Exhibit
10.2


 


INVESTNET, INC. AND SUBSIDIARIES


 


FINANCIAL
STATEMENTS


AS OF JUNE 30,
2005 (UNAUDITED)


 





















 


INVESTNET, INC. AND SUBSIDIARIES


 


CONTENTS


 


 


	
  Condensed
  Consolidated Balance Sheet as of June 30, 2005
  (unaudited)

  	
   

  
	
   

  	
   

  
	
  Condensed
  Consolidated Statements of Operations for three and six
  months ended June 30, 2005 and 2004 (unaudited)

  	
   

  
	
   

  	
   

  
	
  Condensed
  Consolidated Statements of Cash Flows for the six
  months ended June 30, 2005 and 2004 (unaudited)

  	
   

  
	
   

  	
   

  
	
  Notes
  to the
  Condensed Consolidated Financial Statements as of June 30, 2005 (unaudited)

  	
   

  



 





















 


INVESTNET, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEET


AS OF JUNE 30, 2005
(UNAUDITED)


 


	
  ASSETS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CURRENT ASSETS

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  $

  	
  362,608

  	
   

  
	
  Accounts receivable, net of allowances

  	
   

  	
  351,665

  	
   

  
	
  Inventories, net

  	
   

  	
  5,819,519

  	
   

  
	
  Due from a related company

  	
   

  	
  241,546

  	
   

  
	
  Other receivables

  	
   

  	
  37,295

  	
   

  
	
  Total Current Assets

  	
   

  	
  6,812,633

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PROPERTY AND EQUIPMENT, NET

  	
   

  	
  4,482,642

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  OTHER ASSETS

  	
   

  	
   

  	
   

  
	
  Intangible assets

  	
   

  	
  771,014

  	
   

  
	
  Land use rights, net

  	
   

  	
  55,054

  	
   

  
	
  TOTAL ASSETS

  	
   

  	
  $

  	
  12,121,343

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LIABILITIES
  AND STOCKHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CURRENT LIABILITIES

  	
   

  	
   

  	
   

  
	
  Accounts payable

  	
   

  	
  $

  	
  82,126

  	
   

  
	
  Other payables and accrued liabilities

  	
   

  	
  216,009

  	
   

  
	
  Value added tax payables

  	
   

  	
  876,487

  	
   

  
	
  Other tax payable

  	
   

  	
  14,746

  	
   

  
	
  Notes payable

  	
   

  	
  730,677

  	
   

  
	
  Convertible note payable

  	
   

  	
  8,070,000

  	
   

  
	
  Total Current Liabilities

  	
   

  	
  9,990,045

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  COMMITMENTS AND CONTINGENCIES

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  STOCKHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  
	
  Preferred stock, $0.001 par value,
  200,000,000 shares authorized, none issued and outstanding

  	
   

  	
  —

  	
   

  
	
  Common stock, $0.001 par value, 200,000,000
  shares authorized, 200,000,000 shares issued and outstanding

  	
   

  	
  200,000

  	
   

  
	
  Additional paid-in capital

  	
   

  	
  (2,767,441

  	
  )

  
	
  Retained earnings

  	
   

  	
   

  	
   

  
	
   Unappropriated

  	
   

  	
  4,188,373

  	
   

  
	
   Appropriated

  	
   

  	
  810,366

  	
   

  
	
   Due
  from shareholders

  	
   

  	
  (300,000

  	
  )

  
	
  Total Stockholders’ Equity

  	
   

  	
  2,131,298

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  	
   

  	
  $

  	
  12,121,343

  	
   

  



 


The accompanying notes are an integral part of these
financial statements


 


1





















 


INVESTNET, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


 


	
   

  	
   

  	
  For
  the three

  months ended

  June 30, 2005

  	
   

  	
  For
  the three

  months ended

  June 30, 2004

  	
   

  	
  For
  the six

  months ended

  June 30, 2005

  	
   

  	
  For
  the six

  months ended

  June 30, 2004

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET SALES

  	
   

  	
  $

  	
  1,706,901

  	
   

  	
  $

  	
  1,560,568

  	
   

  	
  $

  	
  3,735,134

  	
   

  	
  $

  	
  3,036,506

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COST OF SALES

  	
   

  	
  (1,107,178

  	
  )

  	
  (927,201

  	
  )

  	
  (2,428,361

  	
  )

  	
  (1,795,423

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GROSS PROFIT

  	
   

  	
  599,723

  	
   

  	
  633,367

  	
   

  	
  1,306,773

  	
   

  	
  1,241,083

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OPERATING EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Selling expenses

  	
   

  	
  40,775

  	
   

  	
  84,471

  	
   

  	
  153,443

  	
   

  	
  166,514

  	
   

  
	
  General and administrative expenses

  	
   

  	
  346,539

  	
   

  	
  48,856

  	
   

  	
  444,857

  	
   

  	
  88,249

  	
   

  
	
  Professional fees

  	
   

  	
  50,793

  	
   

  	
  25,362

  	
   

  	
  64,682

  	
   

  	
  25,362

  	
   

  
	
  Depreciation

  	
   

  	
  5,332

  	
   

  	
  3,352

  	
   

  	
  10,664

  	
   

  	
  6,348

  	
   

  
	
  Amortization of intangible assets

  	
   

  	
  28,262

  	
   

  	
  28,261

  	
   

  	
  56,522

  	
   

  	
  56,522

  	
   

  
	
  Amortization of land use rights

  	
   

  	
  302

  	
   

  	
  302

  	
   

  	
  604

  	
   

  	
  604

  	
   

  
	
  Total Operating Expenses

  	
   

  	
  472,003

  	
   

  	
  190,604

  	
   

  	
  730,772

  	
   

  	
  343,599

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PROFIT FROM OPERATIONS

  	
   

  	
  127,720

  	
   

  	
  442,763

  	
   

  	
  576,001

  	
   

  	
  897,484

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OTHER INCOME (EXPENSES)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Government grant

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  24,155

  	
   

  	
  91,788

  	
   

  
	
  Interest income, net

  	
   

  	
  164

  	
   

  	
  78

  	
   

  	
  201

  	
   

  	
  90

  	
   

  
	
  Interest expenses

  	
   

  	
  —

  	
   

  	
  (7,668

  	
  )

  	
  —

  	
   

  	
  (16,100

  	
  )

  
	
  Other income

  	
   

  	
  558

  	
   

  	
  —

  	
   

  	
  558

  	
   

  	
  —

  	
   

  
	
  Other expenses

  	
   

  	
  (29

  	
  )

  	
  (29

  	
  )

  	
  (220

  	
  )

  	
  (54

  	
  )

  
	
  Total Other Income (Expenses)

  	
   

  	
  693

  	
   

  	
  (7,619

  	
  )

  	
  24,694

  	
   

  	
  75,724

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PROFIT FROM OPERATIONS BEFORE TAXES

  	
   

  	
  128,413

  	
   

  	
  435,144

  	
   

  	
  600,695

  	
   

  	
  973,208

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  INCOME TAX EXPENSE

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET INCOME

  	
   

  	
  $

  	
   128,413

  	
   

  	
  $

  	
   435,144

  	
   

  	
  $

  	
   600,695

  	
   

  	
  $

  	
   973,208

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net profit per share-basic and diluted

  	
   

  	
  $

  	
   0.23

  	
   

  	
  $

  	
   0.00

  	
   

  	
  $

  	
   0.00

  	
   

  	
  $

  	
   0.01

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average number of shares
  outstanding during the year-basic and diluted

  	
   

  	
  551,229

  	
   

  	
  110,130,615

  	
   

  	
  121,277,689

  	
   

  	
  110,130,615

  	
   

  



 


The accompanying notes are an integral part of these
financial statements


 


2





















 


INVESTNET, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


 


	
   

  	
   

  	
  Six
  months ended

  June 30, 2005

  	
   

  	
  Six
  months ended

  June 30, 2004

  	
   

  
	
  CASH FLOWS FROM OPERATING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net income

  	
   

  	
  $

  	
  600,695

  	
   

  	
  $

  	
  973,208

  	
   

  
	
  Adjusted to reconcile net loss to cash
  provided by (used in) operating activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation - cost of sales

  	
   

  	
  157,295

  	
   

  	
  156,149

  	
   

  
	
  Depreciation and amortization

  	
   

  	
  67,790

  	
   

  	
  63,474

  	
   

  
	
  Stock issued for services

  	
   

  	
  300,000

  	
   

  	
  —

  	
   

  
	
  Changes in operating assets and liabilities
  (Increase) decrease in:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts receivable, net

  	
   

  	
  78,201

  	
   

  	
  (330,710

  	
  )

  
	
  Inventories, net

  	
   

  	
  (1,859,200

  	
  )

  	
  (983,644

  	
  )

  
	
  Other receivables Increase (decrease) in:

  	
   

  	
  (1,148

  	
  )

  	
  21,799

  	
   

  
	
  Accounts payable

  	
   

  	
  (77,845

  	
  )

  	
  43,781

  	
   

  
	
  Other payables and accrued liabilities

  	
   

  	
  (66,201

  	
  )

  	
  25,102

  	
   

  
	
  Value added tax payables

  	
   

  	
  210,412

  	
   

  	
  545

  	
   

  
	
  Other taxes payable

  	
   

  	
  14,719

  	
   

  	
  27

  	
   

  
	
  Net cash used in operating activities

  	
   

  	
  (575,282

  	
  )

  	
  (30,269

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH FLOWS FROM INVESTING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Purchase of property and equipment

  	
   

  	
  (809

  	
  )

  	
  (114,403

  	
  )

  
	
  Net cash used in investing activities

  	
   

  	
  (809

  	
  )

  	
  (114,403

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH FLOWS FROM FINANCING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Due from stockholders

  	
   

  	
  (366,400

  	
  )

  	
  (127,803

  	
  )

  
	
  Due from related companies

  	
   

  	
  603,865

  	
   

  	
  543,479

  	
   

  
	
  Payments on notes payables

  	
   

  	
  —

  	
   

  	
  (241,546

  	
  )

  
	
  Net cash provided by financing activities

  	
   

  	
  237,465

  	
   

  	
  174,130

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS

  	
   

  	
  (338,626

  	
  )

  	
  29,458

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH AND CASH EQUIVALENTS AT BEGINNING OF
  YEAR

  	
   

  	
  701,234

  	
   

  	
  142,398

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH AND CASH EQUIVALENTS AT END OF YEAR

  	
   

  	
  $

  	
  362,608

  	
   

  	
  $

  	
  171,856

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash paid for interest

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  16,100

  	
   

  



 


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:


 


During 2005, the Company
issued 110,130,615 shares of common stock for 12% of the common stock of China Kangtai Cactus
Bio-tech Company Limited.


 


During 2005, the Company
issued a Convertible Promissory Note of $8,070,000 for 88% of the common stock of China Kangtai Cactus
Bio-tech Company Limited.


 


The accompanying notes are an integral part
of these financial statements


 


3





















 


INVESTNET, INC. AND SUBSIDIARIES


NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL 


STATEMENTS AS OF JUNE 30,
2005  (UNAUDITED)


 


NOTE
1                 ORGANIZATION AND BASIS OF PRESENTATION


 


InvestNet, Inc.
(“InvestNet”) is a US listed company which was incorporated in Nevada on
March 16, 2000.


 


China Kangtai Cactus
Bio-tech Company Limited (“China Kangtai”) was incorporated in the British
Virgin Islands (“BVI”) on November 26, 2004. Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd. (“Harbin Hainan Kangda”) a company with
limited liability was incorporated in the People’s Republic of China (“PRC”) on
December 30, 1998.


 


China Kangtai is an
investment holding company and Harbin Hainan Kangda’s principal
activities are planting and developing new types of
cactus, producing and trading in cactus health foods and related products in the PRC.


 


During 2004, Harbin
Hainan Kangda’s shareholders exchanged 100% of their ownership of Harbin Hainan
Kangda for 500,000 shares of China Kangtai under a reorganization plan. The
transfer has been accounted for as a reorganization of entities under common
control as the companies were beneficially owned by closely related
stockholders and share common management.


 


On May 13,
2005, pursuant to an Agreement for Sales of Ownership, InvestNet sold its100% owned
subsidiaries, Champion Agents
Limited and Interchance Limited, to a related
company to a former director and stockholder. The sale consideration was for the
purchaser to assume the liabilities of Champion Agents Limited, DSI Computer
Technology Company Limited, a subsidiary of Champion Agents Limited and Interchance Limited.


 


On May 13, 2005,
pursuant to a Stock Purchase Agreement, InvestNet issued 30,000,000 shares to
China Kangtai for $300,000.  On the same
date, InvestNet entered into an Agreement and Plan of Reorganization with the
shareholders of China Kangtai to exchange 12% of China Kangtai’s outstanding
shares for 110,130,615 shares of InvestNet. 
In addition, the Agreement calls for InvestNet to issue a Convertible
Promissory Note for $8,070,000 that is convertible into 14,248,395 (post a one
for seventy reverse split) shares of InvestNet for the remaining 88% of China
Kangtai.  As of August 15, 2005, the
Convertible Note has not been exercised.


 


The merger of InvestNet and China Kangtai has been recorded as a recapitalization by InvestNet, with China Kangtai being treated as the continuing
entity.  The financial statements have
been prepared as if the reorganization had occurred retroactively.  InvestNet, China Kangtai and Harbin Kangda are hereafter referred to as (the
“Company”). The transactions were treated for accounting purposes as a capital
transaction and recapitalization by the accounting acquirer (“China Kangtai”) and as a reorganization by the accounting acquiree (“InvestNet”).


 


Accordingly, the financial statements include the
following:


 


(1)               The balance sheet
consists of the net assets of the acquirer at historical cost and the net
assets of the acquiree at historical cost.


 


(2)               The statement of
operations includes the operations of the acquirer for the periods presented
and the operations of the acquiree from the date of the merger.


 


The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.


 


In the opinion of management, the unaudited
condensed consolidated financial statements contain all adjustments consisting
only of normal recurring accruals considered necessary to present fairly the
Company’s financial position at June 30, 2005, the results of operations
for the three-month and six-month periods ended June 30, 2005 and 2004,
and cash flows for the six months ended June 30, 2005 and 2004. The
results for the period ended June 30, 2005 are not necessarily indicative
of the results to be expected for the entire fiscal year ending December 31,
2005. These financial statement should be read in conjunction with the
financial statements and notes for the year ended December 31, 2004
appearing in the Company’s annual report on Form 10-KSB as filed with the
Securities and Exchange Commission.


 


4





















 


NOTE 2                                                    PRINCIPLES OF CONSOLIDATION


 


The accompanying June 30, 2005 unaudited condensed consolidated financial statements include the accounts of InvestNet and
its 100% owned subsidiary China Kangtai and 100% owned subsidiary Harbin Hainan
Kangda.  All significant inter-company
balances and transactions have been eliminated in consolidation.


 


NOTE 3                                                    USE OF ESTIMATES


 


The preparation of the unaudited condensed consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.


 


NOTE 4                                                    CASH AND CASH EQUIVALENTS


 


For purpose of the unaudited condensed consolidated statements
of cash flows, cash and cash equivalents
include cash on hand and demand
deposits with a bank with a maturity of less than 3 months.


 


NOTE 5                                                    ACCOUNTS RECEIVABLE


 


The Company extends
unsecured credit to its customers in the ordinary course of business but
mitigates the associated risks by performing credit checks and actively
pursuing past due accounts.  An allowance
for doubtful accounts is established and recorded based on managements’
assessment of the credit history with the customer and current relationships
with them.


 


NOTE 6                                                    INVENTORIES


 


Inventories are stated at
lower of cost or market value, cost being determined on a first in first out
method.  The Company provided inventory allowances
based on excess and obsolete inventories determined principally by customer
demand.


 


NOTE 7                                                    PROPERTY AND EQUIPMENT


 


Property and equipment are
stated at cost, less accumulated depreciation. 
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred.


 


Depreciation is provided on
a straight-line basis, less estimated residual value over the assets’ estimated
useful lives.  The estimated useful lives
are as follows:


 


	
  Buildings

  	
   

  	
  40 Years

  	
   

  
	
  Plant and machinery

  	
   

  	
  12
  Years

  	
   

  
	
  Motor vehicles

  	
   

  	
  10 Years

  	
   

  
	
  Furniture, fixtures and equipment

  	
   

  	
  8 Years

  	
   

  



 


Land
use rights are stated at cost, less accumulated amortization and are amortized
over the term of the relevant rights of 50 years from the date of acquisition.


 


NOTE 8                                                    LONG-LIVED ASSETS


 


In
accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the impairment or disposal of Long-Lived Assets”, long-lived
assets and certain identifiable intangible assets held and used by the Company
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For
purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows related to
the long- lived assets. The Company reviews long-lived assets to determine that
carrying values are not impaired.


 


5





















 


NOTE 9                                                    FAIR VALUE OF FINANCIAL INSTRUMENTS


 


Statement
of Financial Accounting Standards No. 107, “Disclosure about Fair Value of
Financial Instruments,” requires certain disclosures regarding the fair value
of financial instruments. Trade  
accounts receivable, accounts payable, and accrued liabilities are
reflected in the financial statements at fair value because of the short-term
maturity of the instruments.


 


NOTE 10                                             INTANGIBLE ASSETS


 


Under the Statement of Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”, all goodwill and certain
intangible assets determined to have indefinite lives will not be amortized but
will be tested for impairment at least annually.  Intangible assets other than goodwill will be
amortized over their useful lives of 10 years and reviewed for impairment in
accordance with SFAS No. 144, “Accounting for Impairment or Disposal of
Long-Lived Assets”.


 


NOTE 11                                             REVENUE RECOGNITION


 


The Company recognizes
revenue upon delivery or shipment of the products, at which time title passes to the customer provided that: there are
no uncertainties regarding customer acceptance; persuasive evidence of an
arrangement exists; the sales price is fixed or determinable; and
collectability is deemed probable.


 


The
local agricultural department in Harbin, PRC approved a grant to the Company to encourage the
planting of cactus. The Company recognizes the grant as revenue upon receipt from the local government.


 


NOTE 12                                             INCOME TAXES


 


PRC
income tax is computed according to the relevant laws and regulations in the
PRC.  The Company is organized in the People’s Republic of China and no tax benefit
is expected from the tax credits in the future. The Company located its factories in a special economic region in
China. This economic region allows these enterprises a three-year income tax
exemption beginning in the December 2002 after they become profitable and
a 50% income tax reduction for the following three years. No income tax expense
has been recorded for the six months ended June 30, 2005 and 2004 as the Company was exempt under the special
economic region rules.


 


NOTE 13                                             FOREIGN CURRENCY TRANSLATION


 


The
functional currency of the Company is the Chinese Renminbi (“RMB”).  Transactions denominated in currencies other
than RMB are translated into United States dollars using year end exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses.  Capital accounts are translated at their
historical exchange rates when the capital transaction occurred.  Net gains and losses resulting from foreign
exchange translations are included in the statements of operations and
stockholder’s equity as other comprehensive income (loss). Cumulative
translation adjustment amounts were insignificant at and for the six months ended June 30, 2005 and 2004 as the RMB is pegged to the United States
dollar.


 


NOTE
14                                             EARNINGS PER SHARES


 


Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no potentially dilutive securities for the six months ended June 30, 2005 and 2004.
 
The weighted average of shares used to compute the diluted earnings per share in these financial statements (unaudited) would potentially be further diluted by 14,248,395 shares of common stock (post a one for seventy reverse split) in the future had the convertible promissory note of $8,070,000 been exercised.


 


6





















 


NOTE
15               SEGMENTS


 


The
Company operates in only one segment, thereafter segment disclosure is not presented.


 


NOTE 16               NOTE PAYABLE


 


Balance at
June 30, 2005:


 


	
  Note payable to a third party, unsecured,
  interest-free, due on demand

  	
   

  	
  $

  	
  730,677

  	
   

  



 


NOTE
17               CONVERTIBLE NOTE PAYABLE


 


Convertible note payable at June 30, 2005 (unaudited) consisted of the following:
 


	
   

  	
   

  	
  June 30,

  2005

  	
   

  	
  Decem ber 31,

  2004

  	
   

  
	
   

  	
   

  	
  (unaudited)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible Promissory Note

  	
   

  	
  $

  	
  8,070,000

  	
   

  	
  $

  	
  —

  	
   

  
								



 
Pursuant to a Convertible Promissory Note, the Company promises to pay the principal sum of $8,070,000 on October 28, 2005 or such earlier date as the Convertible Note is required or permitted to be repaid as provided hereunder the maturity date, and to pay interest to the Holders on the aggregate unconverted and then outstanding principal amount of this Convertible Note at the rate of 5% per annum, payable on the maturity date as set forth herein.  Interest shall be calculated on the basis of a 360 days year and shall accrue on the maturity date.  On the maturity date, the Company may, in its sole discretion, pay the principal sum by issuing to the Holder  14,248,395 shares of the Company’s restricted common stock, provided a required 1 for 70 reverse stock split of the common stock has been effected. As of August 15, 2005, the Convertible Promissory Note has not been exercised.
 


NOTE 18               COMMITMENTS AND
CONTINGENCIES


 


(A)       Employee benefits


 


The full time employees of the Company are entitled
to employee benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits through a Chinese government mandated
multi-employer defined contribution plan. The Company is required to accrue for
those benefits based on certain percentages of the employees’ salaries and make
contributions to the plans out of the amounts accrued for medical and pension
benefits.  The Chinese government is
responsible for the medical benefits and the pension liability to be paid to
these employees.


 


(B)         Operating
leases commitments


 


The Company leases office
and land spaces from third parties under fourteen operating leases which expire from August 1, 2004 to April 2, 2051.


 


As at June 30, 2005, the Company has outstanding commitments with
respect to the above non-cancelable operating leases, which are due as follows:


 


	
  2006

  	
   

  	
  123,711

  	
   

  
	
  2007

  	
   

  	
  68,688

  	
   

  
	
  2008

  	
   

  	
  24,968

  	
   

  
	
  2009

  	
   

  	
  1,440

  	
   

  
	
  2010

  	
   

  	
  1,442

  	
   

  
	
  Thereafter

  	
   

  	
  50,974

  	
   

  
	
   

  	
   

  	
  $

  	
   271,223

  	
   

  
					



 


7





















 


NOTE 19               STOCKHOLDERS’ EQUITY


 


(A)  Stock issuances


 


During 2005, the Company issued 56,250
shares of common stock, to a consultant for services having a fair value of
$3,375.


 


During 2005, the Company issued 13,000,000
shares of common stock, to a director to settle debts of $233,212 owed by the
Company.


 


During 2005, the Company issued 3,000,0000
shares of common stock, to a consultant for services having a fair value of
$60,000.


 


During 2005, the Company issued 30,000,000
shares of common stock, to China Kangtai for $300,000.


 


On May 13, 2005, the Company entered into an Agreement and Plan of Reorganization with the shareholders of China Kangtai to acquire 100% of China Kangtai’s
equity. The Company issued 110,130,615 shares in exchange for 12% of China Kangtai’s
issued and outstanding shares.


 


(B)          Appropriated retained earnings


 


The Company’s PRC
subsidiary, Harbin Hainan Kangda
is required to make appropriations to reserves funds, comprising the statutory
surplus reserve, statutory public welfare fund and discretionary surplus
reserve, based on after-tax net income determined in accordance with generally
accepted accounting principles of the People’s Republic of China (the “PRC
GAAP”).  Appropriation to the statutory
surplus reserve should be at least 10% of the after tax net income determined
in accordance with the PRC GAAP until the reserve is equal to 50% of the
entities’ registered capital. 
Appropriations to the statutory public welfare fund are at 5% to 10% of
the after tax net income determined in accordance with the PRC GAAP.  The statutory public welfare fund is
established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation.  Appropriations to the
discretionary surplus reserve are made at the discretion of the Board of
Directors.


 


NOTE 20               RELATED PARTY
TRANSACTIONS


 


During 2005, the Company sold is 100% ownership interest in two subsidiaries to a company related to a
former director and stockholder.


 


During 2005, the Company issued 13,000,000
shares of common stock, to a past director to settle debts of $233,212 owed by
the Company.


 


During 2005, the Company issued 30,000,000
shares of common stock, to China Kangtai for $300,000.


 


During 2005, the Company issued 110,130,615
shares to China Kangtai for 12% of the issued and outstanding shares of China
Kangtai.


 


During 2005, the Company issued a Convertible Promissory Note of $8,070,000 to the stockholders
of China Kangtai.  The Note is
convertible into 14,248,395 (post a one for seventy reverse split) shares of
InvestNet for the remaining 88% of China Kangtai.


 


The Company had advanced
funds totaling $241,546 to a related company as of June 30,
2005, unsecured, interest-free loan and repayable on demand.


 


The Company owed $300,000 to stockholders as of June 30, 2005 as
unsecured and interest-free loans.


 


8