 persons)         (3)                95,081  (5)                  0.32%
<FN>
----------------------------------
(1)  Based on  30,096,117  shares  of issued and outstanding common stock of the
     Company.
(2)  The address  of  SHT  is  Room 2601 and 2603, 26th Floor, Huaqiang Bldg. A,
     Shennan  Zhong  Road,  Shenzhen  518031,  People's  Republic  of  China.
(3)  The address  of  each such person is c/o the Company, Suite 1A, 18/F, Tower
     1,  China  Hong  Kong  City,  Tsimshatsui,  Kowloon,  Hong  Kong.
(4)  Included  4,471,469  shares  of  the  common  stock of the Company owned by
     Huaqiang  Technology  (Hong  Kong) Company Limited ("HTHK"), a wholly-owned
     subsidiary  of  SHT,  and  6,222,963  shares of common stock of the Company
     owned  by Vinsway Holding Limited ("Vinsway"), a wholly-owned subsidiary of
     HTHK.
(5)  On April  4,  2005,  SHT acquired from the Chairman, the CEO and two former
     directors  of  the  Company  all  of the issued stock of Vinsway, through a
     share  swap  for  an  aggregate  2.5%  interest  in  SHT.
</TABLE>


                                       39
<PAGE>
Changes  in  Control

The  Company  is  unaware of any contract or other arrangement, the operation of
which  may  at  a  subsequent date result in a change in control of the Company.


ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

Agreement  with  associated  company

On  June  1, 2004, SDCL and FDI entered into an Agreement pursuant to which SDCL
engaged  FDI,  its  controlled  associated  company,  as its sales agent for the
marketing  and  distribution of its amusement and simulation equipment and 3D/4D
theatres  in  China.  Commencing  January  1,  2005  and thereafter, FDI will be
entitled  to  a  commission  ranging  from  10%  to  20%  of the contract price,
depending  on  the  gross  margin  of  the specific contract and the size of the
related  project  under  the  contract.  In  addition,  a  5%  advertising  and
promotional  incentive  will  be  provided to FDI for each contract solicited by
FDI.  The  aforesaid  commissions  and  incentives  will  be  reflected  in  the
ex-factory  price  (reduced  selling  price)  and transferred to FDI through its
purchase  from SDCL of the related equipment and products.  The agreement can be
terminated  at  any  time  with  60 days notice to the other party.  FDI will be
responsible  for its own operating costs including staff salaries, marketing and
promotional expenses, general office and administrative expenses, as well as the
associated  sales  taxes  and  income  tax.

In  addition,  the  agreement  also  provides  that FDI may include in its sales
contracts  a  provision  for  the cooperative operation of any hi-tech amusement
center  "FunPlex" or theme park "Fantawild" when the proposed operating venue is
suitable for the business.  However, FDI will only act as the agent in such part
of the contract on behalf of SDCL.  FDI will have no direct or indirect economic
or  legal  interest in the revenue- sharing operations, which will be solely the
business  of  SDCL,  and SDCL will be responsible for contributing the equipment
and fixed assets required for the cooperative operation.  All revenues generated
by  such  cooperative  business operations will be received by SDCL, and all the
related  expenses  as  stipulated in such cooperation contracts will be borne by
SDCL.

In practice, the advertising and promotional incentives and commissions are paid
to  FDI  through  a price reduction.  SDCL reduces the sales price to FDI by the
amount  of the agreed percentage of incentives and commissions, which represents
a  reduction  in  the  revenue of SDCL.  FDI can capture such portion of revenue
from  its  onward  sales  to  the  ultimate  customers.

When FDI receives the commissions and incentives, which are reflected as reduced
costs  of  sales  for  FDI,  the income is included in FDI's gross profit, which
supports  FDI's  selling,  administrative  and  other  operating  functions.  No
further  incentives  are  passed  on  to  the  ultimate  customers  from  FDI.

The  revenue recognized by SDCL and the reduced costs of sales for FDI, however,
are  eliminated  in  preparing  the  consolidated  financial  statements  of the
Company.  Accordingly, the commission and incentive received by FDI are included
in  the  consolidated  gross  profit  only.

During the years ended December 31, 2006 and 2005, SDCL sold its products to FDI
for  an  aggregate price of $191,400 and $4,019,111, respectively, for resale to
end customers.  During the years ended December 31, 2006 and 2005, FDI collected
for  SDCL  a  total  of  $201,899 and $281,647, respectively, of the net revenue
shared  from  the  revenue-sharing  centers  operated  for  SDCL.

Contracts  with  related  party

On  January  24,  2006,  SDCL entered into an Equipment Sale Contract (the "Sale
Contract")  and an Equipment Installation Contract (the "Installation Contract")
with  Wuhu Huaqiang Tour City Development Co., Ltd. ("Wuhu Huaqiang").  Pursuant
to the Sale Contract, Wuhu Huaqiang will purchase from SDCL 22 sets of amusement
attractions/equipment  (the  "Equipment") for use in a specific theme park to be


                                       40
<PAGE>
built  in  the  City  of Wuhu, Anhui Province, China.  The consideration for the
Equipment  is  RMB  126,730,000  (approximately $15,650,000) (the "Sale Price"),
plus a right to receive 8% of the theme park's Distributable Income for a period
of  15 years from commencement of theme park operations.  "Distributable Income"
means  the  theme park's Gross Revenue, less certain limited expenses (including
sales  tax  and  the  purchase  cost  of  souvenirs,  beverages, foods and other
commodities  sold in the theme park).  Wuhu Huaqiang has made an initial deposit
of  approximately 6% of the Sale Price (approximately $938,000) within one month
of  the  effective  date of the Sale Contract.  The balance of the Sale Price is
payable  in  five  separate installments to be made through May 30, 2007.  Under
the  Sale  Contract, Wuhu Huaqiang has guaranteed that the 8% revenue share from
the theme park's aggregate Distributable Income during such 15-year period shall
in  no  case  be  less  than  RMB  50,000,000  (approximately  $6,170,000).

The  Installation Contract provides for the installation of the Equipment at the
theme  park  by  SDCL.  Total  consideration for the installation service is RMB
10,000,000  (approximately  $1,230,000)  payable  in  five  equal  installments
beginning one month after the signing of the Installation Contract and ending 10
days  after  completion  of the installation services. The installation services
are  scheduled  to  be  completed  by  July  18,  2007.

Management  believes  that  these  arrangements  with  Wuhu  Huaqiang  will  be
advantageous  to  the Company and that its participation in the large-size theme
park  business  will  enhance  its  reputation  in  the  industry with a minimum
investment.  Both the Sale and Installation Contracts were reviewed and approved
by  the  Company's  Audit  Committee  and  Board  of  Directors.

Wuhu  Huaqiang  is  a joint venture company incorporated in the City of Wuhu and
currently  controlled  by SHICL, an affiliate of SHQ. The Chairman and President
of  SHQ  is  also the Chairman and CEO of the Company.  The Chairman and CEO did
not  participate  in  the discussion regarding or eventual Board approval of the
Sale  and  Installation  Contracts.  The  Chief Operating Officer ("COO") of the
Company  is  also  a  director  of  Wuhu  Huaqiang.

During  the year ended December 31, 2006, the Company recorded sale revenue from
Wuhu  Huaqiang  of approximately $5,500,000 while no such sale revenue from Wuhu
Huaqiang  in  2005.

Design  and  consulting  contracts  with  related  party

On  October  10,  2005,  the  Company's  indirect  wholly-owned subsidiary, SDCL
entered  into  a  design  contract (the "Contract") with Wuhu City Huaqiang Tour
City  Development  Co.,  Ltd. ("Wuhu Huaqiang").  Pursuant to the Contract, SDCL
had  been engaged to perform the project design for a theme park being developed
by  Wuhu Huaqiang in the City of Wuhu, Anhui Province, China. The design fee was
RMB  11 million (approximately $1,356,000).  The design project was completed by
December  15,  2005.

In  November  2006,  FDI  entered  into  a  design  contract with Wuhu Huaqiang.
Pursuant  to  the  contract,  FDI  had  been  engaged  to  perform  the interior
decoration  advisory services for Phase I of the theme park in the City of Wuhu.
The  design  fee  was  approximately  $393,000 and the contract was completed in
December  2006.

During  the  year  ended  December 31, 2006, FDI also rendered its marketing and
consultation  services  to Hyvision Digital Film Inc. ("Hyvision"), an affiliate
of  SHQ,  in order to enhance the marketability and rental income of its digital
3D/4D  film  products.  The  total  service  fee  was  approximately  $292,000.

Purchases  of  digital  films  and  related  components

During  the  years  ended  December  31,  2006  and 2005, SDCL purchased certain
components  for  its  products from Hyvision, having a total value of $2,469,613
and  $1,167,396, respectively. The CEO, the Secretary (Zhigang Rong) and the COO
of the Company are also directors of Hyvision. SHT, a significant shareholder of
the  Company,  has  a  20%  equity  interest  in  Hyvision.


                                       41
<PAGE>
Sales  to  related  parties

During the years ended December 31, 2006 and 2005, SDCL sold equipment to Hytech
HK  for  an aggregate price of $663,750 and $648,090, respectively. Hytech HK is
beneficially owned by Top Link Development Limited ("TLD"), a company controlled
by  SHQ.


As  at  December  31,  2006  and  2005,  the amounts payable and receivable from
related  parties  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                  2006           2005
                                             --------------  ------------
Amounts due from:
-----------------
<S>                                          <C>             <C>
Hytech HK (1)                                $     850,714   $   159,988
Shenzhen Huaqiang Industrial
     and Trading Co. Ltd. ("HIT")(2)                 7,183         7,791
Chunren Xie (3)                                      1,500         1,500
Directors (4)                                       19,298        24,442
Wuhu Huaqiang (5)                                1,540,050            --
Shenzhen Juqiang Construction
     Co. Ltd. ("SJC") (6)                           54,670            --
Shenzhen Huaqiang Information
     Industry Co. Ltd. ("HII") (7)                   3,074            --
Hyvision (8)                                       237,196            --
                                             --------------  ------------
                                             $   2,713,685   $   193,721
                                             ==============  ============

                                                      2006          2005
                                             --------------  ------------
Amounts due to:
---------------
Hytech HK (1)                                $    (908,634)  $  (141,506)
Top Link Development Limited (9)                   (50,000)     (280,000)
Dehou Fang (9)                                     (20,000)      (20,000)
Bilibest Industries Ltd (10)                      (478,947)     (336,843)
Hyvision (8)                                    (1,702,945)           --
SHQ (11)                                           (11,621)           --
                                             --------------  ------------
                                             $  (3,172,147)  $  (778,349)
                                             ==============  ============
------------------------------------------
<FN>

(1)  The amount  payable  to  Hytech HK represents the payment made on behalf of
     the  Company in respect of its administrative expenses incurred outside the
     China.  These  amounts  are  unsecured,  non-interest  bearing  and have no
     definite  term  of  repayment.  The amount due from Hytech HK was the trade
     receivable  that  arose  from  the  sales  of  the  Company's  products.

(2)  HIT is  an  affiliate  of SHQ. This amount represents a payment made by the
     Company  on  behalf  of  HIT  in connection with one of the revenue-sharing
     operations  that  has  since been terminated and moved to another location.
     The  amount  is unsecured, non-interest bearing and has no definite term of
     repayment.

(3)  Chunren  Xie  is  a  30%  minority  shareholder  of  Hytech  US.

(4)  Amounts  due from directors represent cash advances made for business trips
     and  trade  fairs.

(5)  The amounts  due  from Wuhu Huaqiang represent the trade account receivable
     arising  from  the  construction  of the theme park in the City of Wuhu and
     consultation  services provided, as well as the payment made by the Company
     on  behalf  of  Wuhu  Huaqiang  related  to  an  exhibition  in  Shanghai.

(6)  SJC is  an  affiliate of SHQ. The receivable amount due from SJC represents
     sundry  expenses  made  by  the  Company  on  behalf  of SJC. The amount is
     unsecured,  non-interest  bearing  and  has  no definite term of repayment.


                                       42
<PAGE>
(7)  The amount  due  from  Shenzhen  Huaqiang  Information  Industry  Co.  Ltd.
     ("HII"), an affiliate of SHQ, represents the amount receivable arising from
     the  Company's  disposal  of  obsolete  property,  plant and equipment. The
     Secretary  and  the  COO  of  the  Company  are  also  directors  of  HII.

(8)  The amount  due  from  Hyvision  represents  the  trade  account receivable
     arising  from  the  market survey and consulting services performed by FDI.
     The  amount  due to Hyvision represents the amount payable for the purchase
     of  digital  film  products  and  other  components  from  Hyvision.

(9)  The amounts  due to Top Link Development Limited ("TLD") and Mr. Dehou Fang
     represent  balance  of  the  amounts  loaned  to  Intsys  in  2002  for the
     acquisition  of Hytech US and other administrative expenses of the Company.
     TLD is controlled by SHQ and Mr. Dehou Fang is a director of Intsys. During
     the  year  ended December 31, 2006, the Company repaid $230,000 to TLD. The
     remaining  related  party  loans  aggregating  $70,000  are  unsecured,
     non-interest  bearing  and  have  no  definite  term  of  repayment.

(10) The amounts  payable  to  Bilibest Industries Limited, an affiliate of SHQ,
     represent payments made on behalf of the Company for certain administrative
     expenses  incurred outside China. These amounts are unsecured, non-interest
     bearing  and  have  no  definite  term  of  repayment.

(11) The amount  due  to  SHQ  represents  the  rental expenses of the Company's
     Shenzhen  Office  payable  to  SHQ.
</TABLE>

Deposits  at  Financial  Clearing  Centers  Operated  by  Affiliates

Cash on deposit at the financial clearing centers ("FCC") operated by affiliates
as  at  December  31,  2006  and  December  31,  2005  is summarized as follows:

<TABLE>
<CAPTION>
                                              December 31, 2006   December 31, 2005
                                              ------------------  ------------------
<S>                                           <C>                 <C>
Financial clearing center operated by:
  Shenzhen Huaqiang Holdings Limited ("SHQ")  $              170  $          321,728
                                              ------------------  ------------------
                                              $              170  $          321,728
                                              ==================  ==================
</TABLE>

The  Company's China subsidiaries are members of the FCC operated by SHQ.  SHQ's
role  is  mainly  a  coordinator  to  the  financial arrangement of its members.

An FCC resembles an internal bank which accepts deposit from and grants loans to
its  members  at  the  prevailing  market rate of interests. An FCC also obtains
loans  from  external commercial banks and then in turn sub-lends to its members
in  order  to  meet  their  working  capital  requirements with less complicated
application  procedures and no attendant financial charges. The cash deposits at
the  FCC  can  be  withdrawn  any time without any restrictions, except that the
respective  FCC can collect directly from the Company's account any overdue loan
principal  and  accrued  interest  in  case  the  Company  is  in default in its
repayment  obligations.

Short-term  loans  arrangement  with  related  parties

In  September  2004,  the Company obtained a short-term bank loan of $2,433,735.
The  interest  rate  on  the bank loan was 5.31% per annum with interest payable
monthly  and  the  principal  was  due  for  repayment in one year. The loan was
guaranteed  by SHQ. The short-term bank loans of $2,433,735 due for repayment in
September  2005  were  repaid  in  a  timely  manner.


                                       43
<PAGE>
In  August  2005, the Company obtained a bridge loan of approximately $1,000,000
from  SHT,  a significant shareholder (35.54%) of the Company, at the prevailing
market  interest  rate  of  5.58%  per  annum.  This  bridge  loan was repaid in
September  2005  with  the  proceeds  from  another temporary short-term loan of
$2,224,419  granted  by  the  FCC  operated  by SHT. The loan from SHT's FCC was
unsecured  due  and  payable on December 29, 2005, had an interest rate of 5.22%
per  annum,  and was guaranteed by SHT. On November 26, 2005, the Company repaid
in  full the principal and accrued interest on the short-term loan of $2,224,419
granted  by  the  FCC  operated  by  SHT.

In  September  2005,  the  Company obtained additional working capital financing
through  the  FCC of SHQ of short-term loans totaling $1,853,683. The loans from
SHQ's  FCC  were  also  unsecured,  payable in one year at an annual interest of
5.58%,  and were guaranteed by SHQ. In November 2005, the Company repaid in full
the  principal  and  accrued  interest  on  the  short-term  loans  aggregating
$1,853,683  granted  by  the  FCC  operated  by  SHQ.

In  November 2005, the Company obtained a one year short-term loan approximately
$2,478,315 (the "Loan") from Shenzhen Development Bank Limited ("SDB"). The Loan
is  unsecured  and  accrues interest at a rate of 5.58% per annum.  The Loan was
guaranteed  by  SHQ.  In November 2006, the Company repaid in full the principal
and accrued interest of the Loan. In view of the current and anticipated working
capital  position,  the  Company considered that the Loan was no longer required
and  therefore,  the  Loan  was  not  renewed.


ITEM  13.  EXHIBITS

A  list  of  exhibits required to be filed as part of this Annual Report on Form
10-KSB  is  set  forth in the Index to Exhibits, which immediately precedes such
exhibits,  and  is  incorporated  herein  by  reference.


ITEM  14.  PRINCIPAL  ACCOUNTING  FEES  AND  SERVICES

BDO McCabe Lo Limited ("BDO") has served as the Company's independent registered
public accounting firm since November 2005.  Services provided to the Company by
BDO  with  respect to the period ended December 31, 2006 consisted mainly of the
audit  of  the Company's consolidated financial statements as well as the review
of  the  Company's  quarterly reports. The following is a summary of the related
professional  fees  invoiced  to  the Company by BDO, and by Weinberg & Company,
P.A.  ("Weinberg"),  the  predecessor  independent  registered public accounting
firms  of  the  Company,  and  Deloitte  Touch  Tohmatsu  ("Deloitte"),  the tax
representative  of  the  Company,  for professional services rendered during the
years  ended  December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                      Year Ended December 31, 2006       Year Ended December 31, 2005
                    ---------------------------------  ---------------------------------
Fee Category            BDO       Winberg   Deloitte       BDO      Weinberg   Deloitte
------------------  -----------  ---------  ---------  -----------  ---------  ---------
<S>                 <C>          <C>        <C>        <C>          <C>        <C>
Audit Fees          $   114,900  $      --  $      --  $    48,000  $ 164,756  $      --
Audit-Related Fees           --         --         --           --     26,048         --
Tax Services Fees            --         --     21,950           --      6,667     37,750
All Other Fees               --      6,100         --           --      7,200         --
                    -----------  ---------  ---------  -----------  ---------  ---------
Total Fees          $   114,900  $   6,100  $  21,950  $    48,000  $ 204,671  $  37,750
                    ===========  =========  =========  ===========  =========  =========
</TABLE>

Audit fees were the aggregated fees billed for professional services rendered by
the  principal  accountants  for  the  audit  of  the Company's annual financial
statements  and  review  of  condensed  financial  statements  included  in  the
Company's  Quarterly  Report  on  Form  10-QSB  filings,  and services that were
normally  provided  in  connection  with  statutory  and  regulatory  filings or
engagements.


                                       44
<PAGE>
Audit-related  fees  were  the  aggregated fees billed for assurance and related
services  by  the  principal  accountant  that  were  reasonably  related to the
performance  of  the  audit  or  review  of  the Company's financial statements.

Tax services fee were billed for professional services performed by Deloitte and
Weinberg  for  tax  compliance,  tax  advice  and  tax  planning.  This included
preparation  of  federal  and  state  income tax returns for the Company and its
consolidated  subsidiaries  and  associates.

All  other  fees  were  fees  for  products and services other than the services
reported  above.  The  fees  incurred  in  2006 and 2005 was attributable to the
change  of independent registered public accountant arising from the requirement
to  obtain consent and review of prior year information as well as other related
work.


                                       45
<PAGE>
                                   SIGNATURES

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

                                        FANTATECH  INC.
                                        ----------------------------------
                                        (Registrant)

Dated:  April  14,  2007           By:  /s/  GUANGWEI  LIANG
                                        -------------------------------------
                                        Guangwei  Liang
                                        Chief  Executive  Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed below by the following persons on behalf of the Registrant and
in  the  capacities  and  on  the  dates  indicated.

Dated:  April  14,  2007           By:  /s/  GUANGWEI  LIANG
                                        -------------------------------------
                                        Guangwei  Liang
                                        Chief  Executive  Officer
                                          and  Director

Dated:  April  14,  2007           By:  /s/  MING  LI
                                        -------------------------------------
                                        Ming  Li
                                        Chief  Operating  Officer
                                          and  Director

Dated:  April  14,  2007           By:  /s/  GARY  LUI
                                        -------------------------------------
                                        Gary  Lui
                                        Chief  Financial  Officer

Dated:  April  14,  2007           By:  /s/  ZHIGANG  RONG
                                        -------------------------------------
                                        Zhigang  Rong
                                        Secretary

Dated:  April  14,  2007           By:  /s/  AIGUO  DENG
                                        -------------------------------------
                                        Aiguo  Deng
                                        Director

Dated:  April  14,  2007           By:  /s/  HUI  ZHAO
                                        -------------------------------------
                                        Hui  Zhao
                                        Director


Dated:  April  14,  2007           By:  /s/  XIAOJUN  XIE
                                        -------------------------------------
                                        Xiaojun  Xie
                                        Director


                                       46
<PAGE>
Dated:  April  14,  2007           By:  /s/  JUN  ZHAO
                                        -------------------------------------
                                        Jun  Zhao
                                        Director

Dated:  April  14,  2007           By:  /s/  ZIBO  NIU
                                        -------------------------------------
                                        Zibo  Niu
                                        Director


                                       47
<PAGE>
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number     Description of Document
------
<S>      <C>
3.1      Certificate of Incorporation (1)

3.2      Certificate of Amendment to the Certificate of Incorporation (2)

4.1      Registration Rights Agreement, dated November 5, 2002 (3)

10.1     Stock Purchase Agreement dated November 4, 2002 (3)

10.2     Stock Purchase Agreement dated October 16, 2002 (3)

10.3     Share Exchange Agreement dated November 6, 2002 (3)

10.4     Bought and Sold Notes between Intsys Share Limited and Top Link Hi-Tech Development
         (H.K.) Limited dated May 12, 2004 (4)

10.5     Share Exchange Agreement among the Company, Intsys Share Limited and Topforce Asia
         Limited dated October 18, 2004 (5)

10.6     Agreement between Shenzhen Digitainment Company Limited and Fantatech Development
         Inc. dated June 1, 2004 (6)

10.7     Design Contract by and between Shenzhen Digitainment Company Limited and Wuhu City
         Huaqiang Tour City Development Co., Ltd., dated October 10, 2005 (7)

10.8     Short Term Loan Agreement by and between Shenzhen Digitainment Company Limited and
         Shenzhen Huaqiang Holdings Limited Financial Clearing Center for RMB2,000,000, dated
         July 28, 2005 (8)

10.9     Short Term Loan Agreement by and between Shenzhen Digitainment Company Limited and
         Shenzhen Huaqiang Holdings Limited Financial Clearing Center for RMB13,000,000, dated
         August 19, 2005 (8)

10.10    Short Term Loan Agreement by and between Shenzhen Digitainment Company Limited and
         Shenzhen Huaqiang Technology Co., Ltd. Financial Clearing Center for
         RMB18,000,000, dated September 29, 2005 (8)

10. 11   Short Term Loan Agreement by and between Shenzhen Digitainment Company Limited  and
         Shenzhen  Development Bank Limited for RMB20,000,000, dated November 24, 2005 (9)

10.12    Equipment Sale Contract by and between Shenzhen Digitainment Company Limited and
         Wuhu City Huaqiang Tour City Development Co., Ltd., dated January 24, 2006 (10)

10.13    Equipment Installation Contract by and between Shenzhen Digitainment Co., Ltd. and Wuhu
         City Huaqiang Tour City Development Co., Ltd., dated January 24, 2006 (10)

14.1     Code of Ethics and Business Conduct (6)

21.1     Subsidiaries of the Company (11)

31.1     Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (11)


                                       48
<PAGE>
31.2     Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (11)

32.1     Officer's Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (11)

32.2     Officer's Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (11)

99.1     Fairness Opinion issued by Palisades Capital Group, LLC dated September 10, 2004 (5)

<FN>
--------------------
(1)      Filed as an Exhibit to the Company's report on Form S-1 on November 17, 1996, and
         incorporated herein by reference.

(2)      Filed as Exhibit to the Company's report on Schedule 14C on December 30, 2002, and
         incorporated herein by reference.

(3)      Filed as Exhibit to the Company's Current Report on Form 8-K on November 11, 2002, and
         incorporated herein by reference.

(4)      Filed as Exhibit to the Company's Current Report on Form 8-K on May 12, 2004, and
         incorporated herein by reference.

(5)      Filed as Exhibit to the Company's Current Report on Form 8-K on October 18, 2004, and
         incorporated herein by reference.

(6)      Filed as Exhibit to the Company's Annual Report on Form 10-KSB on May 5, 2005, and
         incorporated herein by reference.

(7)      Filed as Exhibit to the Company's Current Report on Form 8-K on October 11, 2005, and
         incorporated herein by reference.

(8)      Filed as Exhibit to the Company's Quarterly Report on Form 10-QSB on November 14, 2005, and
         incorporated herein by reference.

(9)      Filed as Exhibit to the Company's Current Report on Form 8-K on December 1, 2005, and
         incorporated herein by reference.

(10)     Filed as Exhibit to the Company's Current Report on Form 8-K on January 25, 2006, and
         incorporated herein by reference.

(11)     Filed herein.
</TABLE>


                                       49
<PAGE>
<TABLE>
<CAPTION>
                        FANTATECH, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                               Pages
                                                               -----
<S>                                                            <C>
Index                                                          F - 1

Report of Independent Registered Public Accounting Firms       F - 2

Consolidated Balance Sheets as of December 31, 2006 and 2005   F - 3

Consolidated Statements of Operations for the Years
Ended December 31, 2006 and 2005                               F - 4

Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2006 and 2005                               F - 5

Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 2006 and 2005          F - 6

Consolidated Statements of Cash Flows for the Years
Ended December 31, 2006 and 2005                               F - 7

Notes to Consolidated Financial Statements for the Years       F - 8 to F- 32
Ended December 31, 2006 and 2005
</TABLE>


                                     F-1
<PAGE>

             REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the shareholders and the Board of Directors of
Fantatech, Inc.


We  have audited the accompanying consolidated balance sheets of Fantatech, Inc.
and  subsidiaries  (the  "Company")  as  of  December 31, 2006 and 2005, and the
related  consolidated  statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are  the  responsibility  of  the Company's management. Our responsibility is to
express  an  opinion  on  these  consolidated  financial statements based on our
audits.

We  conducted  our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits  to  obtain  reasonable  assurance  about  whether the
financial  statements  are  free  of  material  misstatement. The Company is not
required  to  have,  nor  were  we  engaged to perform, an audit of its internal
control  over financial reporting.  Our audits include consideration of internal
control  over financial reporting as a basis for designing audit procedures that
are  appropriate  in the circumstances, but not for the purpose of expressing an
opinion  on  the  effectiveness of the Company's internal control over financial
reporting.  Accordingly,  we  express  no  such opinion. Our audits also include
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements,  assessing  the  accounting  principles  used  and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

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



BDO McCabe Lo Limited
Hong  Kong,  April  14,  2007


                                     F-2
<PAGE>
<TABLE>
<CAPTION>
                                     FANTATECH, INC. AND SUBSIDIARIES
                                       CONSOLIDATED BALANCE SHEETS


                                                                        December 31, 2006   December 31, 2005
                                                                       -------------------  ------------------
<S>                                                                    <C>                  <C>
 ASSETS
 Current assets
   Cash and cash equivalents                                           $        2,306,157   $        2,365,921
   Deposits at affiliates financial clearing centers (note 5)                         170              321,728
   Guaranteed trust fund deposit                                                   10,210                9,330
   Trade receivables, net of allowance for doubtful accounts (note 7)             285,529            1,939,434
   Related party receivables (note 15(f))                                       2,713,685              193,721
   Inventories (note 6)                                                         2,414,706            3,037,087
   Costs and estimated earnings in excess of
      billings on uncompleted contracts (note 8)                                  699,277              722,526
   Deposits and prepayments                                                     1,262,197            1,607,725
   Other receivables                                                              162,857              243,176
                                                                       -------------------  ------------------

 Total current assets                                                           9,854,788           10,440,648

 Interest in an associated company (note 10)                                            -               18,587
 Property, plant and equipment, net (note 9, 16)                                9,429,832            6,661,869
 Construction in progress                                                         362,512            2,576,520
                                                                       -------------------  ------------------
 Total assets                                                          $       19,647,132   $       19,697,624
                                                                       ===================  ==================

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities
   Short-term bank loan (note 11)                                      $                -   $        2,478,315
   Accounts payable                                                             2,931,051            1,585,030
   Accrued liabilities and other payables                                       1,861,574            1,155,197
   Related party payables (note 15(f))                                          3,172,147              778,349
   Billings in excess of costs and estimated earnings
       on uncompleted contracts (note 8)                                        1,298,936              608,104
   Deposits received                                                            1,728,649            1,811,743
                                                                       -------------------  ------------------

 Total current liabilities                                                     10,992,357            8,416,738

 Minority interests (note 18)                                                   4,674,746            4,289,988

 Commitments and contingencies (note 19)

 Stockholders' equity
   Preferred stock; $0.001 par value; 10,000,000 shares
      authorized; shares issued and outstanding - none                                  -                    -
   Common stock; $0.001 par value; 100,000,000 shares
      authorized, 30,096,117 shares issued and outstanding                         30,096               30,096
   Additional paid-in capital                                                   4,587,190            4,587,190
   (Deficit) retained earnings                                                 (1,433,656)           1,915,800
   Reserve funds                                                                  409,211              145,347
   Accumulated other comprehensive income                                         387,188              312,465
                                                                       -------------------  ------------------

 Total stockholders' equity                                                     3,980,029            6,990,898
                                                                       -------------------  ------------------

 Total liabilities , minority interests and stockholders' equity       $       19,647,132   $       19,697,624
                                                                       ===================  ==================
</TABLE>


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


                                     F-3
<PAGE>
<TABLE>
<CAPTION>
                          FANTATECH, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                             2006          2005
                                                         ------------  ------------
<S>                                                      <C>           <C>
REVENUE :
  Contracted sales                                       $11,698,297   $ 8,058,877
  Design and consulting services                             685,364     2,223,171
  Revenue sharing operations                               4,086,680       997,342
                                                         ------------  ------------
TOTAL REVENUE                                             16,470,341    11,279,390
                                                         ------------  ------------

COST OF REVENUE:
  Cost of sales                                            9,104,096     5,646,069
  Cost of design and consulting services                      75,793       380,894
  Cost of revenue sharing operations                       2,668,656       817,273
                                                         ------------  ------------
TOTAL COST OF REVENUE                                     11,848,545     6,844,236
                                                         ------------  ------------

GROSS PROFIT                                               4,621,796     4,435,154
                                                         ------------  ------------

OPERATING EXPENSES:
  Selling and marketing                                    1,779,689       920,150
  General and administrative                               1,674,112     1,752,812
  Loss on disposal of property, plant and equipment           13,622         3,552
  Impairment of trademarks                                         -       170,950
  Impairment of property, plant and equipment (note 16)    4,209,203             -
                                                         ------------  ------------
TOTAL OPERATING EXPENSES                                   7,676,626     2,847,464
                                                         ------------  ------------

(LOSS) INCOME FROM OPERATIONS                             (3,054,830)    1,587,690

OTHER INCOME (EXPENSES)
  Interest expense                                          (131,244)     (162,857)
  Other income                                               427,907       127,670
  Interest income                                             14,134        19,709
  Foreign exchange loss                                      (11,975)       (9,746)
                                                         ------------  ------------

(LOSS) INCOME BEFORE INCOME TAX, MINORITY INTERESTS
  AND EQUITY IN LOSS OF AN ASSOCIATED COMPANY             (2,756,008)    1,562,466

MINORITY INTERESTS (note 18)                                 113,148       167,562

INCOME TAXES (note 12)                                       197,782       170,361
                                                         ------------  ------------

(LOSS) INCOME BEFORE EQUITY IN LOSS OF AN                 (3,066,938)    1,224,543
  ASSOCIATED COMPANY

EQUITY IN LOSS OF AN ASSOCIATED COMPANY                      (18,656)            -

                                                         ------------  ------------
NET (LOSS)  INCOME                                       $(3,085,594)  $ 1,224,543
                                                         ============  ============

WEIGHTED AVERAGE SHARES OUTSTANDING
  BASIC AND DILUTED                                       30,096,117    30,096,117
                                                         ============  ============

(LOSS) INCOME PER SHARE (note 14)
   - BASIC AND DILUTED                                   $     (0.10)  $      0.04
                                                         ============  ============
</TABLE>

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


                                     F-4
<PAGE>
<TABLE>
<CAPTION>
                        FANTATECH, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                              2006         2005
                                          ------------  ----------
<S>                                       <C>           <C>
  Net (Loss) Income                       $(3,085,594)  $1,224,543

  Other Comprehensive Income:
      Foreign currency translation gains       74,723      312,465
                                          ------------  ----------

  Comprehensive (Loss) Income              (3,010,871)   1,537,008
                                          ============  ==========
</TABLE>


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


                                     F-5
<PAGE>

<TABLE>
<CAPTION>

                                            FANTATECH INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                                                            Retained
                                                 Common Stock              Additional       Earnings        Reserve
                                            Shares          Amount      Paid-In Capital     (Deficit)        Funds
                                       -----------------  -----------  ------------------  ------------  --------------
<S>                                    <C>                <C>          <C>                 <C>           <C>
 Balance, December 31, 2004                   30,096,117  $    30,096  $        4,587,190  $   691,257   $      145,347

   Net income                                          -            -                   -    1,224,543                -

   Foreign currency translation gains                  -            -                   -            -                -

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

 Balance, December 31, 2005                   30,096,117  $    30,096  $        4,587,190  $ 1,915,800   $      145,347

   Net (loss) income                                   -            -                   -   (3,085,594)               -

   Foreign currency translation gains                  -            -                   -            -                -

   Transfer to reserve fund                            -            -                   -     (263,864)         263,864

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

Balance, December 31, 2006                    30,096,117  $    30,096  $        4,587,190  $(1,433,656)  $      409,211
                                       =================  ===========  ==================  ============  ==============


                                        Accumulated Other       Total
                                          Comprehensive     Stockholders'
                                             Income            Equity
                                       -------------------  -------------
<S>                                    <C>                  <C>
 Balance, December 31, 2004            $                 -  $  5,453,890

   Net income                                            -     1,224,543

   Foreign currency translation gains              312,465       312,465

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

 Balance, December 31, 2005            $           312,465  $  6,990,898

   Net (loss) income                                     -    (3,085,594)

   Foreign currency translation gains               74,723        74,723

   Transfer to reserve fund                              -             -

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

Balance, December 31, 2006                         387,188  $  3,980,029
                                       ===================  =============
</TABLE>


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


                                     F-6
<PAGE>
<TABLE>
<CAPTION>
                                          FANTATECH INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                                                            2006          2005
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income                                                                        (3,085,594)    1,224,543

 Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation expense                                                                    1,836,425       966,077
  Impairment of trademarks                                                                        -       170,950
  Impairment of property, plant and equipment                                             4,209,203             -
  Allowance for doubtful accounts                                                            58,187       (15,657)
  Loss on disposal of property, plant and equipment                                          13,622         3,552
  Foreign exchange loss                                                                      11,975         9,746
  Minority interests                                                                        113,148       167,562
  Equity in loss of an associated company                                                    18,656             -
 Change in operating assets and liabilities:
  (Increase) decrease in --
  Guaranteed unit trust fund                                                                   (880)       (9,330)
  Trade receivables                                                                       1,595,718    (1,452,919)
  Bills receivable                                                                                -       554,217
  Related party receivables                                                              (2,519,964)      283,980
  Inventories                                                                               622,381    (1,244,635)
  Costs and estimated earnings in excess of billings on uncompleted contracts                23,249     1,691,592
  Deposits and prepayments                                                                  345,528      (179,315)
  Other receivables                                                                          80,319       (86,843)
  (Decrease) increase in --
  Accounts payable, accrued liabilities and other payables                                2,052,398     1,360,886
  Related party payables                                                                  2,393,798       127,761
  placeCityBillings in excess of costs and estimated earnings on uncompleted contracts      690,832    (1,021,304)
  Deposits received                                                                         (83,094)      (62,591)
                                                                                        ------------  ------------
 Net cash provided by operating activities                                                8,375,907     2,488,272
                                                                                        ------------  ------------

 CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property, plant and equipment                                              (6,522,110)   (4,098,329)
  Proceeds from disposal of property, plant and equipment                                    49,533             -
  Deposits at affiliates financial clearing center                                          321,558     3,691,369
  Interest in an associated company                                                               -       (18,587)
                                                                                        ------------  ------------
 Net cash used in investing activities                                                   (6,151,019)     (425,547)
                                                                                        ------------  ------------

 CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from short term bank loan                                                              -     2,478,315
  Proceeds from related party short term loan                                                     -     4,089,219
  Principal repayments on short term loan                                                (2,478,315)   (2,433,735)
  Principal repayments on related party short term loan                                           -    (4,089,219)
                                                                                        ------------  ------------
 Net cash (used in) provided by financing activities                                     (2,478,315)       44,580
                                                                                        ------------  ------------

 EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                    193,663       192,822
                                                                                        ------------  ------------

 NET (DECREASE) INCREASE  IN CASH                                                           (59,764)    2,300,127

 Cash and cash equivalents, at beginning of year                                          2,365,921        65,794
                                                                                        ------------  ------------
 Cash and cash equivalents, at end of year                                              $ 2,306,157   $ 2,365,921
                                                                                        ============  ============

 Supplementary disclosures of cash flow information:
  Interest paid                                                                         $   131,244   $   162,857
                                                                                        ============  ============

  Tax paid                                                                              $   230,120   $   200,432
                                                                                        ============  ============

 Supplemental Disclosure of Non-Cash Investing and Financing Activities:
  Decrease (increase) in construction in progress                                       $ 2,214,008   $  (320,523)
                                                                                        ============  ============
</TABLE>


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


                                     F-7
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


1.  ORGANIZATION AND PRINCIPAL BUSINESS

Fantatech,  Inc., formerly Lucas Educational Systems, Inc. (hereinafter referred
to as the "Company", which term shall include, when the context so requires, its
subsidiaries  and  affiliates)  was incorporated in the Delaware in 1996. During
November  2002, the Company acquired all of the issued and outstanding shares of
Intsys Share Limited ("Intsys") in a reverse acquisition. The Company is engaged
in  the  design,  manufacturing, sale and operation of hi-tech entertainment and
amusement  attractions  for group audiences including simulation attractions and
equipment, 3D/4D theatres, indoor entertainment centers and outdoor theme parks.
The  Company's  operations  are  located  in the People's Republic of China (the
"PRC"  or  "China").  The  Company's  wholly  owned subsidiaries include Intsys,
Shenzhen  Digitainment  Co.,  Ltd.  ("SDCL")  and  Megabase  Investment  Limited
("Megabase").  In  addition, the Company's majority controlled companies include
Hytechnology  Inc.  ("Hytech  US"),  Chongqing  FantaWild  FunPlex Tour Co. Ltd.
("Chongqing  FTC")  and  Fantatech  Development  Inc.  ("FDI").

In  August  2003, SDCL, Shenzhen Huaqiang Industry Company Limited ("SHICL") and
Shenzhen  Huaqiang  Venture Capital Company Limited ("SHVCCL") incorporated FDI.
Each  of SDCL and SHICL hold a 40% equity interest in FDI with the remaining 20%
equity  interest  held by SHVCCL.   FDI is engaged in the sales and marketing of
the products of SDCL in China and assists SDCL with soliciting contracts for the
development  of  hi-tech  entertainment  and  amusement centers and theme parks.
Subsequent  to  its formation, SHVCCL assigned all of its management and control
rights  in  FDI  to  SDCL.  SHICL and SHVCCL are affiliates of Shenzhen Huaqiang
Holdings Limited ("SHQ"). The Chairman and President of SHQ is also the Chairman
and  Chief  Executive  Officer  ("CEO")  of  the  Company.

In  June  2005,  the  Company resolved to set up two management companies in the
cities of Chongqing and Tianjin in the PRC, in order to manage the operations of
the theme park in Chongqing and the Dino-Rampage in Tianjin, respectively. These
management companies are intended to facilitate the management and operations of
the  aforesaid  large-size  revenue  sharing  operations and will be budgeted to
operate  at a break-even level. In late August 2005, Chongqing FantaWild FunPlex
Tour  Co.  Ltd.  ("Chongqing  FTC"),  with  registered  capital of approximately
$620,000,  which  is  owned  90%  by SDCL and 10% by FDI, formally commenced its
operation  in coordinating the establishment of the Chongqing Theme Park and its
subsequent  management.

In  late  November  2005,  Tianjin Longqiao FantaWild Kepu Ltd. ("Tianjin LFK"),
with  registered capital of approximately $37,000, which is owned 50% by FDI and
50%  by Tianjin Longqiao Property Development Co. Ltd. ("Longqiao PDL") (50%), a
third party local partner, commenced its operations.  There are seven members in
the Board of Directors of Tianjin LFK, to which FDI has appointed two directors.


2.   BASIS OF PRESENTATION AND CONSOLIDATION

The  consolidated  financial  statements include the financial statements of the
Company,  its  subsidiaries  in  which  the Company has an effective controlling
interest,  including  its  effectively  controlled  associated company, FDI. The
Company's  investment in Tianjin LFK is accounted for using the equity method of
accounting  as  the  Company does not have effective control over its Board. All
material  intercompany balances and transactions, including intercompany profits
and  unrealized  profits  and  losses  are  eliminated  on  consolidation.

GOING  CONCERN  -  The  accompanying consolidated financial statements have been
prepared  assuming  that  the  Company  will  continue as a going concern, which
contemplates  the  realization  of assets and the satisfaction of liabilities in
the  normal  course  of business. The carrying amounts of assets and liabilities
presented  in  the accompanying consolidated financial statements do not purport


                                     F-8
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


to represent the realizable or settlement values. During the year ended December
31,  2006,  the  Company  has been concentrating its efforts in the two projects
regarding  the  sale  of  equipment to the theme parks in the cities of Wuhu and
Shantou,  respectively.  Although  the  two  projects  are progressed within the
anticipated schedule, the related progress revenue has not been recognized until
the  delivery  of  relevant  equipment to the respective sites. Accordingly, the
progress  payments  from  the  customers  totaling  approximately $2,520,000 are
recorded  as  current  liabilities  (approximately $860,000 was invoiced but not
recognized, while approximately $1,660,000 was recorded as deposit received). As
a  result,  the  Company  has  a net working capital deficiency of approximately
$1,140,000  as  of  December  31, 2006. The Company expects that the net working
capital deficiency is temporary and will gradually return to positive level once
the  Company  starts  to  recognize  the  progress  revenue upon delivery of the
equipment.

The Company anticipates that, based on current plans and assumptions relating to
its  existing operations, its projected cash flow from operations, combined with
cash  on  hand, bank lines of credit, and other external credit sources, and the
credit  facilities  provided  by  affiliates  or  related parties, its financial
resources  are  sufficient to support the Company's working capital requirements
for its operations for the next twelve months, although there may be temporarily
lower  levels  of  working  capital  at  certain  times during the course of its
business.

Based  on  management's evaluation of the Company's short-term cash requirements
and  liquidity  resources,  management  anticipates  that  the  pressure  on the
Company's  cash  flows  will gradually be reduced for the next twelve months. In
addition, the projected progress payment related to the sale of equipment to the
theme  parks in Wuhu and Shantou, respectively, will improve the working capital
position  of  the  Company  during  the  remainder  of  2007.

Reclassifications  -  Certain  items  in  the fiscal 2005 consolidated financial
statements have been reclassified to conform to the more meaningful presentation
in  fiscal  2006.  These  reclassifications  had  no  effect  on  the results of
operations  or  financial  position  for  any  period  presented.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash  and  cash  equivalents
----------------------------

Cash  and  cash  equivalents include cash on hand, demand and time deposits with
banks  and liquid investments with an original maturity of three months or less.

Inventories
-----------

Inventories  consist  of  raw  materials,  work-in-progress, and finished goods,
which are held for resale, used in the production of entertainment and amusement
equipment  that  the  Company sells, or moved to construction in progress as the
components  of the amusement centers, large-size attractions or theme parks (see
Revenue  and  cost  recognition  below).  Inventories are stated at the lower of
cost, on a first-in, first-out ("FIFO") basis, or net realizable value. Costs of
raw  materials  include  purchases  and  related  costs incurred in bringing the
products  to  their  present  location  and  condition.

Change in Method of Accounting for Inventory Valuation for Low Value Items -- On
January  1,  2006,  the  Company elected to change its accounting method for low
value  inventory/stock  (i.e.  small parts, bolt and nut and consumables) to the
weighted average method. In all prior years, inventory was valued using the FIFO
method.  The  new method of accounting for low value inventory/stock was adopted
to  enhance  operating  efficiency  and  resource  utilization.  The  numerous
categories  of  low  value  items only constitute a small portion of the overall
product  costs. Management believes that maintenance of such low value inventory
with  the FIFO method reduced warehouse operating efficiency as well as resource
utilization  in  relation  to  inventory  control.


                                     F-9
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


In  addition, based on the fast inventory turnover and stable unit price of such
low  value  inventory,  the  difference  between  the  two  methods would not be
material. Therefore, the new accounting method of weighted average is preferable
to  the  FIFO  method  in  relation  to  low  value  inventory.

Based  on  the estimated average price change within different categories of low
value  stock,  the  adoption  of  the  accounting principle would reduce the net
income  for  the  year ended December 31, 2005 by $4,293 or 0.35%. The effect of
adopting  the  new  accounting principle would reduce the inventory and retained
earnings  as  of December 31, 2005 by $4,293.  Statement of Financial Accounting
Standards  No.  154, Accounting Changes and Error Corrections - A Replacement of
APB  Opinion  No.  20  and  FASB  Statement  No.3  ("SFAS  No.  154")  demands a
retrospective application of changes in accounting principles in the comparative
prior  period financial statements. However, because the impact of the change in
accounting  principle  on  the  financial  statements is immaterial as described
above,  the  Company  chose  not  to  apply  such  retrospective  presentation.

The  new  accounting  principle,  affecting only low value stock, was adopted by
management  and  approved  by  the  Audit  Committee.

Allowance for doubtful accounts
-------------------------------

The  Company uses the allowance method to account for doubtful trade receivable.
The  Company  periodically  adjusts the allowance for doubtful accounts based on
management's  continuing review of trade receivable. This analysis by management
is  based on prior years' experience, as well as an analysis of current economic
environment  and  business  trends.

The  Company  records  a  full  allowance  for  trade  receivable that have been
determined  legally  to  be  uncollectible or have been outstanding for over 365
days.  For  trade  receivable  that have been outstanding for over 180 days, the
Company  determines  an appropriate allowance based on individual circumstances.

During the year ended December 31, 2006, the Company provided $58,187 as general
allowance for doubtful and long overdue accounts. During the year ended December
31,  2005,  the  Company  recorded  a reversal of $15,657 from the allowance for
doubtful  accounts.  Management  expects to continue to update the allowance for
doubtful  accounts  during  2007.

Property,  plant  and  equipment
--------------------------------

Property,  plant  and  equipment  are  recorded  at  cost  less  accumulated
depreciation.  Gains or losses on disposals are reflected in current operations.
Major  expenditures  for  betterments and renewals are capitalized. All ordinary
repair  and maintenance costs are expensed as incurred. Depreciation is provided
using  the  straight-line  method over the estimated useful lives of the assets,
generally  five years, and in case of assets used in revenue sharing operations,
over the shorter of the term of the cooperation or their estimated useful lives,
from  five to ten years. Leasehold improvements are amortized on a straight-line
basis  over the shorter of the useful life of the improvement or the term of the
lease.

Construction in progress
------------------------

Construction  in progress is recorded at cost in relation to the construction of
the  hi-tech  amusement centers, large-size attractions and theme parks, usually
under  revenue  sharing  operations. Upon the official opening of the amusements
centers, large-size attractions and theme parks, the cost of the construction in
progress  is  transferred  and  recorded  as  property,  plant  and  equipment.


                                      F-10
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Trademarks
----------

The identifiable intangible asset of the Company was the trademark acquired in a
business  combination  in relation to Hytech US in 2002. The Company adopted the
provisions  of  Statement  of  Financial  Accounting Standards ("SFAS") No. 142,
"Goodwill  and  Other  Intangible Assets". Under the provisions of SFAS No. 142,
identifiable  intangibles  with  finite  lives  are  amortized  and  those  with
indefinite  lives  are not amortized. Based on the then operating results, sales
forecast  and  business  plan,  the  trademarks  had  been determined to have an
indefinite  life  and  were therefore not being amortized. During the year ended
December  31,  2005,  in  view  of the reduced business activities of Hytech US,
including  the  fact  that  there were no sales contracts secured as budgeted in
2004  and  2005,  the Company conducted a re-evaluation of the intangible assets
associated  with  trademarks  registered  by  Hytech US and the related expected
future  cash  flows. As a result of this evaluation, the Company recorded a full
provision  for  impairment  of $170,950 during the year ended December 31, 2005.
During  the  year  ended  December  31, 2006, no impairment charge was recorded.

Impairment of long-lived assets
-------------------------------

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for  Impairment  of  Long-Lived  Assets",  the  Company reviews its
long-lived  assets  for  impairment  whenever events or changes in circumstances
indicate  that the carrying amount of an asset may not be recoverable based upon
undiscounted  cash  flows  expected  to  be  generated by such assets over their
expected  useful  lives.  If  such  assets  are  considered  to be impaired, the
impairment  to  be  recognized  is  measured by the amount by which the carrying
amount  of  the  assets  exceeds  the  fair  value  of  the  assets.

Revenue  sharing  operations
----------------------------

A  revenue  sharing  operation  is  a  cooperative  venture in which two or more
venturers  combine  their  operations,  resources  and  expertise  in  order  to
construct,  market  and operate jointly a particular project under a contractual
arrangement  whereas  no  corporation,  partnership  or  other  entity  has been
established.  Each venturer bears its own costs and takes a share of the revenue
from  the  project,  which  is  determined  in  accordance  with the contractual
arrangement.

The  Company  participates  in  the  operation  of  4D  theaters, FunPlex indoor
entertainment  centers,  large size outdoor attractions and theme parks (each, a
"Revenue-Sharing  Center")  through  cooperation  agreements  with local venture
partners  in  PRC  cities.

In  respect  of  its  interests  in  revenue  sharing  operations, the Company's
consolidated  financial  statements  include  the  following:

     -    the assets that it controls and the liabilities that it incurs
          are included in the Company's consolidated balance sheet; and

     -    the expenses that it incurs and its share of the income that it
          earns from the revenue sharing centers are included in the Company's
          consolidated statements of operations.

Revenue  and  cost  recognition
-------------------------------

The Company principally derives its revenue from (1) contract sales of equipment
or  facilities  used in hi-tech amusement centers or theme parks, 3D/4D theaters
and the related products; (2) contracts in relation to the design of 4D theater,
amusement  center,  large-size attraction and theme park, as well as any related
consultation  services;  and  (3)  revenue  sharing  operations.


                                      F-11
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Revenue  is  recognized  when  the  following  four  criteria  are  met:

1.   persuasive evidence of an arrangement exists,
2.   delivery has occurred or services have been rendered,
3.   the price is fixed, and
4.   collectibility is reasonably assured.

(1)  Contract sales of equipment or facilities used in hi-tech amusement centers
     or  theme  parks,  3D/4D  theaters  and  the  related  products

(a)  Sale of entertainment and amusement products

Revenue from the sale of entertainment and amusement products is recognized when
the  products  are delivered to the customers, installed and tested.  Revenue is
adjusted  for  any  reduction in sales due to change in product specification or
sales  discounts  offered  to  the  customers.

(b)  Long-term contract revenue and costs

Long-term  contract  revenue and costs are recognized as revenue and expenses in
the  statement  of  operations  by  reference  to  the  stage of completion of a
contract  (i.e.  the  percentage  of  completion method) when the outcome of the
contract  can  be  estimated  reliably. The stage of completion of a contract is
determined  based  on the proportion of costs incurred at the balance sheet date
compared  to  total  estimated  costs.  A loss on a contract is recognized as an
expense  immediately  when  it is probable that total contract costs will exceed
total  contract  revenue.

Costs  attributable  to  unpriced change orders are treated as costs of contract
performance  in the period in which the costs are incurred if it is not probable
that  the costs will be recovered through a change in the contract price.  If it
is  probable  that  the costs will be recovered through a change in the contract
price, those costs are treated as costs of contract performance in the period in
which  they are incurred, and contract revenue would be recognized to the extent
of  the  costs  incurred.  If  it  is  probable  that the contract price will be
adjusted  by  an  amount that exceeds the costs attributable to the change order
and  the  amount  of the excess can be reliably estimated, the original contract
price  would  also  be adjusted for that amount when the costs are recognized as
costs  of  contract  performance  if  its  realization  is  probable.

During  the  process  of  recognizing  the  revenue  generated from the sales of
products  as  described  in  (1)  and  (2)  above, the Company has evaluated the
criteria  for  multiple  deliverables  in  using separate unit of accounting for
identifiable  delivered  items  in  accordance  with  EITF  No.  00-21  "Revenue
Arrangements  with  Multiple Deliverables", and concluded that the amusement and
entertainment  products  designed,  manufactured and installed by the Company do
not  met  the stand alone test as no part of the products will be or are sold in
the  market  by  the  Company or by other similar vendors.  There is no reliable
evidence of fair value of the undelivered items and the contracts for sales have
no  general  right  of  return  relative  to  the  delivered  items.

In  addition,  the Company has evaluated the scope and applicability of SOP 97-2
"Software  Revenue  Recognition"  and  determined that the revenue earned on the
Company's  amusement  products containing software is incidental to the products
as  a whole.  The Company does not engage in businesses of licensing, selling or
leasing,  or  otherwise  marketing  computer  software.  The  software  does not
require  significant  production,  modification and customization and is not the
focus of the marketing efforts, nor is it what the customer perceives to obtain.
The post contract services associated with the Company's products do not involve
multiple  element  arrangements  and the estimated cost for the one year product
warranty  is  insignificant,  and  there are no upgrades/enhancements offered to
customers currently or historically.  Accordingly, the Company believes that its
revenue  requires  no  software  revenue  recognition.


                                      F-12
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


(2)  Contracts  in  relation  to  the  design  of  4D theater, amusement center,
     large-size  attractions and theme park, as well as any related consultation
     services

Design  and  consultation  income  is  recognized  when  services  are rendered.

(3)  Revenue from revenue sharing operations

Income  is recognized based on the agreed percentage of revenue when the revenue
from  the  revenue  sharing  operations becomes due and receivable.  The Company
recorded $4,086,680 and $997,342 as revenues from its revenue sharing operations
for  the  years  ended  December  31,  2006  and  2005,  respectively.

Income  taxes
-------------

The  Company  accounts  for  income tax using Statements of Financial Accounting
Standards  ("SFAS") No. 109 "Accounting for Income Taxes". SFAS No. 109 requires
an  asset  and  liability  approach  for  financial accounting and reporting for
income taxes and allows recognition and measurement of deferred tax assets based
upon  the  likelihood  of realization of tax benefits in future years. Under the
asset  and  liability  approach,  deferred  taxes  are  provided for the net tax
effects  of  temporary  differences  between  the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.  A  valuation  allowance  is provided for deferred tax assets if it is
more  likely  than not that these items will either expire before the Company is
able  to  realize  their  benefits,  or  that future deductibility is uncertain.

Government  subsidies
---------------------

A  government subsidy is recognized only when there is reasonable assurance that
the  enterprise  will  comply  with any conditions attached to the grant and the
grant  will  be  received.

Stock based compensation
------------------------

On  January  7,  2004,  the  Company granted stock options to purchase 2,000,000
shares  common  stock to certain officers and key employees of the Company at an
exercise  price  of $1.00 per share. Effective from October 10, 2005, all of the
Company's  outstanding options were cancelled. As at December 31, 2006 and 2005,
there  were  no  stock  options  issued  and  outstanding,  respectively.

Income per share
----------------

Statement of Financial Accounting Standard No. 128, "Earnings per share", ("SFAS
No.  128")  requires  dual  presentation of basic and diluted earnings per share
("EPS")  with  a  reconciliation  of  the  numerator  and denominator of the EPS
computations. Basic EPS excludes the dilutive effects of stock options, warrants
and  convertible  securities,  if  any,  and  is computed by dividing net income
(loss) available to common stockholders by the weighted average number of common
shares  outstanding  during  the  period.  Diluted  EPS  reflects  the potential
dilution that could occur if securities or other contracts to issue common stock
(such  as  convertible  preferred  stock,  warrants to purchase common stock and
common  stock  options)  were  exercised  or  converted  into  common  stock.

As  no  options or other dilutive securities were outstanding as of December 31,
2006  and  2005,  basic  and diluted EPS are the same for all periods presented.


                                      F-13
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Comprehensive Income
--------------------

Statement  of  Financial  Accounting Standards No. 130, "Reporting Comprehensive
Income", ("SFAS No. 130") established standards for the reporting and display of
comprehensive  income,  its components and accumulated balances in a full set of
general  purpose financial statements. SFAS No. 130 defines comprehensive income
to  include  all  changes  in  equity except those resulting from investments by
stockholders and distributions to stockholders, including adjustments to minimum
pension  liabilities,  accumulated  foreign currency translation, and unrealized
gains  or  losses  on  marketable  securities.  The  Company  recorded  other
comprehensive  income from change in foreign currency translation of $74,723 and
$312,465  for  the  years  ended  December  31,  2006  and  2005,  respectively.

Product development
-------------------

Product  development  costs  are  expensed to operations as incurred. During the
years  ended  December  31, 2006 and 2005, a total of approximately $554,256 and
$611,268,  respectively,  in labor and materials costs were incurred for product
development  purposes,  which  had  been  expensed  as  direct  costs  of sales.

Reserve funds
-------------

In  accordance  with  the  PRC  Companies  Law, the Company's PRC subsidiary and
controlled  associated  company  are  required  to  transfer a percentage of its
profit after taxation, as determined in accordance with PRC accounting standards
and  regulations,  to  the surplus reserve funds upon dividend distribution. The
surplus  reserve  funds  are comprised of the statutory surplus reserve fund and
the  welfare  reserve  fund.  Subject to certain restrictions set out in the PRC
Companies  Law,  the  statutory  surplus  reserve  fund  may  be  distributed to
stockholders  in the form of share bonus and/or cash dividends. The welfare fund
is  non-distributable  and must be used for the benefits of all the staff of the
enterprise.  During  the  year  ended  December 31, 2006, SDCL declared and paid
dividend  of  $350,000,  and transferred $263,864 to the statutory reserve funds
from its retained earnings. During the year ended December 31, 2005, no dividend
distribution  or  transfer  of  reserve  funds  was  recorded.

Foreign currency translation
----------------------------

All  of the Company's production and most of its business operations are located
in the PRC and are conducted in Renminbi ("RMB"), which is the official currency
of  China.  The  Company's PRC subsidiaries maintain their financial records and
the  statutory financial statements in RMB. Revenue and expenditures denominated
in  currencies other than RMB are translated into RMB at the prevailing exchange
rate when recognized and recorded in the PRC financial records.  Monetary assets
and  liabilities  denominated  in  other currencies are also translated into and
recorded  in  RMB  at  the balances sheet date.  Any transaction gain or loss is
charged  to the statement of operations of the PRC subsidiaries in the period in
which  such  gain  or loss occurs.  The PRC accounts denominated in RMB are then
translated  into  United  States  Dollar  ("USD"), the reporting currency of the
Company,  using  the  exchange  rate  prevailing  at  the balance sheet date for
consolidation  and  presentation.

On  July  21,  2005,  the  People's Bank of China ("PBC") announced that the RMB
would  no  longer  be tied directly to the USD but against a 'basket' of foreign
currencies  under  a managed floating exchange rate regime, and the new official
parity  exchange  rate of USD to RMB was set at US 1.00 to RMB 8.11 (previously,
USD1.00  to  RMB  8.30),  to  be  allowed to float within a band of "0.3 percent
around  the  central  parity  rate  as  published  by the PBC daily. The Company
recorded  and  adjusted  its  exchange  rate  applicable  to  the translation of
financial  information  in  accordance  with  the  announced  change  as  of the
effective  date.  Accordingly,  as  of  December 31, 2006, the Chinese financial
statements  were translated from RMB to USD at the new prevailing exchange rate.
For  assets  and  liabilities  (other than equity and reserves) translation, the


                                      F-14
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


published  closing  exchange rate of USD 1.00 to RMB 7.81 was applied, while for
revenues,  expenses,  gains and losses, the weighted average rate of USD 1.00 to
RMB  7.96  was  used  for translation. The resulting translation gains or losses
were  recorded  as  a  separate  component  of  stockholders'  equity.

This  quotation  of the exchange rates does not imply free convertibility of RMB
to  USD.  All foreign exchange transactions in PRC continue to take place either
through  the  Bank  of  China  or other banks authorized to buy and sell foreign
currencies  at the exchange rate quoted by the PBC. Approval of foreign currency
payments  by  the  Foreign  Exchange  Management  Bureau  or  other institutions
requires  submitting  a  payment  application  together  with invoices, shipping
documents,  signed  contracts  and  other  relevant  documentation.

The Company's other subsidiaries in the United States of America and the British
Virgin  Islands  ("BVI") adopted USD as their functional currency.  Transactions
denominated  in  currencies  other  than  the  functional  currency  of  these
subsidiaries  are  converted  into  their  functional currency at the prevailing
exchange  rates  at  the  date  of  transaction  or  settlement.

Fair  values  of  financial  instruments
----------------------------------------

The  Company  values  its  financial  instruments  as  required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The Company's financial
instruments  primarily  consist  of  cash  and  cash  equivalents,  deposits  at
affiliates  financial  clearing  centers,  trade  receivable, other receivables,
prepayments,  accounts  payable and accruals, short-term loans and amount due to
and  due  from  related  parties.  Net  of the allowance made for doubtful trade
receivable,  the  carrying values of these financial instruments approximate the
fair  values  in  view  of  their  short-term  maturities.

Use  of  estimates
------------------

The  consolidated  financial  statements  have  been prepared in accordance with
accounting  principals  generally  accepted in the United States of America. The
preparation  of  these  financial  statements  requires the use of estimates and
assumptions  that  affect  the  reported  amounts of assets and liabilities, the
disclosure  of  contingent  assets  and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period.  Management  periodically  evaluates  the  estimates and judgments made,
including  those  related  to  revenue and cost recognition, inventories, income
taxes  and  impairment of assets. Management bases their estimates and judgments
on  historical  experience  and  on  various  factors  that  are  believed to be
reasonable  under  the  circumstances.  Actual  results  may  differ  from these
estimates  as  a  result  of  different  assumptions  or  conditions.

Foreign currency risk
---------------------

The  RMB  is  not  a  freely convertible currency.  The State Administration for
Foreign Exchange, under the authority of the PBC, controls the conversion of RMB
into  foreign  currencies.  The  value  of  RMB is subject to changes in central
government  policies  and  to  international economic and political developments
affecting supply and demand in the China Foreign Exchange Trading System market.

The  Company's  China  subsidiaries  conduct  their  businesses substantially in
China,  and  their  financial  performance and position are measured in terms of
RMB.  Any  devaluation  of  the  RMB  against the USD would consequently have an
adverse effect on the financial performance and asset values of the Company when
measured  in  terms  of  USD.  The  China  subsidiaries'  products are primarily
procured,  sold and delivered in China for RMB.  Thus, their revenue and profits
are  predominantly  denominated in RMB.  Should the RMB devalue against the USD,
such  devaluation  could have a material adverse effect on the Company's profits
and  the  foreign  currency  equivalent of such profits repatriated by the China
subsidiaries  to  the  Company.


                                      F-15
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Recently issued accounting pronouncements
-----------------------------------------

In  July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in  Income  Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income  taxes  recognized  in an enterprise's financial statements in accordance
with  FASB  Statement  No. 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition  threshold  and  measurement  attribute  for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  This  Interpretation  also  provides  guidance  on  derecognition,
classification,  interest  and  penalties,  accounting  in  interim  periods,
disclosure,  and  transition.  This Interpretation is effective for fiscal years
beginning  after December 15, 2006, with earlier adoption permitted. The Company
is  currently  evaluating  the  provisions  of  FIN  48.

In  September  2006, the FASB issued Statement of Financial Accounting Standards
("SFAS")  No.  157,  Fair  Value Measurements. SFAS No. 157 establishes a common
definition  for  fair  value  to be applied to US GAAP guidance requiring use of
fair  value,  establishes  a  framework  for  measuring  fair value, and expands
disclosure  about  such  fair  value measurements. SFAS No. 157 is effective for
fiscal  years  beginning  after  November  15,  2007.  The  company is currently
evaluating  the  provisions  of  SFAS  No.  157.

In  September,  2006,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting Bulletin No. 108 "Considering the Effects of Prior Year Misstatements
When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"),
which  provides  interpretive  guidance  on  how the effects of the carryover or
reversal  of  prior  year  misstatements  should  be considered in quantifying a
current  year  misstatement.  The adoption of SAB 108 did not have a significant
impact  on  the  consolidated  financial  statements.

4.   BUSINESS ACQUISITIONS AND ISSUANCE OF SHARES

In  May  2002,  Intsys  acquired  a 65.41% equity interest in SDCL, then a joint
venture company operating under the name Shenzhen Hytechnology Inc., in exchange
for all of the outstanding shares of Intsys. The business combination was deemed
to be a reverse merger and the acquisition of the 65.41% equity interest in SDCL
has  been  accounted for at historical cost. SDCL was established in 1998 and is
engaged in the development and production of hi-tech entertainment and amusement
products, including 4D theatres, simulation games, indoor entertainment centers,
large  size  indoor  attractions  and  theme  parks.

In  August  2002,  Intsys established Hytechnology Limited ("Hytech HK"), a Hong
Kong  company in which Intsys owns a 99% equity interest.  Hytech HK was engaged
in  the sales and marketing of entertainment products, including the products of
SDCL.  On May 12, 2004, the Company sold its entire interest in Hytech HK to Top
Link  Hi-Tech Development (H.K.) Limited ("Top Link") for $1,277. The sale price
represented  the value of the issued capital of Hytech HK. The carrying value of
Hytech  HK  at the time of disposal was ($747), which amount had previously been
written  off.  Top  Link is a Hong Kong corporation ultimately owned by Shenzhen
Huaqiang  Holdings  Ltd. ("SHQ").  The Chairman and President of SHQ is also the
Chairman  and  CEO  of  the  Company.

In  September  2002, Intsys acquired a 70% equity interest in Hytechnology, Inc.
("Hytech  US"),  a Delaware Corporation, from a third party for $172,000. Hytech
US  is  engaged in the sales and marketing of the products of SDCL in the United
States.

During  November  2002,  the  Company acquired all of the issued and outstanding
shares  of  Intsys in a reverse merger. Under the terms of the merger agreement,
the  Company  issued  40,000,000  shares  of common stock to the shareholders of
Intsys  and  their  designees.


                                      F-16
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


On  June 10, 2004, the Board of Directors of the Company approved that every two
shares  of  the  Company's  common  stock  with  par  value  $0.001  per  share
("Pre-Reverse-Split  Common  Stock")  was  reclassified into one share of common
stock,  par value $0.001 per share ("Post-Reverse-Split Common Stock") effective
on  June  30, 2004. Each fractional share of Post-Reverse-Split common stock was
rounded  up  to  the  next whole number of share. The par value of the Company's
common  stock  was  not affected. Retroactive effect has been given to share and
per  share  amounts in the financial statements resulting from the reverse stock
split.

In October 2004, the Company entered into a Share Exchange Agreement with Intsys
and  Topforce  Asia  Limited  ("Topforce"), a BVI corporation, pursuant to which
Intsys  acquired from Topforce 100% of the shares of Megabase Investment Limited
("Megabase"),  the  BVI  corporation that owned the remaining 34.59% interest in
SDCL,  in  exchange  for 10,0000,000 shares of the Company's common stock.  Upon
consummation  of  the  share  exchange,  Intsys  became  the sole owner of SDCL.

Palisades  Capital Group, LLC ("PCG"), an independent financial advisory company
that  was  engaged  by  the  Board  of Directors of the Company, valued SDCL and
issued  a fairness opinion which concluded that the shares of the Company issued
under  the  Share  Exchange  Agreement  reflected fairly the value of the assets
acquired.

The  acquisition of the remaining 34.59% equity interest of SDCL was not treated
by  the  Company  as  a  business  combination  since  it was the acquisition of
noncontrolling equity interest in a subsidiary - the minority interest, pursuant
to  the  definition  as  contained  in  SFAS  No.  141.

In  determining  the  fair  value of the remaining interest in SDCL, the Company
relied  on  the  following  facts:

(1)  The  trading  of  the  Company's  common  stock in the open market has been
limited  and sporadic and with little volume and should therefore not be used as
a  reliable  indicator  of  fair  market  value.

(2)  At  the  time  of  the  acquisition, the Company's only major asset was its
65.41%  equity  interest  in SDCL, and it had approximately 20,100,000 shares of
common  stock  outstanding.  Therefore,  the  34.59%  equity  interest  would be
equivalent  to  approximately  an  additional 10,000,000 shares of common stock.

(3)  Based on the opinion of PCG, after taking into account the potential market
discount  for  the  limited liquidity and the restricted nature of the Company's
common  stock, and other relevant factors, the fair value derived for the 34.59%
equity  interest approximated its book value, which was within the range of fair
value  pursuant  to  the  opinion.

Accordingly,  the  acquisition  was  accounted  for using the purchase method of
accounting  and  the  value  of  the  acquired  equity  interest was recorded at
$1,711,816,  which  was  also approximately equal to the proportional historical
equity  value  of  the  34.59%  interest  in  SDCL.

Subsequent  to the reverse stock split and the issuance of the 10,000,000 shares
of  common  stock,  the Company had a total of 30,096,117 shares of common stock
issued  and  outstanding.


5.   DEPOSITS AT AFFILIATES FINANCIAL CLEARING CENTERS

Cash on deposit at the financial clearing centers ("FCC") operated by affiliates
as  at  December  31,  2006  and  December  31,  2005  is summarized as follows:


                                      F-17
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                        2006     2005
                                        -----  --------
<S>                                     <C>    <C>
Financial clearing center operated by:
  Shenzhen Huaqiang Holdings Limited    $ 170  $321,728
                                        =====  ========
</TABLE>

The  Company's  Chinese  subsidiaries are members of the FCC operated by SHQ. As
described  below,  the  role  of  SHQ  is  to primarily coordinate the financial
arrangement  of its members via the FCC.  The Company has cash on deposit at the
FCC.

A  FCC resembles an internal bank that accepts deposits from and grants loans to
its members at the prevailing market rate of interests. A FCC also obtains loans
from  external  commercial  banks  and  then in turn sub-lends to its members in
order  to  meet  their  working  capital  requirements  with  less  complicated
application  procedures and no attendant financial charges. The cash deposits at
the  FCC  can  be  withdrawn  any time without any restrictions, except that the
respective  FCC can collect directly from the Company's account any overdue loan
principal  and  accrued  interest  in  case  the  Company  is  in default in its
repayment  obligations.

6.   INVENTORIES

Inventories  at  December  31,  2006  and  2005  are  summarized  as  follows:

<TABLE>
<CAPTION>
                     2006       $2005
                  ----------  ----------
<S>               <C>         <C>
Raw materials     $  809,577  $1,766,203
Work-in-progress   1,487,655   1,140,725
Finished goods       117,474     130,159
                  ----------  ----------
                  $2,414,706  $3,037,087
                  ==========  ==========
</TABLE>

7.   TRADE  RECEIVABLES

The  Company's  trade receivables are reported in the consolidated balance sheet
net  of  allowances  of  doubtful  accounts.  Trade  receivables  comprise:

<TABLE>
<CAPTION>
                                          2006        2005
                                        ---------  -----------
<S>                                     <C>        <C>
Gross trade receivables                 $375,743   $1,971,461
Less: Allowance for doubtful accounts    (90,214)     (32,027)
                                        ---------  -----------
                                        $285,529   $1,939,434
                                        =========  ===========
</TABLE>

Movement  of allowance for doubtful accounts during the years ended December 31,
2006  and  2005  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                          2005      2006
                                         -------  ---------
<S>                                      <C>      <C>
Balance as at January 1,                 $32,027  $ 47,684
Provided (written back) during the year   58,187   (15,657)
                                         -------  ---------
Balance as at December 31,               $90,214  $ 32,027
                                         =======  =========
</TABLE>


                                      F-18
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


8.   COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
     /  BILLINGS  IN  EXCESS  OF  COSTS  AND  ESTIMATED  EARNINGS ON UNCOMPLETED
     CONTRACTS

Costs  and  estimated earnings in excess of billings on uncompleted contracts as
of  December  31,  2006  and  2005  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                         2006           2005
                                                     -------------  -------------
<S>                                                  <C>            <C>
Cumulative costs incurred on uncompleted contracts   $ 22,391,872   $ 12,127,482
Cumulative estimated earnings to date                   5,133,243      2,808,758
                                                     -------------  -------------
                                                       27,525,115     14,936,240
Less: Billings to date                                (28,124,774)   (14,821,818)
                                                     -------------  -------------
                                                     $   (599,659)  $    114,422
                                                     =============  =============
</TABLE>

Included in the accompanying balance sheets under the following captions are the
following:

<TABLE>
<CAPTION>
                                                        2006         2005
                                                    ------------  ----------
<S>                                                 <C>           <C>
Costs and estimated earnings in excess of billings
  on uncompleted contracts                          $   699,277   $ 722,526
Billings in excess of costs and estimated earnings
  on uncompleted contracts                           (1,298,936)   (608,104)
                                                    ------------  ----------
                                                    $  (599,659)  $ 114,422
                                                    ============  ==========
</TABLE>

9.   PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment as at December 31, 2006 and 2005 consisted of the
following:

<TABLE>
<CAPTION>
                                                            2006          2005
                                                        ------------  ------------
<S>                                                     <C>           <C>
Leasehold improvements                                  $   481,131   $   441,465
Plant and machinery                                         596,109       528,648
Equipment for revenue sharing operations                 14,982,662     6,330,547
Furniture and fixtures                                      115,381       110,829
Computers and equipment                                     937,605     1,059,747
Motor vehicles                                              367,873       285,462
                                                        ------------  ------------
                                                         17,480,761     8,756,698
Less: Impairment loss of equipment for
           revenue sharing operations                    (4,290,046)            -
                                                        ------------  ------------
                                                         13,190,715     8,756,698
Less: Accumulated depreciation and
           amortization (net of write off on disposal)   (3,760,883)   (2,094,829)

                                                        ------------  ------------
                                                        $ 9,429,832   $ 6,661,869
                                                        ============  ============
</TABLE>

Depreciation charge was $1,836,425 and $966,077 for the years ended December 31,
2006  and  2005,  respectively.


                                      F-19
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


10.  INTEREST IN AN ASSOCIATED COMPANY

The  investment  consists  of  the Company's 50% equity interest in Tianjin LFK,
which  is  held  by  FDI  (a  40%  owned but effectively controlled subsidiary).
Tianjin  LFK  was  established  in  November  2005 to manage the Tianjin FunPlex
entertainment  center  which  commenced  its  formal operation in February 2006.
Although  Tianjin  LFK  is  budgeted  to operate at a break-even level annually,
actual profitability, especially on an interim basis and at the initial stage of
operation  in particular, is subject to substantial variability. The Company has
no  contractual  obligation  for  any  losses  incurred  by  Tianjin  LFK.

The  condensed  statements  of  operations  of  Tianjin  LFK  for the year ended
December  31,  2006  are  as  follows:

<TABLE>
<CAPTION>
                                                          Year ended
                                                       December 31, 2006
                                                      -------------------
<S>                                                   <C>
Net sales                                             $          548,169
                                                      ===================
Net income (loss)                                     $          (81,851)
                                                      ===================
The Company's share of net loss                       $          (18,656)
                                                      ===================
Income (loss) in excess of investment (unrecognized)  $          (22,270)
                                                      ===================
</TABLE>

Reconciliation  of  the  investment  in  Tianjin  LFK  is  as  follow:

<TABLE>
<CAPTION>
                                            Interest in an
                                          associated company
                                         --------------------
<S>                                      <C>
As at January 1, 2006                    $            18,587
Effect of changes in exchange rate                        69
Equity in loss of an assoicated company              (18,656)
                                         --------------------
                                         $                 -
                                         ====================
</TABLE>

Based  on  the  agreement  with  Longqiao  PDL, the local venture partner of the
Tianjin  FunPlex, revenue income from the FunPlex will be shared equally between
the  Company  and  Longqiao PDL net of the rental and administrative expenses of
the  FunPlex.  For  the  year  ended  December 31, 2006, the Company recorded no
income  from  the  Tianjin  FunPlex  due  to  the  loss incurred by Tianjin LFK.

11.  SHORT-TERM LOAN FROM BANK

During  the year ended December 31, 2005, SDCL obtained a short-term loan in the
principal  amount  of  approximately  $2,478,315  (the  "Loan")  from  Shenzhen
Development Bank Limited ("SDB"). The Loan was unsecured and accrued interest at
an  annual  rate  of 5.58%.  Accrued interest payments were payable monthly, and
all accrued interest and principal was due one year from the date the funds were
received.  The  Loan  was  guaranteed by SHQ.  On November 25, 2006, the Company
repaid  in  full  the  principal  of  the loan and there was no more outstanding
short-term  bank  loan  as  at  December  31,  2006.


12.  INCOME TAXES

The  components  of income (loss) from continuing operations before income taxes
and  minority  interests  are  as  follows:


                                      F-20
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
          Years ended December 31,
       ------------------------------
             2006            2005
       ----------------  ------------
<S>    <C>               <C>
US     $      (455,436)  $  (413,255)
BVI             52,412      (161,781)
CHINA       (2,352,984)    2,137,502
       ----------------  ------------
       $    (2,756,008)  $ 1,562,466
       ================  ============
</TABLE>

US
Fantatech  Inc.  and Hytech US are both Delaware corporations and are subject to
the corporation income taxes of the United State of America at a maximum rate of
34%.  For  the  year  ended  December  31,  2006, the total estimated tax losses
available  for both US corporations for carryforward was approximately $456,000,
which  can  be  carried  forward  20 years following the loss year to offset the
taxable  income  generated  in  the  future  years.

Internal  Revenue  Code  Section  382  substantially  restricts the ability of a
corporation  to  utilize  existing  net  operating  losses  in  the  event of an
"ownership change". In view of the owner shift and equity structure shift during
2005 in relation to its principal shareholder, Shenzhen Huaqiang Technology Co.,
Ltd  ("SHT"),  the  Company  has  determined  that  there  will  be  significant
limitations  on  the  future utilization of its net operating loss carryforwards
for  Federal  income  tax  purposes  due  to  such  changes.

In  addition,  the  Company  has  no  intention to distribute dividends from its
Chinese  subsidiaries  to  its  US  parent, which is the primary way that the US
parent  would  be  able to recognize income. As of December 31, 2006, management
was  unable to determine it is more likely than not that the deferred tax assets
will  be  realized.  Accordingly,  due  to  the  uncertainty  surrounding  the
realization  of  the  benefits of the Company's tax attributes, a 100% valuation
allowance  was  established  related  to  the  deferred  tax asset from the loss
carryforwards  by  the US parent and subsidiary, and thus no deferred tax assets
were  recognized  in  the  Company's  financial  statements.

BVI
The  Company's  subsidiaries  incorporated in the British Virgin Islands ("BVI")
are  not  taxed  in  BVI.  Under the current BVI laws, income derived outside of
BVI, dividends and capital gains arising from investment by BVI subsidiaries are
not  subject  to  income  taxes  in  BVI,  and  no withholding tax is imposed on
payments  of  dividends  by  the  BVI  subsidiaries  to  the  Company.

CHINA
The  Company's  Chinese  subsidiaries  and  affiliates  located  in Shenzhen are
subject  to  Enterprise  Income  Tax  ("EIT")  in  China at a rate of 15% on net
profits.  However,  based  on  the  local  tax  rules, SDCL is entitled to a tax
holiday  for  the  first two years of its operations (years 1999 and 2000) and a
50%  reduction  of  the  rate  for the third through eighth years (years 2001 to
2006)  of  operations  due to the high technology nature of its businesses.  The
provision  for taxes on earnings of the Chinese subsidiaries for the years ended
December  31,  2006  and  2005,  calculated  based  on the prevailing accounting
standards  in  China,  was  $197,782  and  $169,531,  respectively.  Had the tax
holidays  and  concessions  not  been  available, the provision for income taxes
would  have increased by approximately $124,791 and $156,886 for the years ended
December  31,  2006  and  2005,  respectively.


                                      F-21
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


The Company's other subsidiary, Chongqing FTC is subject to EIT at a rate of 33%
on  net  profits. As Chongqing FTC is budgeted to operate at a break-even level,
it  is not expected to have any material impact on the Company's overall Chinese
tax obligations. During the year ended December 31, 2006 and 2005, Chongqing FTC
recorded  a  loss  of  $50,109  and  $643,  respectively.

At  December  31,  2006,  the  tax  losses available for carryover in China were
$16,536,  which  was attributable to the cumulative losses incurred by Chongqing
FTC, and can be carried forward to 2011.  Management determined that it was more
likely  than  not  that the related deferred tax assets would not be realized in
the  foreseeable future, as Chongqing FTC is budgeted to operate at a break-even
level and the amount was immaterial. Accordingly, a 100% valuation allowance was
established  relating  to  the  deferred  tax  asset from the loss carryforwards
generated  by  Chongqing FTC, and thus no deferred tax assets were recognized in
the  Company's  financial  statements.

The  provision  for income taxes relating to the Company's continuing operations
consists  of  the  following:

<TABLE>
<CAPTION>
           Years ended December 31,
         ---------------------------
             2006          2005
         ------------  -------------
<S>      <C>           <C>
Current
- US                -  $         830
- BVI               -              -
- CHINA  $    197,782  $     169,531
         ------------  -------------
         $    197,782  $     170,361
         ============  =============
</TABLE>

The  reconciliation of effective income tax rates of the Company attributable to
continuing  operations  to the statutory income tax rate in China is as follows:

<TABLE>
<CAPTION>
                                      Years ended December 31,
                                    ---------------------------
                                        2006          2005
                                    ------------  -------------
<S>                                 <C>           <C>
Statutory income tax rate                    15%            15%
Tax holidays and concessions                  4%          (10%)
Foreign rate differential                   (1%)           (3%)
Non-deductible expenses and others         (26%)            11%
Change in valuation allowance                 1%           (2%)
                                    ------------  -------------
Effective income tax rates                  (7%)            11%
                                    ============  =============
</TABLE>

Deferred  tax  assets  using  the  applicable  tax rates comprise the following:

<TABLE>
<CAPTION>
                            Years ended December 31,
                         -----------------------------
                             2006            2005
                         -------------  --------------
<S>                      <C>            <C>
Deferred tax assets:
Tax loss carryforwards   $    155,174   $     175,529
Trade receivables              13,532           4,804
                         -------------  --------------
                              168,706         180,333
Valuation allowance          (168,706)       (180,333)
                         -------------  --------------
Net deferred tax assets  $          -   $           -
                         =============  ==============

</TABLE>


                                      F-22
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


13.  STOCK BASED COMPENSATION

On  January  6, 2004, the Company granted stock options for a total of 2,000,000
shares  to  its  key  employees  at  an  exercise  price  of  $1.0  per  share.

Effective  October  10,  2005, the Board of Directors of the Company resolved to
cancel  all  of  the  issued and outstanding stock options which were previously
granted  to  the  Company's  key  employees.  In October 2005, all of the option
holders  entered  into  Option  Surrender  and  Cancellation Agreements with the
Company  and agreed to surrender unconditionally and irrevocably the options for
cancellation  with  no  additional  monetary  compensation  from  the  Company.


14.  (LOSS) INCOME PER SHARE

On  January  6,  2004,  the  Company granted stock options to purchase 2,000,000
shares  of  common stock to certain officers and key employees of the Company at
an exercise price of $1.00 per share. None of the outstanding stock options were
exercisable  prior  to January 7, 2007. All of the Company's outstanding options
were  cancelled  effective  from  October  10, 2005. As at December 31, 2006 and
2005,  there  were  no  stock  options  issued  and  outstanding.

As  no  options or other dilutive securities were outstanding as of December 31,
2006  and  2005,  basic  and diluted EPS are the same for all periods presented.


15.  RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

(a)  Agreement  with  associated  company
     ------------------------------------

On  June  1, 2004, SDCL and FDI entered into an Agreement pursuant to which SDCL
engaged  FDI,  its  controlled  associated  company,  as its sales agent for the
marketing  and  distribution of its amusement and simulation equipment and 3D/4D
theatres  in  China.

Commencing  January 1, 2005 and thereafter, FDI will be entitled to a commission
ranging  from 10% to 20% of the contract price, depending on the gross margin of
the specific contract and the size of the related project under the contract. In
addition, a 5% advertising and promotional incentive will be provided to FDI for
each contract solicited by FDI. The aforesaid commissions and incentives will be
reflected in the ex-factory price (reduced selling price) and transferred to FDI
through  its  purchase  from  SDCL  of  the  related equipment and products. The
agreement  can be terminated at any time with 60 days notice to the other party.

FDI  will  be  responsible for its own operating costs including staff salaries,
marketing  and  promotional  expenses, general office administrative expenses as
well  as  the  associated  sales  taxes  and  income  tax.

In  addition,  the  agreement  also  provides  that FDI may include in its sales
contracts  a  provision  for  the cooperative operation of any hi-tech amusement
center  "FunPlex" or theme park "Fantawild" when the proposed operating venue is
suitable  for the business. However, FDI will only act as the agent in such part
of the contract on behalf of SDCL.  FDI will have no direct or indirect economic
or  legal  interest  in the revenue sharing operations, which will be solely the
business of SDCL and SDCL will be responsible for contributing the equipment and
fixed  assets required for the cooperative operation. All revenues generating by
such  cooperative  businesses  will  be  received  by  SDCL, and all the related
expenses  as  stipulated  in  such  cooperation contracts will be borne by SDCL.


                                      F-23
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


In practice, the advertising and promotional incentives and commissions are paid
to  FDI  through  a  price reduction. SDCL reduces the sales price to FDI by the
amount  of the agreed percentage of incentives and commissions, which represents
a reduction in the revenue of SDCL. FDI can capture such portion of revenue from
its  onward  sales  to  the  ultimate  customers.  In  this  regard, the revenue
recognized  by  SDCL  is  in  compliance  with  EITF  No.  01-9, "Accounting for
Consideration  Given  by  a  Vendor  to  a Customer (Including a Reseller of the
Vendor's  Products)".

When FDI receives the commissions and incentives, which are reflected as reduced
costs  of  sales  for  FDI,  the income is included in FDI's gross profit, which
supports  FDI's  selling,  administrative  and  other  operating  functions.  No
further  incentives  are  passed  on  to  the  ultimate  customers  from  FDI.

The  revenue recognized by SDCL and the reduced costs of sales for FDI, however,
are  eliminated  in  preparing  the  consolidated  financial  statements  of the
Company.

During the years ended December 31, 2006 and 2005, SDCL sold its products to FDI
for  an  aggregate price of $191,400 and $4,019,111, respectively, for resale to
end  customers. During the years ended December 31, 2006 and 2005, FDI collected
for  SDCL  a  total  of  $201,899 and $281,647, respectively, of the net revenue
shared  from  the  revenue  sharing  centers  operated  for  SDCL.

(b)     Contracts  with  related  party
        -------------------------------

On  January  24,  2006,  SDCL entered into an Equipment Sale Contract (the "Sale
Contract")  and an Equipment Installation Contract (the "Installation Contract")
with  Wuhu Huaqiang Tour City Development Co., Ltd. ("Wuhu Huaqiang").  Pursuant
to the Sale Contract, Wuhu Huaqiang will purchase from SDCL 22 sets of amusement
attractions/equipment  (the  "Equipment") for use in a specific theme park to be
built  in  the  City  of Wuhu, Anhui Province, China.  The consideration for the
Equipment  is  RMB  126,730,000  (approximately $15,650,000) (the "Sale Price"),
plus a right to receive 8% of the theme park's Distributable Income for a period
of  15 years from commencement of theme park operations.  "Distributable Income"
means  the  theme park's Gross Revenue, less certain limited expenses (including
sales  tax  and  the  purchase  cost  of  souvenirs,  beverages, foods and other
commodities  sold in the theme park).  Wuhu Huaqiang has made an initial deposit
of  approximately 6% of the Sale Price (approximately $938,000) within one month
of  the  effective  date of the Sale Contract.  The balance of the Sale Price is
payable  in  five  separate installments to be made through May 30, 2007.  Under
the  Sale  Contract, Wuhu Huaqiang has guaranteed that the 8% revenue share from
the theme park's aggregate Distributable Income during such 15-year period shall
in  no  case  be  less  than  RMB  50,000,000  (approximately  $6,170,000).

The  Installation Contract provides for the installation of the Equipment at the
theme  park  by  SDCL.  Total  consideration for the installation service is RMB
10,000,000  (approximately  $1,230,000)  payable  in  five  equal  installments
beginning one month after the signing of the Installation Contract and ending 10
days  after  completion  of the installation services. The installation services
are  scheduled  to  be  completed  by  July  18,  2007.

Management  believes  that  these  arrangements  with  Wuhu  Huaqiang  will  be
advantageous  to  the Company and that its participation in the large-size theme
park  business  will  enhance  its  reputation  in  the  industry with a minimum
investment.  Both the Sale and Installation Contracts were reviewed and approved
by  the  Company's  Audit  Committee  and  Board  of  Directors.

Wuhu  Huaqiang  is  a joint venture company incorporated in the City of Wuhu and
currently  controlled  by SHICL, an affiliate of SHQ. The Chairman and President
of  SHQ  is  also the Chairman and CEO of the Company.  The Chairman and CEO did
not  participate  in  the discussion regarding or eventual Board approval of the
Sale  and  Installation  Contracts.  The  Chief Operating Officer ("COO") of the
Company  is  also  a  director  of  Wuhu  Huaqiang.


                                      F-24
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


During  the year ended December 31, 2006, the Company recorded sale revenue from
Wuhu  Huaqiang  of approximately $5,500,000 while no such sale revenue from Wuhu
Huaqiang  in  2005.

(c)  Design  and  consulting  contracts  with  related  party
     --------------------------------------------------------

On  October  10,  2005,  the  Company's  indirect  wholly-owned subsidiary, SDCL
entered  into  a  design  contract (the "Contract") with Wuhu City Huaqiang Tour
City  Development  Co.,  Ltd. ("Wuhu Huaqiang").  Pursuant to the Contract, SDCL
had  been engaged to perform the project design for a theme park being developed
by  Wuhu Huaqiang in the City of Wuhu, Anhui Province, China. The design fee was
RMB  11 million (approximately $1,356,000).  The design project was completed by
December  15,  2005.

In  November  2006,  FDI  entered  into  a  design  contract with Wuhu Huaqiang.
Pursuant  to  the  contract,  FDI  had  been  engaged  to  perform  the interior
decoration  advisory services for Phase I of the theme park in the City of Wuhu.
The  design  fee was RMB 3,130,000 (approximately $393,000) and the contract was
completed  in  December  2006.

During  the  year  ended  December 31, 2006, FDI also rendered its marketing and
consultation  services  to Hyvision Digital Film Inc. ("Hyvision"), an affiliate
of  SHQ,  in order to enhance the marketability and rental income of its digital
3D/4D  film  products.  The  total  service fee was RMB 2,325,500 (approximately
$292,000).

(d)  Purchases  of  digital  films  and  related  components
     -------------------------------------------------------

During  the  years  ended  December  31,  2006  and 2005, SDCL purchased certain
components  for  its  products from Hyvision, having a total value of $2,469,613
and  $1,167,396, respectively. The CEO, the Secretary (Zhigang Rong) and the COO
of the Company are also directors of Hyvision. SHT, a significant shareholder of
the  Company,  has  a  20%  equity  interest  in  Hyvision.

(e)  Sales  to  related  parties
     ---------------------------

During the years ended December 31, 2006 and 2005, SDCL sold equipment to Hytech
HK  for  an aggregate price of $663,750 and $648,090, respectively. Hytech HK is
beneficially owned by Top Link Development Limited ("TLD"), a company controlled
by  SHQ.

(f)  Related  party  receivables  and  payables

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

As  at  December  31,  2006  and  2005,  the amounts payable and receivable from
related  parties  are  summarized  as  follows:


                                      F-25
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                           2006          2005
                                      --------------  ----------
<S>                                   <C>             <C>

Amounts due from:
-----------------
Hytech HK (1)                         $     850,714   $ 159,988
Shenzhen Huaqiang Industrial
and Trading Co. Ltd. ("HIT") (2)              7,183       7,791
Chunren Xie (3)                               1,500       1,500
Directors (4)                                19,298      24,442
Wuhu Huaqiang (5)                         1,540,050          --
Shenzhen Juqiang Construction
Co. Ltd. ("SJC") (6)                         54,670          --
Shenzhen Huaqiang Information
       Industry Co. Ltd. ("HII") (7)          3,074          --
Hyvision (8)                                237,196          --
                                      --------------  ----------
                                      $   2,713,685   $ 193,721
                                      ==============  ==========
Amounts due to:
---------------
Hytech HK (1)                         $    (908,634)  $(141,506)
TLD (9)                                     (50,000)   (280,000)
Dehou Fang (9)                              (20,000)    (20,000)
Bilibest Industries Ltd. (10)              (478,947)   (336,843)
Hyvision (8)                             (1,702,945)         --
SHQ (11)                                    (11,621)         --
                                      --------------  ----------
                                      $  (3,172,147)  $(778,349)
                                      ==============  ==========
<FN>

(1)  The amount  due  to  Hytech HK represents the payment made on behalf of the
     Company  in  respect of its administrative expenses incurred outside China.
     These amounts are unsecured, non-interest bearing and have no definite term
     of repayment. The amount due from Hytech HK represents the trade receivable
     arising  from  the  sale  of  the  Company's  products.

(2)  HIT is  an  affiliate  of SHQ. This amount represents a payment made by the
     Company  on  behalf  of  HIT  in connection with one of the revenue sharing
     operations  that  has  been  closed.  The amount is unsecured, non-interest
     bearing  and  has  no  definite  term  of  repayment.

(3)  Chunren  Xie  is  a  30%  minority  shareholder  of  Hytech  US.

(4)  Amounts  due from directors represent cash advances made for business trips
     and  trade  fairs.

(5)  The amounts  due from Wuhu Huaqiang represent the trade receivables arising
     from  the  sale  of equipment related to the theme park in the City of Wuhu
     and  consultation  services  provided  as  well  as the payment made by the
     Company on behalf of Wuhu Huaqiang in respect of an exhibition in Shanghai.

(6)  SJC is  an  affiliate of SHQ. The receivable amount due from SJC represents
     sundry  expenses  made  by  the  Company  on  behalf  of SJC. The amount is
     unsecured,  non-interest  bearing  and  has  no definite term of repayment.

(7)  The amount  due  from  Shenzhen  Huaqiang  Information  Industry  Co.  Ltd.
     ("HII"),  an  affiliate  of  SHQ, represents the amount receivable from the
     Company's disposal of obsolete property, plant and equipment. The Secretary
     and  the  COO  of  the  Company  are  also  directors  of  HII.

(8)  The amount  due  from Hyvision represents the trade receivable arising from
     the  market survey and consulting services performed by FDI. The amount due
     to  Hyvision represents the amount payable for the purchase of digital film
     products  and  other  components  from  Hyvision.

(9)  The amounts  due to TLD and Mr. Dehou Fang represent balance of the amounts
     loaned  to  Intsys  in  2002  for  the  acquisition  of Hytech US and other
     administrative  expenses  of  the Company. TLD is controlled by SHQ and Mr.
     Dehou  Fang  is  a  director  of Intsys. During the year ended December 31,
     2006, the Company repaid $230,000 to TLD. The remaining related party loans
     aggregating  $70,000  are  unsecured,  non-interest  bearing  and  have  no
     definite  term  of  repayment.

(10) The amounts due to Bilibest Industries Ltd., an affiliate of SHQ, represent
     payments  made on behalf of the Company for certain administrative expenses
     incurred  outside  China.  These  amounts  due  are unsecured, non-interest
     bearing  and  have  no  definite  term  of  repayment.


                                      F-26
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


(11) The amount  due  to  SHQ  represents  the  rental expenses of the Company's
     Shenzhen  office  payable  to  SHQ.
</TABLE>

(g)  Deposits  at  financial  clearing  center  operated  by  affiliate
     ------------------------------------------------------------------

See  Note  5.

(h)  Guarantee  of  bank  loan
     -------------------------

See  Note  11.


16.  IMPAIRMENT  OF  INTANGIBLE  ASSET  AND  PROPERTY,  PLANT  AND  EQUIPMENT

In view of the reduced business activities of Hytech US, including the fact that
there  were no sales contracts secured in 2004 and 2005, the Company conducted a
re-evaluation  of the intangible assets associated with trademarks registered by
Hytech  US  and  the  related  expected  future  cash flows. As a result of this
evaluation,  the  Company  recorded  a full provision for impairment of $170,950
during  the  year ended December 31, 2005. There was no impairment of intangible
assets  recorded  in  2006.

During  the year ended December 31, 2006, management of the Company conducted an
evaluation  of  the  carrying  value  of  its  property, plant and equipment, in
particular  for  those  equipment  used  for  its  Revenue-Sharing  Operations.

As of December 31, 2006, the Company operated twenty-six Revenue-Sharing Centers
including  fourteen  FuntaWild  FunPlexes,  ten  4D  theaters,  one  large-size
attraction  and one theme park. Approximately 70% of the Revenue-Sharing Centers
were  launched  in 2004 and 2005, while all of the fourteen FunPlexes and one 4D
theater  were  not  operated  profitably  due  to  insufficient  visitors.

In January 2007, the FunPlex centers in Zhuhai and Beijing and the 4D theater in
Guangzhou  were  closed  as the local partners intended to change the venues for
other  uses  due  to  poor  operating  performance of these centers. The Company
agreed  on  such  termination  since these centers could not operate without the
support  of  the  local  partners.  Although  the Company repossessed all of the
equipment  it contributed to these centers for revenue sharing purposes, not all
of  those  equipment have reusable value. Accordingly, the net carrying value of
the  related  equipment  may  not  be  fully  recoverable.

In  view  of  the  non-profitable  performance  of  most of the indoor FunPlexes
centers  and  the  increasing  efforts  that  the  Company  has  placed  on  the
development  and  operation  of  theme  parks,  management  has  conducted  an
examination  of  the  recoverable  value  of  the  equipment  used  in  these
Revenue-Sharing  Centers,  including the review of the type, nature, actual wear
and  tear,  mobility,  attractiveness,  transferability  as  well  as  market
acceptability  of  those related equipment, taking into account of the estimated
cash  flow  for  each  of  the  Revenue-Sharing  Centers.  As  a  result of such
evaluation,  the  Company determined that an impairment of the carrying value of
the  equipments associated with the fourteen FunPlexes and one 4D theater should
be  approximately  $4,209,000  (representing  approximately 33% of the total net
carrying value of  the equipment for revenue sharing operations). The impairment
losses  were  charged  to  the operating results for the year ended December 31,
2006.

Management of the Company has also conducted an evaluation of the recoverability
of  the  costs  incurred  and  estimated  costs to completion in relation to the
outstanding  long  term  construction contracts, and concluded that no provision
for  impairment  is  required.


                                      F-27
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Based  on  the  above  evaluation,  the  Company believes in good faith that the
impairment charges were sufficient and adequate in reflecting the carrying value
of  its  property,  plant and equipments. The Company uses assumptions regarding
the estimated future cash flows and other factors to determine the fair value of
its  fixed  assets.  If  these  estimates  or  the  related  assumptions  change
adversely  in  the  future,  the  Company  may  be  required  to  record further
impairment  charges  for  the  relevant  assets.

17.  SEGMENT  REPORTING

The  following segment information is presented in accordance with SFAS No. 131,
"Disclosure  About  Segments  of  an  Enterprise and Related Information", which
requires  companies to report selected segment information and to report certain
entity-wide  disclosures  about  products and services, major customers, and the
material  countries  in  which the entity holds assets and reports revenue which
were assessed by the management separately.  The segment information is based on
the  management  approach adopted in the Company's internal organization and the
reported  revenue  and  operating  income for the measured segments are based on
information  provided  to  the  chief  operating  decision maker for performance
review  and  resources  allocation.

Management  of  the  Company monitors the performance of the operations in three
segments  with  respect to the nature of revenue generated from the sales of its
products  and  services,  which  are  divided  into  three main categories:  (1)
contract  sales  of equipment or facilities used in hi-tech amusement centers or
theme  parks, 3D/4D theaters and the related products; (2) contracts in relation
to  the  design of 4D theater, amusement center, large-size attraction and theme
park,  as  well  as  any  related consultation services; and (3) revenue sharing
operations.

Each  segment involves different marketing strategies and business techniques as
well  as  different  resource allocation. The Company's chief operating decision
maker  evaluates  performance  based  on EBIT (earnings or loss before interest,
taxes,  impairment  losses,  and  minority  interest).  The  segments related to
contract sales, design & consulting, and revenue sharing operations are assessed
based  on  the  net  income  after deducting the relevant direct costs of sales,
depreciation  expenses,  selling,  administrative  and  management costs.  Other
corporate  expenses  consist  of  general  administrative  expenses that are not
directly  related  to the operations of this segment are classified to corporate
administrative  and  other  expenses.

The  following tables summarize revenues and EBIT by segment for the years ended
December  31,  2006  and  2005,  respectively.


                                      F-28
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                          Year ended December 31, 2006
                                                ---------------------------------------------------
                                                              Design and     Revenue
                                                 Contracted   Consulting     Sharing
                                                   Sales       Services    Operations      Total
                                                ------------  -----------  -----------  -----------
<S>                                             <C>           <C>          <C>          <C>
REVENUE                                         $11,698,297    $685,364    $4,086,680   $16,470,341
                                                ------------  -----------  -----------  -----------

Direct costs of production                       7,352,955      25,126       786,558     8,164,639
Salaries, wages and related personnel expenses   1,690,958      121,809      473,047     2,285,814
Other selling and marketing expenses              719,694       97,955       620,313     1,437,962
Depreciation of property, plant and equipment     208,762          -        1,531,056    1,739,818
                                                ------------  -----------  -----------  -----------
   Total Operating Expenses                      9,972,369      244,890     3,410,974   13,628,233
                                                ------------  -----------  -----------  -----------

INCOME FROM OPERATIONS                           1,725,928      440,474      675,706     2,842,108

Corporate administrative and other expenses          -             -            -        1,271,803
                                                ------------  -----------  -----------  -----------

EBIT                                                                                     1,570,305

Reconciliation of EBIT to net income:
  Minority interests                                                                       113,148
  Interest (income) expenses, net                                                          117,110
  Income tax expenses                                                                      197,782
  Impairment of property, plant and equipment                                            4,209,203
  Equity in loss of an associated company                                                   18,656

                                                                                       ------------
NET LOSS                                                                               $(3,085,594)
                                                                                       ============
</TABLE>


<TABLE>
<CAPTION>
                                                          Year ended December 31, 2005
                                                --------------------------------------------------
                                                             Design and     Revenue
                                                Contracted   Consulting     Sharing
                                                   Sales      Services    Operations      Total
                                                -----------  -----------  -----------  -----------
<S>                                             <C>          <C>          <C>          <C>
REVENUE                                         $ 8,058,877  $ 2,223,171  $   997,342  $11,279,390
                                                -----------  -----------  -----------  -----------

Direct costs of production                        3,846,988      257,919            -    4,104,907
Salaries, wages and related personnel expenses    1,609,348      102,624       93,120    1,805,092
Other selling and marketing expenses                827,030        6,108       65,642      898,780
Depreciation of property, plant and equipment       189,733       14,243      751,631      955,607
                                                -----------  -----------  -----------  -----------
   Total Operating Expenses                       6,473,099      380,894      910,393    7,764,386
                                                -----------  -----------  -----------  -----------

INCOME FROM OPERATIONS                            1,585,778    1,842,277       86,949    3,515,004

Corporate administrative and other expenses               -            -            -    1,638,440
                                                -----------  -----------  -----------  -----------

EBIT                                                                                     1,876,564

Reconciliation of EBIT to net income:
  Minority interests                                                                       167,562
  Interest (income) expenses, net                                                          143,148
  Income tax expenses                                                                      170,361
  Impairment on trademarks                                                                 170,950

                                                                                       -----------
NET INCOME                                                                             $ 1,224,543
                                                                                       ===========

</TABLE>


The  following  table reconciles each reporting segment's assets to total assets
reported  on  the  Company's consolidated balance sheets as of December 31, 2006
and  2005,  respectively.


                                      F-29
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


<TABLE>
<CAPTION>
                               2006         2005
                            -----------  -----------
<S>                         <C>          <C>
Contracted sales            $1,738,519   $2,536,322
Revenue sharing operations   9,178,143    8,366,093
Shared assets *              8,730,470    8,795,209

                            -----------  -----------
Total Assets                $19,647,132  $19,697,624
                            ===========  ===========
<FN>

*    Shared assets represent assets that provide benefit to all of the Company's
     operating  segments.  Shared assets are not allocated to operating segments
     for  internal  reporting  or  decision-making  purposes.
</TABLE>

There  were  no intersegment revenues generated for the years ended December 31,
2006  and  2005,  respectively.

Over  90%  of  the Company's revenues are derived from its operations in the PRC
and  over  90%  of  the  Company's  assets  are  located  in  the  PRC.

18.  MINORITY  INTERESTS

As of December 31, 2006, the Company's minority interest balance was $4,674,746.
It  was comprised of the minority shares of effectively controlled subsidiaries,
including  Hytech  US,  FDI  and  Chongqing  FTC.  As  of December 31, 2005, the
minority  interest  balance  was $4,289,988, which was comprised of the minority
shares  of  Hytech US and FDI, which the Company did not own. As of December 31,
2006,  the  Company owned a 70% interest in Hytech US, a 40% interest in FDI and
94%  interest  in  Chongqing  FTC.

For  the  year  ended  December  31,  2006,  the  Company  recorded the minority
interests  share  of  income  of $113,148, as compared to the minority interests
share  of  income  of  $167,562  for  the  year  ended  December  31,  2005.

19.   COMMITMENTS AND CONTINGENCIES

Operating  leases

The  following  are  the approximate minimum lease payments that will have to be
made  in the years as indicated below based on the operating leases in effect as
of  December  31,  2006:

<TABLE>
<CAPTION>
                                            Total
                                          ----------
<S>                                       <C>

                          2007            $  319,681
                          2008               223,130
                          2009               218,329
                          2010               180,191
                          2011               205,933
                   Thereafter till 2018    1,338,564
                                          ----------
                   Minimum lease payment  $2,485,828
                                          ==========
</TABLE>

The  total  rental  expenses  incurred for the years ended December 31, 2006 and
2005  were  $352,777  and  $339,356,  respectively.

Capital  commitments

At  December  31,  2006  and  2005,  the  Company's  commitments  for  capital
expenditures  were  approximately $1,460,000 and $6,200,000, respectively.  This
commitment relates to costs to acquire machinery and equipment which are used in
the  Company's  revenue  sharing  operations.


                                      F-30
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


Legal  proceedings

The  Company  is  periodically  subject  to various pending and threatened legal
actions  which arise in the normal course of business.  The Company's management
believes that the impact of any such litigation will not have a material adverse
impact  on  the  Company's  financial  position  or  results  of  operations.


20.    MAJOR  CUSTOMERS  AND  CONCENTRATIONS  OF  CREDIT  RISK

Three  customers accounted for approximately 33.4%, 13.7% and 12.0% of sales for
the  year  ended December 31, 2006 as compared to approximately 15.3%, 11.9% and
10.4%  for  the  year ended December 31, 2005. The 33.4% sales in 2006 were from
Wuhu  Huaqiang,  a  related  party  of  the  Company.  As  of December 31, 2006,
approximately  61.9%  (2005:  85.0%)  of  trade  receivable  were  from  trade
transactions  with  four  customers,  of  which  one  customer  accounted  for
approximately  25.8%  (2005:  37.2%)  of  the  trade  receivable  balance.

The  Company's financial instruments that are exposed to concentration of credit
risk  consist  primarily  of  cash  and cash equivalents, deposits at affiliates
financial  clearing  centers,  trade  receivables and related party receivables.
Cash  and  cash  equivalents  as  well  as  the  deposits at affiliate financial
clearing  center  are  mainly  maintained with major banks in China. The Company
periodically  performs  credit analysis and monitors that financial condition of
its  customers  and  related  parties at the subsidiary level in order to ensure
collections  and  minimize  credit  risk.


21.   CURRENT  VULNERABILITY  DUE  TO  CERTAIN  CONCENTRATIONS

The  Company's  primary  operations  are  conducted  in  China. Accordingly, the
Company's  business,  financial  condition  and  results  of  operations  may be
influenced  by  the  political, economic and legal environments in China, and by
the  general  state  of  the  Chinese  economy.

The  Company's  operations  in  China  are subject to special considerations and
significant  risks  not typically associated with companies in North America and
Western  Europe.  These  include  risks  associated  with,  among  others,  the
political,  economic  and  legal environments and foreign currency exchange. The
Company's  results  may  be  adversely  affected by changes in the political and
social conditions in China, and by changes in governmental policies with respect
to  laws  and  regulations,  anti-inflationary measures, currency conversion and
remittance  abroad,  and  rates  and  methods  of  taxation, among other things.

The  Company's operating assets and primary sources of income and cash flows are
concentrated  with its interest in subsidiaries and associated company in China.
The  Chinese  economy  has,  for many years, been a centrally-regulated economy,
operating  on the basis of annual, five-year and ten-year state plans adopted by
central  Chinese governmental authorities, which set out national production and
development  targets.  The Chinese government has been pursuing economic reforms
since  it  first  adopted its "open-door" policy in 1978.  There is no assurance
that  the  Chinese  government  will continue to pursue economic reforms or that
there  will  not  be  any  significant change in its economic or other policies,
particularly  in  the event of any change in the political leadership of, or the
political,  economic  or social conditions in China.  There is also no assurance
that  the  Company  will  not  be  adversely  affected  by  any  such  change in
governmental  policies  or  any unfavorable change in the political, economic or
social conditions, the laws or regulations, or the rate or method of taxation in
China.


                                      F-31
<PAGE>
                         FANTATECH INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


As  many of the economic reforms which have been or are being implemented by the
Chinese  government  are  unprecedented  or experimental, they may be subject to
adjustment  or  refinement,  which  may  have  adverse  effects  on the Company.
Further,  through state plans and other economic and fiscal measures, it remains
possible  for  the  Chinese  government  to  exert  significant influence on the
Chinese  economy.


22.  SUBSEQUENT  EVENT

In  January 2007, the Company's subsidiary, SDCL, obtained a new short-term loan
of  approximately $2,561,000 from the Shenzhen Development Bank Limited ("SDB").
The  loan  is  unsecured,  accrues  interest at a rate of 6.12% per annum and is
guaranteed  by  SHQ,  a  related  party  of  the  Company.


                                      F-32