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

                                   FORM 10-QSB

(Mark One)

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

    For the quarterly period ended:  June 30, 2005

                                       or

[ ] 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: 001-31954


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


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


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


                               011-886-2-8226-5566
                           (Issuer's telephone number)


              (Former name, former address and former fiscal year,
                         if changed since last report)

     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 issuer was required to file such reports,  and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

     The number of shares  outstanding of the issuer's common stock,  $0.001 par
value, as of the close of business on August 19, 2005 was 32,967,183.

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

                                                                           Page
                                                                           ----

PART I. FINANCIAL INFORMATION.............................................   2

     Item 1. Financial Statements.........................................   2

     Item 2. Management's Discussion and Analysis.........................  17

     Item 3. Controls And Procedures......................................  21

PART II. OTHER INFORMATION................................................  22

     Item 1. Legal Proceedings............................................  22

     Item 2. Changes in Securities and Use of Proceeds....................  22

     Item 3. Defaults Upon Senior Securities..............................  22

     Item 4. Submission of Matters to a Vote of Security Holders..........  22

     Item 5. Other Information............................................  22

     Item 6. Exhibits and Reports on Form 8-K.............................  22

                                       1
<PAGE>
                         PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                  CITY NETWORK, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            June 30, 2005       December 31, 2004
                                                            -------------       -----------------
                                                             (Unaudited)
<S>                                                         <C>                    <C>
                                     ASSETS

Current Assets
  Cash and cash equivalents                                 $    696,789           $  2,010,644
  Investment                                                      72,931                      0
  Accounts receivable, net                                     2,622,809              3,333,990
  Inventory                                                      783,129                732,027
  Other receivables                                               22,816                  6,863
  Prepaid expenses                                               511,715                102,896
                                                            ------------           ------------
      Total Current Assets                                     4,710,189              6,186,420
                                                            ------------           ------------

Fixed Assets, net                                              2,265,830              2,586,872
                                                            ------------           ------------
      Total Fixed Assets                                       2,265,830              2,586,872
                                                            ------------           ------------
Other Assets
  Deposits                                                     1,791,459              1,724,542
  Construction in progress                                        30,316                      0
  Trademarks                                                       1,740                  1,812
  Equity in net assets of affiliated company                     818,885                829,008
  Intangible assets                                              926,730                961,053
  Other assets                                                    20,459                  8,255
                                                            ------------           ------------
      Total Other Assets                                       3,589,589              3,524,670
                                                            ------------           ------------

Total Assets                                                $ 10,565,608           $ 12,297,962
                                                            ============           ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable and accrued expenses                     $  3,170,847           $  3,335,286
  Due to related party                                           100,344                 80,083
  Deferred revenue                                                48,368                 14,566
  Current portion, long-term debt                              2,773,548              3,226,181
                                                            ------------           ------------

      Total Current Liabilities                                6,093,107              6,656,116

Long-term debt, net of current portion                                 0                246,330
                                                            ------------           ------------

         Total Liabilities                                     6,093,107              6,902,446
                                                            ------------           ------------
Stockholders' Equity
  Common stock, $.001 par value, 100,000,000 shares
   authorized, 27,500,000 issued and outstanding                  27,500                 27,500
  Additional paid in capital                                   5,937,946              5,937,946
  Cumulative foreign-exchange translation adjustment             363,044                142,453
  Retained earnings                                           (1,855,989)              (712,383)
                                                            ------------           ------------
      Total Stockholders' Equity                               4,472,501              5,395,516
                                                            ------------           ------------

      Total Liabilities and Stockholders' Equity            $ 10,565,608           $ 12,297,962
                                                            ============           ============
</TABLE>

                                       2
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended                  Six Months Ended
                                                 ------------------------------     ------------------------------
                                                   June 30,          June 30,         June 30,          June 30,
                                                     2005              2004             2005              2004
                                                 ------------      ------------     ------------      ------------
<S>                                              <C>               <C>              <C>               <C>
Sales, net                                       $  3,599,366      $  5,943,514     $  4,892,716      $ 12,230,607

Cost of sales                                       3,377,970         5,599,690        4,633,010        11,297,569
                                                 ------------      ------------     ------------      ------------
      Gross profit                                    221,396           343,824          259,706           933,038

General and administrative expenses                   376,241           467,480          699,386           849,920
                                                 ------------      ------------     ------------      ------------

      Income (loss) from operations                  (154,845)         (123,656)        (439,680)           83,118
                                                 ------------      ------------     ------------      ------------
Other (Income) Expense
  Interest income                                      (1,688)             (890)          (2,087)           (1,018)
  Rental income                                       (47,910)           (7,900)         (95,580)          (11,054)
  Commission income                                   (31,870)               (2)         (35,791)           (1,181)
  (Gain) loss on currency exchange                      4,977            (3,029)          13,235              (206)
  Other income                                        (20,371)          (53,710)         (56,239)          (54,965)
  Reserve for bad debt                                 11,154            49,688          696,154            49,688
  Equity in earnings of investee                         (531)                0           10,123                 0
  Miscellaneous                                        10,318            51,553           12,657            51,553
  Loss on sale of fixed assets                         (2,280)                0           79,980                 0
  Interest expense                                     42,898            23,312           81,296            40,402
                                                 ------------      ------------     ------------      ------------
      Total Other (Income) Expense                    (35,303)           59,022          703,748            73,219
                                                 ------------      ------------     ------------      ------------

      Income (loss) before income taxes              (119,542)         (182,678)      (1,143,428)            9,899

Provison for income taxes                                 178            19,516              178            19,516
                                                 ------------      ------------     ------------      ------------

      Net income (loss)                          $   (119,720)     $   (202,194)    $ (1,143,606)     $     (9,617)
                                                 ============      ============     ============      ============
Net income (loss) per share (basic and diluted)
  Basic                                          $     (0.004)     $     (0.008)    $     (0.042)     $    (0.0004)
  Diluted                                        $     (0.004)     $     (0.008)    $     (0.042)     $    (0.0004)

Weighted average number of shares
  Basic                                            27,500,000        26,666,667       27,500,000        25,833,333
  Diluted                                          27,500,000        26,666,667       27,500,000        25,833,333
</TABLE>

                                       3
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                           Six Months Ended
                                                                   -------------------------------
                                                                     June 30,            June 30,
                                                                       2005                2004
                                                                   -----------         -----------
<S>                                                                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income (loss)                                                $(1,143,606)        $    (9,617)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used) in operating activities:
     Depreciation and amortization                                      87,730              82,449
     Equity in earning of investee                                      10,123                   0
     Loss on disposal of assets                                         79,980                   0
     (Gain) loss on foreign currency exchange                           13,235                (206)
     Translation adjustment                                            192,578             (13,359)
     Decrease (Increase) in receivables                                711,181            (739,909)
     Decrease (Increase) in inventory                                  (51,102)           (839,993)
     Decrease (Increase) in other receivables                          (15,953)          1,035,968
     Decrease (Increase) in prepaid expenses                          (408,819)           (246,822)
     Decrease (Increase) in deposit                                    (66,917)            445,826
     Decrease (Increase) in other current assets                       (12,204)            183,462
     (Decrease) Increase in accounts payable
      and accrued expenses                                            (164,439)          1,232,347
     (Decrease) Increase in deferred revenue                            33,802            (425,749)
     (Decrease) Increase in deposits payable                                 0                   0
                                                                   -----------         -----------
        Total Adjustments                                              409,195             714,014
                                                                   -----------         -----------
        Net cash (used in) provided by operations                     (734,411)            704,397
                                                                   -----------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of fixed assets                                   397,222                   0
  Purchase on investment                                               (72,931)                  0
  Construction in progress                                             (30,316)                  0
  Purchase of fixed assets                                            (194,717)            (24,259)
                                                                   -----------         -----------

        Net cash (used in) provided by investing activities             99,258             (24,259)
                                                                   -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Payment on notes payable                                          (4,249,488)         (2,554,801)
  Payment of loan from related party                                    (6,293)         (1,524,926)
  Loan from related party                                               26,554             248,127
  Issuance of short-term debt                                        3,550,525           2,970,242
                                                                   -----------         -----------
     Net cash (used in) financing activities                          (678,702)           (861,358)
                                                                   -----------         -----------

Net change in cash and cash equivalents                             (1,313,855)           (181,220)
                                                                   -----------         -----------

Cash and cash equivalents at beginning of period                     2,010,644           1,148,457
                                                                   -----------         -----------

Cash and cash equivalents at end of period                         $   696,789         $   967,237
                                                                   ===========         ===========
Supplemental cash flows disclosures:
  Income tax payments                                              $       178         $    21,757
                                                                   -----------         -----------
  Interest payments                                                $    81,296         $    40,402
                                                                   -----------         -----------
Non cash transaction:
  Conversion of debt to equity                                     $         0         $ 1,680,329
                                                                   -----------         -----------
</TABLE>

                                       4
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             June 30, 2005           December 31, 2004
                                                             -------------           -----------------
                                                                (Unaudited)
<S>                                                        <C>                      <C>
Common stock, number of shares outstanding
  Balance at beginning of period                                27,500,000               25,000,000
  Common stock issued                                                    0                2,500,000
                                                              ------------             ------------
     Balance at end of period                                   27,500,000               27,500,000
                                                              ------------             ------------
Common stock, par value $.001
  Balance at beginning of period                              $     27,500             $     25,000
  Common stock issued                                                    0                    2,500
                                                              ------------             ------------
     Balance at end of period                                       27,500                   27,500
                                                              ------------             ------------
Additional paid in capital
  Balance at beginning of period                                 5,937,946                4,260,117
  Issuance of stock                                                      0                1,677,829
                                                              ------------             ------------
     Balance at end of period                                    5,937,946                5,937,946
                                                              ------------             ------------
Cumulative foreign-exchange translation adjustment
  Balance at beginning of period                                   142,453                   29,663
  Foreign currency translation                                     220,591                  112,790
                                                              ------------             ------------
     Balance at end of period                                      363,044                  142,453
                                                              ------------             ------------
Retained (deficits)
  Balance at beginning of period                                  (712,383)                 252,277
  Net income (loss)                                             (1,143,606)                (964,660)
                                                              ------------             ------------
     Balance at end of period                                   (1,855,989)                (712,383)
                                                              ------------             ------------

Total stockholders' equity at end of period                   $  4,472,501             $  5,395,516
                                                              ============             ============
</TABLE>

                                       5
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 1 - NATURE OF OPERATIONS

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

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


     The  Company  designs,  manufactures  and markets a  comprehensive  line of
     broadband communication and wireless Internet access product and solutions.
     The  Company's   product  lines  are  used  in  residential   building  and
     hospitality  markets and include the simple DSL bridge/  modem for the home
     and small business user.

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

                                       6
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     UNAUDITED  INTERIM  FINANCIAL  INFORMATION  -  The  accompanying  financial
     statements have been prepared by City Network,  Inc.  pursuant to the rules
     and  regulations of the Securities and Exchange  Commission (the "SEC") for
     Form  10-QSB  and  Item  310  of  Regulation  S-B  and  generally  accepted
     accounting  principles for interim  financial  reporting.  These  financial
     statements  are unaudited  and, in the opinion of  management,  include all
     adjustments  (consisting  of normal  recurring  adjustments  and  accruals)
     necessary for a fair  presentation of the statement of financial  position,
     operations, and cash flows for the periods presented. Operating results for
     the six months ended June 30, 2005 and 2004 are not necessarily  indicative
     of the results that may be expected  for the year ended  December 31, 2005,
     or  any  future  period,  due  to  seasonal  and  other  factors.   Certain
     information  and  footnote   disclosures  normally  included  in  financial
     statements  prepared  in  accordance  with  generally  accepted  accounting
     policies have been omitted in accordance  with the rules and regulations of
     the SEC. These financial  statements should be read in conjunction with the
     audited consolidated  financial statements and accompanying notes, included
     in the  Company's  Annual  Report on Form  10-KSB for the ten months  ended
     December 31, 2004.

     BASIS OF CONSOLIDATION - The consolidated financial statements for 2005 and
     2004  include  the  accounts of City  Network,  Inc.  and its wholly  owned
     subsidiaries City Network Technology, Inc., City Network, Inc. - Taiwan and
     City   Construction   Co.,   Ltd.  All  material   intercompany   accounts,
     transactions and profits have been eliminated in consolidation.

     REVENUE  RECOGNITION  - Revenue  from sales of  products  to  customers  is
     recognized  upon  shipment or when title passes to  customers  based on the
     terms  of  the  sales  and  is  recorded  net of  returns,  discounts,  and
     allowances.

     CASH AND CASH  EQUIVALENTS  - Cash  equivalents  are  stated at cost.  Cash
     equivalents are highly liquid  investments  readily  convertible  into cash
     with an  original  maturity  of three  months or less and  consist  of time
     deposits with commercial banks.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company  establishes an allowance for
     doubtful  accounts on a  case-by-case  basis when it believes  the required
     payment of  specific  amounts  owed is  unlikely to occur after a review of
     historical collection experience,  subsequent collections, and management's
     evaluation of existing economic conditions.

                                       7
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     FIXED ASSETS - Property and equipment  are stated at cost less  accumulated
     depreciation.   Expenditures  for  major  additions  and  improvements  are
     capitalized and minor replacements; maintenance and repairs are expensed as
     incurred.  Whenever  an asset  is  retired  or  disposed  of,  its cost and
     accumulated  depreciation or  amortization  are removed from the respective
     accounts and the resulting gain or loss is credited or charged to income.

     Depreciation  is computed  using the  straight-line  and  declining-balance
     methods over the following estimated useful lives:

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

     INTANGIBLE  ASSETS - Effective July 2002, the Company adopted  Statement of
     Financial  Accounting  Standards  ("SFAS")  No.  142,  "Goodwill  and Other
     Intangible  Assets."  The  adoption  of SFAS No.  142  required  an initial
     impairment   assessment  involving  a  comparison  of  the  fair  value  of
     trademarks,  patents and other intangible assets to current carrying value.
     No impairment loss was recognized for the period ended June 30, 2005.

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

     INVENTORY  -  Inventory  is valued at the lower of cost or market;  cost is
     determined on the weighted average method.  As of June 30, 2005,  inventory
     consisted only of finished goods.

                                       8
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

     Loss contingencies  considered to be remote by management are generally not
     disclosed unless they involve guarantees, in which case the guarantee would
     be  disclosed.  As of June 30,  2005,  there are no  matters  that  warrant
     disclosure in the financial statements.

     ADVERTISING - Advertising costs are expensed in the period incurred.

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

     CONCENTRATION  OF CREDIT RISK - Financial  instruments,  which  subject the
     Company to credit risk,  consist  primarily of cash  equivalents  and trade
     accounts  receivable  arising  from its  normal  business  activities.  The
     Company places its cash in what it believes to be  credit-worthy  financial
     institutions.  Concentration  of credit risk with respect to trade accounts
     receivable  is  primarily  from  customers  located  in Asia.  The  Company
     actively  evaluates the  creditworthiness  of the  customers  with which it
     conducts  business through credit  approvals,  credit limits and monitoring
     procedures.

                                       9
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     IMPAIRMENT  OF LONG-LIVED  ASSETS - On January 1, 2002 the Company  adopted
     SFAS No. 144  "Accounting  for the  Impairment  or Disposal  of  Long-Lived
     Assets".  The Company evaluates  long-lived assets for impairment  whenever
     events or changes in  circumstances  indicate that the carrying value of an
     asset  may  not  be  recoverable.   If  the  estimated  future  cash  flows
     (undiscounted  and without  interest  charges) from the use of an asset are
     less than the carrying value, a write-down  would be recorded to reduce the
     related  asset  to its  estimated  fair  value.  There  have  been  no such
     impairments to date.

     EARNINGS PER SHARE - Earnings  per share are based on the weighted  average
     number of shares of common stock and common stock  equivalents  outstanding
     during each  period.  Earnings  per share are  computed  using the treasury
     stock method.  The options to purchase  common shares are  considered to be
     outstanding  for all periods  presented,  but are not calculated as part of
     the earnings per share.

     INCOME TAXES - Income taxes have been provided  based upon the tax laws and
     rates in the  countries in which  operations  are  conducted  and income is
     earned.  The income  tax rates  imposed  by the  taxing  authorities  vary.
     Taxable  income  may vary from  pre-tax  income  for  financial  accounting
     purposes.  There is no  expected  relationship  between the  provision  for
     income taxes and income  before income  taxes,  because the countries  have
     different  taxation rules, which vary not only to nominal rates but also in
     terms of available  deductions,  credits and other  benefits.  Deferred tax
     assets  and  liabilities  are  recognized  for the  anticipated  future tax
     effects of temporary  differences between the financial statement basis and
     the tax basis of the Company's assets and liabilities  using the applicable
     tax rates in effect at year end as prescribed  by SFAS No. 109  "Accounting
     for Income Taxes".

     EXCHANGE GAIN (LOSS) - As of June 30, 2005 and 2004,  the  transactions  of
     City  Network,   Inc.  -  Taiwan  and  City  Construction  Co.,  Ltd.  were
     denominated  in a foreign  currency and are recorded in New Taiwan  Dollars
     ("NTD") at the rates of  exchange in effect  when the  transactions  occur.
     Exchange gains and losses are recognized for the different foreign exchange
     rates applied when the foreign currency assets and liabilities are settled.

                                       10
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     TRANSLATION ADJUSTMENT - As of June 30, 2005 and 2004, the accounts of City
     Network, Inc. - Taiwan and City Construction Co., Ltd. were maintained, and
     their  financial   statements  were  expressed,   in  NTD.  Such  financial
     statements were translated into U.S.  Dollars (USD) in accordance with SFAS
     No. 52,  "Foreign  Currency  Translation",  with the NTD as the  functional
     currency.  According  to SFAS No.  52,  all  assets  and  liabilities  were
     translated  at  the  current  exchange  rate,   stockholder's   equity  are
     translated  at  the  historical   rates  and  income  statement  items  are
     translated  at the  weighted  average  exchange  rate for the  period.  The
     resulting  translation  adjustments are reported under other  comprehensive
     income in accordance with SFAS No. 130, "Reporting Comprehensive Income".

     As of June 30, 2005 and 2004 the exchange rates between NTD and the USD was
     NTD  $1 = USD  $0.03182  and  NTD  $1 =  USD  $0.02995,  respectively.  The
     weighted-average  rate of  exchange  between  NTD  and USD was  NTD$1 = USD
     $0.03186  and  NTD  $1 =  USD  $0.02967,  respectively.  Total  translation
     adjustment recognized for the period ended June 30, 2005 is $363,044.

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

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

                                       11
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 3 - CONCENTRATION

     The Company had ten major  customers  during the six months  ended June 30,
     2005. Those customers comprise 91% of the total sales during the six months
     ended  June  30,  2005.   Sales  to  these  customers  were   approximately
     $4,449,227.  Included  in  accounts  receivable  is  $1,863,874  from these
     customers as of June 30, 2005.

NOTE 4 - CASH

     The Company maintains its cash balances at various banks in Taiwan and Hong
     Kong. All balances are insured by the Central Deposit Insurance Corporation
     (CDIC).  As of June 30, 2005 and 2004, there were no uninsured  portions of
     the balances held at the bank.

NOTE 5 - FIXED ASSETS

     Fixed assets consist of the following:

                                        June 30, 2005         December 31, 2004
                                        -------------         -----------------
     Land                                $ 1,774,623             $ 1,916,328
     Building                                     --                 283,977
     Machinery and equipment                 464,943                 430,880
     Furniture and fixtures                  198,182                 143,655
                                         -----------             -----------
                                         $ 2,437,748             $ 2,774,840

     Accumulated depreciation               (171,918)               (187,968)
                                         -----------             -----------

                                         $ 2,265,830             $ 2,586,872
                                         ===========             ===========

NOTE 6 - INTANGIBLE ASSETS

     Intangible assets consist of the following:

                                        June 30, 2005         December 31, 2004
                                        -------------         -----------------
     Trademarks                          $     2,150             $     2,150
     Intangible asset                      1,000,000               1,000,000
                                         -----------             -----------
                                         $ 1,002,150             $ 1,002,150

     Accumulated depreciation                (73,679)                (39,285)
                                         -----------             -----------

                                         $   928,471             $   962,865
                                         ===========             ===========

                                       12
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 7 - COMPENSATED ABSENCES

     Employees earn annual vacation leave at the rate of seven (7) days per year
     for the first three years of employment  with the Company.  Upon completion
     of the third year of employment,  employees  earn annual  vacation leave at
     the rate of ten (10) days per year. At termination,  employees are paid for
     any  accumulated  annual  vacation  leave.  As of June  30,  2005  vacation
     liability exists in the amount of $1,498.

NOTE 8 - COMMITMENTS

     A BEST INFORMATION  TECHNOLOGY,  INC. - City Network, Inc. - Taiwan, signed
     an  agreement  with A Best  Information  Technology,  Inc.  in 2002 for the
     exclusive  right to sell A Best  Information's  products.  The  rights  are
     perpetual and transferable. The Company paid $1,000,000 for these rights.

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

     CO-CONSTRUCTION  AGREEMENT - In April 2004,  City  Construction  Co.,  Ltd.
     entered into a  Co-Construction  Agreement with another  company in Taipei,
     Taiwan.  Under the Agreement,  the Company will finance,  construct and own
     60% of the  building  project.  The Company has begun  construction  on the
     building.

     OPERATING  LEASES - The Company leases office  facilities  under  operating
     leases that  terminate on various  dates.  Rental  expense for these leases
     consisted of $12,116 for the three months ended June 31, 2005.  The Company
     has future minimum lease obligations as follows:

                             2005         $22,910
                             2006          45,821
                                          -------
                             Total        $68,731
                                          =======

NOTE 9 - LONG-TERM INVESTMENT

     On August 31, 2003 the Company purchased approximately  twenty-five percent
     (25%) of Beijing Putain Hexin Network Technology Co., Ltd for $325,000.  On
     December 4, 2003 the Company purchased an additional  fifteen percent (15%)
     for  $398,500.  Beijing  Putain Hexin  Network  Technology  Co., Ltd is not
     publicly traded or listed.  The Company is using the complete equity method
     to record its share of the subsidiary's net income and loss. As of June 30,
     2005 the Company recognized a $10,123 loss from their acquisition.

                                       13
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 10 - DEBT

     At June 30, 2005 and 2004, the Company had notes payable outstanding in the
     aggregate  amount of $2,773,548 and  $3,472,511,  respectively.  Payable as
     follows:

<TABLE>
<CAPTION>
                                        June 30, 2005                                          December 31, 2004
                                        -------------                                          -----------------
<S>                                    <C>              <C>                                   <C>
Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.828% per annum,  due
by July 31, 2005                         $  25,456       by February 13, 2005                       $ 125,120

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by August 26, 2005                          60,458       by February 15, 2005                          60,761

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by September 8, 2005                        41,495       by March 2, 2005                              35,121

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest  at 3.35% per annum,  due                       interest at 3.616% per annum,  due
by September 15, 2005                      409,670       by March 8, 2005                             141,511

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest  at 3.35% per annum,  due                       interest at 3.616% per annum,  due
by September 15, 2005                       69,049       by March 10, 2005                            196,563

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by September 23, 2005                       56,651       by March 11, 2005                             13,085

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest  at 3.26% per annum,  due
by September 23, 2005                      352,553       by March 11, 2005                            312,752

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by September 30, 2005                      309,782       by March 15, 2005                             43,498

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest  at 4.42% per annum,  due
by October 12, 2005                        260,606       by March 15, 2005                             68,004

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest  at 4.42% per annum,  due
by October 25, 2005                        418,155       by March 29, 2005                            246,921
</TABLE>

                                       14
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 10 - DEBT (continued)

<TABLE>
<CAPTION>
<S>                                    <C>              <C>                                   <C>
Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by October 26, 2005                         28,363       by April 9, 2005                             591,192

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due                       interest at 3.616% per annum,  due
by October 5, 2005                         503,840       by April 9, 2005                              53,895

Note  payable to a bank in Taiwan,                       Note  payable to a bank in Taiwan,
interest at 3.773% per annum,  due         125,960       interest at 3.616% per annum,  due
by February 13, 2006                                     by April 9, 2005                              59,521

Note payable to a  corporation  in                       Note  payable to a bank in Taiwan,
Taiwan,  interest  at  6.265%  per         111,510       interest  at 4.42% per annum,  due
annum,  due by November  20, 2005,                       by April 10, 2005                             54,995
personally    guaranteed   by   an
officer of the Company                                   Note  payable to a bank in Taiwan,
                                                         interest  at 4.42% per annum,  due
                                                         by April 11, 2005                             76,548

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

                                                         Note  payable to a bank in Taiwan,
                                                         interest  at 4.42% per annum,  due
                                                         by May 29, 2005

                                                         Note  payable to a bank in Taiwan,
                                                         interest at 3.616% per annum,  due
                                                         by October 8, 2005

                                                         Note payable to a  corporation  in
                                                         Taiwan,  interest  at  6.265%  per
                                                         annum,  due by November  20, 2005,
                                                         personally    guaranteed   by   an
                                                         officer   of  the   Company                  256,496

                                                         Note  payable to a bank in Taiwan,
                                                         interest at 3.175% per annum,  due
                                                         by May 29, 2016                              280,689
                                       -----------                                                -----------

Total                                    2,773,548       Total                                      3,472,511

Current portion                        $ 2,773,548       Current portion                          $ 3,226,181
                                       -----------                                                -----------

Long-term portion                      $        --       Long-term portion                        $   246,330
                                       ===========                                                ===========
</TABLE>

                                       15
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 AND 2004


NOTE 11 - RELATED PARTY TRANSACTIONS

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

     As of June 30,  2005,  the  Company  has a non  interest-bearing  loan from
     Tiao-Tsan Lai, the Company's Chief Executive  Officer and Chairman,  in the
     amount of $100,344.  Mr. Lai has also personally  guaranteed a note payable
     of the Company in the amount of $477,953.  As of June 30, 2005, the balance
     for the note was approximately $111,510.

NOTE 12 - LITIGATION

     As of June 30,  2005,  City  Network - Taiwan was  involved in two separate
     litigations  related  to a sales  agreement  that  involved  a vendor and a
     customer. The sales agreement provided that City Network - Taiwan would not
     pay the vendor until such time City Network - Taiwan received  payment from
     the customer.  The customer in August 2004 closed  business and did not pay
     the remaining  balance due to City Network - Taiwan.  City Network - Taiwan
     has filed litigation against the customer for fraud. The vendor has filed a
     lawsuit against City Network - Taiwan  requesting  payment.  Both cases are
     pending court  proceedings.  City Network - Taiwan was ordered by the court
     to put up a guarantee bond  temporarily to fight against the vendor.  As of
     July 5,  2005,  the  Company has settled both cases.

NOTE 13 - GOING CONCERN

     The  Company  has  suffered   recurring   losses  from   operations,   cash
     deficiencies  and the  ability to meets its  maturing  obligations  without
     selling  operating  assets or restructuring  debts.  These issues may raise
     substantial concern about its ability to continue as a going concern.

     Management has prepared the following  statement to address these and other
     concerns:

     The Company is currently  engaged in discussions with a number of companies
     regarding strategic acquisitions or investments. Although these discussions
     are ongoing,  there can be no assurance that any of these  discussions will
     result in actual  acquisitions or investment.  See note 14 to the financial
     statements.

NOTE 14 - SUBSEQUENT EVENTS

     On  August  10,  2005,  the  Company  entered  into a  Securities  Purchase
     Agreement (the "Securities  Purchase Agreement") with Highgate House Funds,
     Ltd. ("Highgate  House"), a Securities Equity  Distribution  Agreement with
     Cornell  Capital  Partners,  L.P.  ("Cornell  Capital"),  an  affiliate  of
     Highgate House, and related agreements.

     Under the terms of the  Securities  Purchase  Agreement,  the Company  will
     issue  secured  convertible  debentures  (the  "Notes")  in  the  aggregate
     principal  amount of  $250,000  to Highgate  House.  $125,000 in  principal
     amount of the Notes were  issued on August  17,  2005 (the  "First  Closing
     Date"). $125,000 in principal amount of the Notes will be issued at a later
     closing date.

     Simultaneously  with  the  Company's  entry  into the  Securities  Purchase
     Agreement,  the Company  entered into the  Securities  Equity  Distribution
     Agreement  (the "SEDA")  whereby the Company may, over  twenty-four  months
     after the date of the agreement, issue and sell its common stock to Cornell
     Capital  in  $300,000  installments  (each  an  "Advance")  totaling  up to
     $15,000,000,  subject to the terms of the SEDA.  The  Company's  ability to
     issue and sell common stock  pursuant to the SEDA  remains  subject to, and
     the  Company  intend to obtain,  (1) the  effectiveness  of a  registration
     statement covering such shares of common stock, (2) stockholder approval of
     the  issuance  of such  shares of common  stock,  and (3)  approval  by the
     American Stock Exchange for the additional listing of such shares of common
     stock. Additionally, any availability under the SEDA will be subject to the
     Company's continued compliance with the terms of the SEDA.

                                       16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING STATEMENTS

     The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-QSB. The information in this discussion 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.
These forward-looking statements involve risks and uncertainties, including
statements regarding our capital needs, business strategy and expectations,
including but not limited to the following:

     *    our ability to raise funds in the future through public or private
          financings;

     *    the timing of our introduction of products or product enhancements;

     *    our ability to manage costs associated with our product or technology
          acquisitions;

     *    our ability to keep pace with rapidly changing technology, evolving
          industry standards and new product and services in our industry;

     *    customers' acceptance of our product designs;

     *    our ability to integrate businesses, products and technologies and in
          joint ventures and strategic relationships with other companies;

     *    our business expenses being greater than anticipated due to
          competitive factors or unanticipated developments;

     *    changes in political and economic conditions in the Asian and European
          countries where we do business;

     *    our ability to retain management and key personnel;

     *    our ability to protect our developed technologies, know-how,
          trademarks and related intellectual properties; and

     *    our ability to comply with the requirements of Section 404 of the
          Sarbanes-Oxley Act of 2002.

Any statements contained herein that are not statements of historical facts may
be deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "intend", "anticipate", "believe", estimate", "predict",
"potential" or "continue", the negative of such terms or other comparable
terminology. Actual events or results may differ materially. We disclaim any
obligation to publicly update these statements, or disclose any difference
between its actual results and those reflected in these statements. The
information constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.

BACKGROUND OF THE COMPANY

     City Network, Inc. ("City Network," "we," "our" or "us") was incorporated
on August 8, 1996 as Investment Agents, Inc. under the laws of the State of
Nevada. City Network Technology, Inc. ("CNT") was incorporated under the laws of

                                       17
<PAGE>
the British Virgin Islands on March 1, 2002. On November 14, 2002, CNT became a
wholly owned subsidiary of our company through an Exchange Agreement, dated
November 14, 2002 and amended on December 11, 2002, whereby our company acquired
all of the issued and outstanding capital stock of CNT in exchange for
12,000,000 shares of common stock of our company, which represented 49% of our
issued and outstanding stock at that time. In connection with the exchange and
change in control, the name of our company was changed from Investment Agents,
Inc. to City Network, Inc. the officers and directors of City Network resigned
and new officers and directors were appointed. Upon the effective date of the
exchange and change in control, we ceased our relationship with the company for
whom we previously acted as referral agent.

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

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

CRITICAL ACCOUNTING POLICIES

     The discussion and analysis of our financial conditions and results of
operations is based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("GAAP"). The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. See "Summary of Significant Accounting Policies" in the Notes
to Consolidated Financial Statements in Item to this Report for our critical
accounting policies. No significant changes in our critical accounting policies
have occurred since December 31, 2004.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2004

     NET SALES. Net sales for the three months ended June 30, 2005 were
$3,599,366 compared to $5,943,514 for the three months ended June 30, 2004. The
decrease in net sales for the three months ended June 30, 2005 was due to a
decrease in demand for our old products. Our new products, introduced in 2004,
are in the early stages of selling. During the three months ended June 30, 2005,
the sales volume for our new products was low compared to the sales volume for
our old products. We have, however, increased net sales in the second quarter of
2005 over net sales in the first quarter of 2005, primarily due to an increase
in sales of our new products.

     We design, manufacture and market a comprehensive line of broadband
communication and wireless Internet access solutions, including home PNA and
xDSL broadband access equipment and related accessories, which comprise our
older, established products. In 2004 we introduced new products such as VoIP,
GSP and wireless Internet access products.

     We believe that an increase in competition over the market for our older
products has contributed to a decline in the unit price of those products.
Additionally, we believe that the introduction of more technologically advanced
products to the marketplace have diminished consumer demand for our older
products. We intend to continue upgrading our older products to meet customer
expectations.

                                       18
<PAGE>
     We believe that sales for our new products, such as VoIP and GSP products,
can increase with improved brand name recognition and increased sales channels.
We had higher sales of the new products in the second quarter of 2005 compared
to the first quarter of 2005, but we have not reached our goals in sales volume
for the new products. We intend to continue promoting and marketing our new
products to improve brand name recognition as well as work on increasing sales
channels.

     COST OF SALES. Cost of sales for the three months ended June 30, 2005 was
$3,377,970 or 93.8% of net sales, as compared to $5,599,690 or 94.2% of net
sales, during the three months ended June 30, 2004. The decrease in cost of
sales is associated with the decrease in sales. The decrease in the cost of
sales as a percentage of revenue is due to the higher gross margin of new
products, as compared to the gross margin on our old products sold in 2004.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $376,241, or 10.5% of net sales, for the three months ended June 30, 2005,
as compared to $467,480 or 7.9% of net sales, for the three months ended June
30, 2004. The decrease was due to the decrease in sales and an associated
decrease in related expenses. The increase in general and administrative
expenses as a percentage of net sales is attributable to fixed overhead costs
which remain constant for all levels of sales.

     LOSS FROM OPERATIONS. Loss from operations for the three months ended June
30, 2005 was $(154,845), compared to loss from operations for the three months
ended June 30, 2004 of $(123,656). The increase in loss from operations for the
three months ended June 30, 2005 compared with loss from operations for the
three months ended June 30, 2004 was due to a decrease in sales without a
proportionate decrease in the cost of sales and general and administrative
expenses.

     OTHER (INCOME) EXPENSE. Other (income) expense was $(35,303) for the three
months ended June 30, 2005, as compared to $59,022 for the three months ended
June 30, 2004. This change was the result of additional income recognized on
rent and export sales commissions received in the three months ended June 30,
2005.

     NET LOSS. Net loss for three months ended June 30, 2005 was $(119,542)
compared to net loss of $(182,678) for the three months ended June 30, 2004. The
decrease in net loss was due to the reasons described above.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2004

     NET SALES. Net sales for the six months ended June 30, 2005 were $4,892,716
compared to $12,230,607 for the six months ended June 30, 2004. The decrease in
net sales for the six months ended June 30, 2005 was due to a decrease in demand
for our old products. Our new products, introduced in 2004, are in the early
stages of selling.

     COST OF SALES. Cost of sales for the six months ended June 30, 2005 was
$4,633,010 or 94.7% of net sales, as compared to $11,297,569 or 92.4% of net
sales, during the six months ended June 30, 2004. The decrease in cost of sales
is associated with the decrease in sales. The decrease in our cost of sales as a
percentage of net sales is attributable to a decrease in the sale price of our
old products, which is due to increased competition in the market for our old
products, while the cost of producing such products has remained constant.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $699,386, or 14.3% of net sales, for the six months ended June 30, 2005, as
compared to $849,920 or 6.9% of net sales, for the six months ended June 30,
2004. The decrease was due to the decrease in sales and an associated decrease
in related expenses. The increase in general and administrative expenses as a

                                       19
<PAGE>
percentage of net sales is attributable to fixed overhead costs which remain
constant for all levels of sales.

     INCOME (LOSS) FROM OPERATIONS. Loss from operations for the six months
ended June 30, 2005 was $(439,680), compared to income from operations for the
six months ended June 30, 2004 of $83,118. The loss from operations for the six
months ended June 30, 2005 compared with income from operations for the six
months ended June 30, 2004 was due to a decrease in sales without a
proportionate decrease in the cost of sales and general and administrative
expenses.

     OTHER EXPENSE. Other expense was $703,748 for the six months ended June 30,
2005, as compared to $73,219 for the six months ended June 30, 2004. This
increase in other expense was the result of additional reserves made on accounts
receivable and losses we incurred on the sale of fixed assets, offset by
additional income recognized on rent and export sales commissions.

     NET LOSS. Net loss for six months ended June 30, 2005 was $(1,143,606)
compared to income of $(9,617) for the six months ended June 30, 2004. The net
loss for the three months ended June 30, 2005 compared with income for the three
months ended June 30, 2004 was due to the reasons described above, including the
additional reserves made on accounts receivable.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2005 and December 31, 2004, we had cash and cash equivalents of
$696,789 and $2,010,644, respectively. Our current assets totaled $4,710,189 at
June 30, 2005 as compared to $6,186,420 at December 31, 2004. Our total current
liabilities were $6,093,107 at June 30, 2005 as compared to $6,656,116 at
December 31, 2004. Working capital at June 30, 2005 was $(1,382,918) and
$(469,696) at December 31, 2004. For the six months ended June 30, 2005, total
cash used in operations was $(734,411) as compared to net cash provided by
operations of $704,397 during the same period in 2004. Net cash used in
financing activities was $(678,702), which consisted of the payment on notes
payable and issuance of short-term debt, as compared with net cash used in
financing activities of $(861,348) during the six months ended June 30, 2004.

     We deployed a large amount of cash in the six months ended June 30, 2005
for developing new products. Therefore there is a deficiency in working capital
at the end of such period. We have, however, increased the sales of our new
products in the second quarter of 2005 as compared to the first quarter of 2005.

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

     Our liquidity is currently dependent on our ability to strengthen our
accounts receivable collection time period and our ability to continue to raise
cash from financing sources to fund our expansion. Our short-term and long-term
liquidity may be influenced by uncollected accounts receivables. If the amount
of bad debt is high, it will severely affect our ability to continue operations.
Therefore, we are taking precautions to manage this risk, including diversifying
its customer base and controlling credit risk through credit approvals, credit
limits and monitoring procedures. There can be no assurance that these measures
will prove successful. Our inability to manage this risk will have a material
adverse effect upon its business, financial condition and results of operations.

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<PAGE>
     CAPITAL EXPENDITURES. Total capital expenditures during the six months
ended June 30, 2005 were $194,717 compared to $24,259 for the six months ended
June 30, 2004. We currently have no plans or commitments for significant
equipment acquisitions or capital expenditures.

RECENT DEVELOPMENTS

     On August 10, 2005, we entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") with Highgate House Funds, Ltd. ("Highgate
House"), a Securities Equity Distribution Agreement with Cornell Capital
Partners, L.P. ("Cornell Capital"), an affiliate of Highgate House, and related
agreements.

     Under the terms of the Securities Purchase Agreement, we will issue secured
convertible debentures (the "Notes") in the aggregate principal amount of
$250,000 to Highgate House. $125,000 in principal amount of the Notes were
issued on August 17, 2005 (the "First Closing Date"). $125,000 in principal
amount of the Notes will be issued at a later closing date.

     Simultaneously with our entry into the Securities Purchase Agreement, we
entered into the Securities Equity Distribution Agreement (the "SEDA") whereby
we may, over twenty-four months after the date of the agreement, issue and sell
our common stock to Cornell Capital in $300,000 installments (each an "Advance")
totaling up to $15,000,000, subject to the terms of the SEDA. Our ability to
issue and sell common stock pursuant to the SEDA remains subject to, and we
intend to obtain, (1) the effectiveness of a registration statement covering
such shares of common stock, (2) stockholder approval of the issuance of such
shares of common stock, and (3) approval by the American Stock Exchange for the
additional listing of such shares of common stock. Additionally, any
availability under the SEDA will be subject to our continued compliance with the
terms of the SEDA.

OFF-BALANCE SHEET ARRANGEMENTS

     We do not have any off-balance sheet arrangements.

ITEM 3. CONTROLS AND PROCEDURES

     We maintain "disclosure controls and procedures," as such term is defined
under Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We have carried out an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of June 30, 2005. Based upon their evaluation and subject to the
foregoing, the Chief Executive Officer and Chief Financial Officer concluded
that as of June 30, 2005 our disclosure controls and procedures were effective
at the reasonable assurance level in ensuring that material information relating
to us, is made known to the Chief Executive Officer and Chief Financial Officer
by others within our company during the period in which this report was being
prepared.

         There were no changes in our internal controls or in other factors
during the most recent quarter that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.

                                       21
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     As of July 5, 2005, we settled two litigation cases with two Taiwanese
companies, Rong-Dian Co., a vendor, and Hwa-Ching Co., a customer. We entered
into a purchase agreement, dated June 4, 2004, with Rong-Dian Co. and Hwa-Ching
Co. The purchase agreement provided that we would not pay Rong-Dian Co. unless
Hwa-Ching Co. paid us. In August 2004, Hwa-Ching Co. closed down suddenly, with
a remaining accounts payable balance outstanding to us.

     In August 2004, we filed a lawsuit against Yune-Chang Tsuo, the owner of
Hwa-Ching Co. in the Taiwan Taipei district court of Taiwan, in Taipei, Taiwan,
alleging fraud for closing down Hwa-Ching Co. without payment for the delivered
merchandise. We sought the amount of New Taiwan Dollars ("NTD") 27.0 million, or
approximately $900,000.

     In October 2004 Rong-Dian Co. filed a lawsuit against us in the Taiwan
Taipei district court of Taiwan, in Taipei, Taiwan, alleging breach of contract
for the purchase agreement. Rong-Dian Co. sought the amount of NTD 40.0 million,
or approximately $1.2 million.

     In the settlements, the owner of Hwa-Ching Co. has agreed to pay us the
$900,000 owed by Hwa-Ching Co., and we have agreed to pay Rong-Dian Co. for the
$1.2 million owed to them.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

ITEM 5.  OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

         10.1     Securities Purchase Agreement, dated as of August 10, 2005, by
                  and between the Company and Highgate House Funds, Ltd. (the
                  "Investor").

         10.2     Standby Equity Distribution Agreement, dated as of August 10,
                  2005, by and between the Company and Cornell Capital Partners,
                  L.P. ("Cornell Capital").

         10.3     Investor Registration Rights Agreement, dated as of August 10,
                  2005, by and between the Company and the Investor.

         10.4     Security Agreement, dated as of August 10, 2005, by and
                  between the Company and the Investor.

                                       22
<PAGE>
         10.5     Security Agreement, dated as of August 10, 2005, by and
                  between City Technology, Inc. ("CTI") and the Investor.

         10.6     Security Agreement, dated as of August 10, 2005, by and
                  between City Network, Inc. - Taiwan and the Investor.

         10.7     Security Agreement, dated as of August 10, 2005, by and
                  between City Construction Co. Ltd. and the Investor.

         10.8     Pledge and Escrow Agreement, dated as of August 10, 2005, by
                  and among the Company, the Investor and David Gonzalez, Esq.,
                  as escrow agent.

         10.9     Secured Convertible Debentures, dated as of August 17, 2005,
                  executed by the Company in favor of the Investor.

         10.10    Warrant, dated as of August 17, 2005, to purchase up to 25,000
                  shares of Common Stock, executed by the Company in favor of
                  the Investor.

         10.11    Registration Rights Agreement, dated as of August 10, 2005, by
                  and between the Company and Cornell Capital.

         10.12    Placement Agent Agreement, dated as of August 10, 2005 by and
                  between the Company and Monitor Capital, Inc.

         31.1     Certifications of the Chief Executive Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certifications of the Chief Financial Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certifications of the Chief Executive Officer and Chief
                  Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

                                       23
<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        CITY NETWORK, INC.


Dated: August 22, 2005                  By: /s/ Tiao-Tsan Lai
                                           ----------------------------------
                                           Tiao-Tsan Lai
                                           Chief Executive Officer
                                           (Principal Executive Officer)


Dated: August 22, 2005                  By: /s/ Yun-Yi Tseng
                                           ----------------------------------
                                           Yun-Yi Tseng
                                           Chief Financial Officer
                                           (Principal Financial Officer)

                                       24