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

                                  FORM 10-QSB/A
                                (Amendment No. 1)

(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)


                    2F-1, 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 [ ]

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

     The number of shares  outstanding of the issuer's common stock,  $0.001 par
value, as of the close of business on January 23, 2006 was 32,967,183.

     Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
EXPLANATORY NOTE

The purpose of this Amendment No. 1 to Quarterly Report on Form 10-QSB/A of City
Network, Inc. (the "Company," "we" or "our") for the fiscal period ended June
30, 2005, filed with the Securities and Exchange Commission ("SEC") on August
22, 2005, is to (i) re-classify the outstanding obligations and liabilities;
(ii) reflect commitments due to a contract between City Construction Co., Ltd
and three individuals for the construction of property in Keelung, Taiwan; (iii)
reflect complete information on credit facility arrangements; (iv) reflect the
settlement with a vendor litigation; (v) reflect the construction contract in
Vietnam pursuant to which the Company will procure construction materials for
approximately US$14 million; and (vi) reflect the purchase contract with a
company in Samoa for approximately US$3 million for the purchase of the
construction materials.

The Items which are amended and restated herein are:

1.   Part I, Item 1 - Financial Statements;

2.   Part I, Item 2 - Management's  Discussion and Analysis or Plan of Operation
     (only the Liquidity Section); and

3.   Part II, Item 1 - Legal Proceedings.

Except as otherwise  expressly  noted herein,  this Amendment No. 1 to Quarterly
Report on Form 10-QSB/A does not reflect events  occurring  after the August 22,
2005 filing of our Quarterly  Report on Form 10-QSB in any way,  except as those
required to reflect the effects of this restatement of our financial  statements
for the periods presented, as deemed necessary in connection with the completion
of the restated  financial  statements  and the revised  notes to the  financial
statements.

The  remaining  Items  contained  within this  Amendment  No. 1 to our Quarterly
Report on Form 10-QSB/A consist of all other Items  originally  contained in our
Quarterly  Report on Form 10-QSB for the quarterly period ended June 30, 2005 in
the form filed with the SEC on August 22, 2005.  These  remaining  Items are not
amended hereby,  but are included for the convenience of the reader. In order to
preserve the nature and character of the  disclosures set forth in such Items as
originally  filed,  except as expressly noted herein,  this report  continues to
speak  as of the  date of the  original  filing,  and we have  not  updated  the
disclosures  in this  report  to speak as of a later  date.  While  this  report
primarily relates to the historical periods covered, events may have taken place
since the original  filing that might have been reflected in this report if they
had taken place prior to the original filing.

                                       i
<PAGE>
                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

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

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

     Item 2. Management's Discussion and Analysis.........................  20

     Item 3. Controls And Procedures......................................  24

PART II. OTHER INFORMATION................................................  25

     Item 1. Legal Proceedings............................................  25

     Item 2. Changes in Securities and Use of Proceeds....................  26

     Item 3. Defaults Upon Senior Securities..............................  26

     Item 4. Submission of Matters to a Vote of Security Holders..........  26

     Item 5. Other Information............................................  26

     Item 6. Exhibits and Reports on Form 8-K.............................  26

                                       1
<PAGE>
                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                    RESTATED
                       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                     $  1,890,939           $  3,335,286
  Due to related party                                           100,344                 80,083
  Deferred revenue                                                48,368                 14,566
  Current portion, long-term debt                              3,263,906              3,226,181
                                                            ------------           ------------
      Total Current Liabilities                                5,303,557              6,656,116

Long-term debt, net of current portion                           789,550                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>
                                    RESTATED
                       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>
                                    RESTATED
                       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 short term liability to long term debt             $   789,550         $         0
                                                                   -----------         -----------
  Conversion of debt to equity                                     $         0         $ 1,680,329
                                                                   -----------         -----------
</TABLE>
                                       4
<PAGE>
                                    RESTATED
                       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>
                                    RESTATED
                       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. The
Company is also pursuing work in the business construction field.

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

                                       6
<PAGE>
                                    RESTATED
                       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>
                                    RESTATED
                       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>
                                    RESTATED
                       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>
                                    RESTATED
                       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>
                                    RESTATED
                       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>
                                    RESTATED
                       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>
                                    RESTATED
                       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 Agreements - In April 2004, City Construction Co., Ltd. placed a
refundable  performance  bond in the amount of $227,240 with the court in Taiwan
for the rights to complete an  unfinished  building in Keelung,  Taiwan with the
owners of the land.  The Company is currently in discussion  with the land owner
regarding the terms of the project.

In March 2005,  City  Construction  Co.,  Ltd.  entered  into a  Co-Construction
Agreement with three individuals  which own a tract of land in Keelung,  Taiwan.
Under the  agreement,  the Company will  finance,  construct  and own 60% of the
completed  building  project.  The Company has agreed to a  refundable  security
deposit  totaling  approximately  $95,500 dollars payable at various agreed upon
phases of the  construction.  The deposits will be returned within 2 years after
the construction is completed. As of June 30, 2005, the Company has paid $63,310
as part of the refundable security deposit.

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
                                   =======

                                       13
<PAGE>
                                    RESTATED
                       CITY NETWORK, INC. AND SUBSIDIARIES

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


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.

                                       14
<PAGE>
                                    RESTATED
                       CITY NETWORK, INC. AND SUBSIDIARIES

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


NOTE 10 - DEBT

At of June 30, 2005, the Company had three separate revolving secured lines of
credit agreements, renewable annually, with three banks in Taiwan. The lines of
credit are secured either by the Company's deposits with the bank and accounts
receivable or by an officer of the Company.

At June 30, 2005, the Company had borrowings outstanding in the aggregate amount
of $4,053,456, of which $2,662,038 are against these lines of credit. 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>

                                       15
<PAGE>
                                    RESTATED
                       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                       interest at 3.616% per annum,  due
by February 13, 2006                       125,960       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
Note  payable to a corporation                           by April 11, 2005                             76,548
in Taiwan, no interest, due
by January 10, 2010                      1,279,908       Note  payable to a bank in Taiwan,
                                                         interest  at 3.26% per annum,  due
                                                         by April 22, 2005                            121,866

                                                         Note  payable to a bank in Taiwan,
                                                         interest  at 4.42% per annum,  due
                                                         by May 29, 2005                              233,493

                                                         Note  payable to a bank in Taiwan,
                                                         interest at 3.616% per annum,  due
                                                         by October 8, 2005                           500,480

                                                         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                                    4,053,456       Total                                      3,472,511

Current portion                        $ 3,263,906       Current portion                          $ 3,226,181
                                       -----------                                                -----------

Long-term portion                      $   789,550       Long-term portion                        $   246,330
                                       ===========                                                ===========
</TABLE>

                                       16
<PAGE>
                                    RESTATED
                       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

The Company is party to certain  litigation that has arisen in the normal course
of its business and that of its subsidiary.

Hwa-Ching  - In August  2004,  a customer  closed  business  and did not pay the
remaining balance due to City Network - Taiwan on outstanding receivables in the
amount  of  $880,649.  City  Network  - Taiwan  has  filed  criminal  and  civil
litigation  against the customer  for fraud.  The Company has recorded a reserve
against this account in the amount of $695,280. This case is currently ongoing.

In August 2004,  City Network  Inc.-Taiwan  filed a lawsuit against the owner of
Hwa-Ching Co., as well as the following  eight  individuals in Taiwan,  alleging
fraud  for  closing  down  Hwa-Ching  Co.  without  payment  for  the  delivered
merchandise.  City Network  Inc.-Taiwan  sought  approximately  NT$27 million or
approximately  US$900,000.  To date,  the court has not yet reached a verdict on
this case.

In December 2004, the Company filed a lawsuit against  Tain-Kang Co., a customer
of Hwa-Ching Co. in Taipei  District  Court  claiming  damages owed to Hwa-Ching
from  Tain-Kang in the amount of  approximately  NT$5,796,000  or  US$172,963 to
cover the outstanding account payable owed by Hwa-Ching to the Company. To date,
the court has not yet reached a verdict on this case.

RPPI International Ltd. - As of June 21, 2005, City Network  Inc.-Taiwan settled
a  litigation  with RPPI  International  Ltd.  (or  Rong-Dian),  a vendor of the
Company.

On October 10, 2004,  Rong-Dian filed a lawsuit against City Network Inc.-Taiwan
in the Taiwan  Taipei  district  court of Taiwan,  in Taipei,  Taiwan,  alleging
breach of contract  for two  different  purchase  agreements  that City  Network
Inc.-Taiwan  entered  with  them and two  third-parties.  Rong-Dian  sought  the
aggregate  amount of  approximately  NT$40.2  million or US$1.2  million for the
alleged  breaches.  One  purchase  agreement  was for an order that City Network
Inc.-Taiwan sold to Hwa-Ching Co. in the amount of approximately NT$27.3 million
or  US$900,000  and the other  purchase  agreement was for an order City Network
Inc.-Taiwan  sold  to a  separate  customer  of the  Company  in the  amount  of
approximately NT$12.9 million or US$390,909.

                                       17
<PAGE>
NOTE 12 - LITIGATION (Continued)

On June 21, 2005, City Network Inc.-Taiwan  entered a settlement  agreement with
Rong-Dian and on June 29, 2005,  the district  court lifted the lawsuit  against
us. In the June 2005 settlement  agreement,  City Network  Inc.-Taiwan agreed to
pay Rong-Dian a total of  approximately  NT$40.2 million or US$1.2  million,  to
cover the full  amount  City  Network  Inc.-Taiwan  owed under the two  purchase
agreements.   In  August  2005,   City  Network   Inc.-Taiwan   paid   Rong-Dian
approximately  NT$12.9  million  or  US$390,909  of the total  amount  owed upon
receipt of such amount from our customer.  City Network  Inc.-Taiwan  intends to
pay the balance of  approximately  NT$27.3 million or US$827,272 to Rong-Dian in
54 separate  checks,  issued and payable by Tai-Wang  Technology Co., Ltd. These
checks will be in  increments  of  NT$500,000  or  US$15,910  and payable for 53
consecutive months,  beginning on August 10, 2005 with the last and 54th payment
being in the  amount  of  NT$813,003  or  US$25,870  instead  of  NT$500,000  or
US$15,910. To date approximately NT$2 million. or approximately  US$60,000,  has
been paid on this liability.

Pursuant to the June 2005 settlement agreement,  City Network Inc.-Taiwan agreed
to pay Rong-Dian the balance of NT$27.3 million in monthly payments. However, as
a result of its  relationship  with  Tai-Wang and the fact that  Tai-Wang is the
vendor who introduced City Network  Inc.-Taiwan to Rong-Dian,  Tai-Wang  assumed
the  responsibility  for  the  payment  of  NT$27.3  million  or  US$827,272  to
Rong-Dian.  Tai-Wang wrote each monthly check in advance and thereafter provided
all 54 checks to  Rong-Dian.  Rong-Dian  will cash one check each month until it
receives  payment of the full  NT$27.3  million.  However,  as  Tai-Wang  has no
written  obligation with City Network  Inc.-Taiwan to make each monthly payment,
beyond an oral promise to do so, there is no assurance  that each monthly  check
will be properly cashed by Rong-Dian.  Therefore the Company continues to report
the total  liability  to  Rong-Dian.  As each  payment is  successfully  paid by
Tai-Wang the Company will reduce the liability  accordingly  and recognize other
income as the benefit provided by Tai-Wang.

Additionally,  as part of the June 2005  settlement  agreement,  we secured  our
obligation that Tai-Wang would pay Rong-Dian the outstanding  balance of NT$27.3
million or US$827,272 by giving  Rong-Dian a first priority  mortgage on certain
property including lots 701-4 and 701-6 in Jay-hou-xiao-duan, Xi-zhi Duan, Xixhi
City,  Taipei County,  Taiwan.  The value of the first priority  mortgage on the
property is  approximately  NT$27.3 million or US$827,272,  the aggregate amount
owed to  Rong-Dian.  City  Network  Inc.-Taiwan  agreed with Rong Dian that this
mortgage will expire in 2010.

Shanghai  Bank - On January 24,  2005,  Shanghai  Commercial  and  Savings  Bank
("Shanghai  Bank") filed a lawsuit with the Taipei  District  Court  against the
Company claiming approximately NT$12 million or approximately US$387,000 for the
payment of an unpaid purchase price for goods. The Company  purchased such goods
from Chin Shin and Chin Shin assigned the account  receivable to Shanghai  Bank.
As such, Shanghai Bank sued the Company for the payment of those goods. However,
the Company returned the said goods because they were defective. The Company and
Shanghai Bank are currently in negotiations  for a settlement  agreement in this
matter. The Company deposited a bond in the amount of approximately NT$3 million
or approximately US$90,000 with the court at the commencement of the lawsuit.

NOTE 13 - SUBSEQUENT EVENTS

On July 20, 2005,  amended on September  22,  2005,  the Company  entered into a
construction  contract with a company in Vietnam in which the Company  agreed to
procure materials and equipment related to the project.  The estimated amount of
gross revenue from this agreement is approximately $14,000,000. Based on certain
criteria  of  the  contract  the  Company  is  to  receive  a  deposit  of up to
$3,500,000.

                                       18
<PAGE>
                                    RESTATED
                       CITY NETWORK, INC. AND SUBSIDIARIES

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


NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

On July 25, 2005 the Company entered into a purchase  contract with a company in
Samoa for  approximately  $3,000,000.  The  Company  agreed to pay a deposit  of
approximately $750,000 to this company.  Purchases are related to items required
by the above construction contract.

On August 10, 2005 the Company entered into a Securities Purchase Agreement (the
"Securities  Purchase  Agreement')  with Highgate House Funds,  Ltd.  ("Highgate
House"), a Standby 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 Standby 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 SEDA.

NOTE 14 - GOING CONCERN

The Company has suffered recurring losses from operations, cash deficiencies and
the inability to meet 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 are 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 13 to the financial statements.

                                       19
<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

                                       20
<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.

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<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

                                       22
<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 $5,303,557 at June 30, 2005 as compared to $6,656,116 at
December 31, 2004. Working capital at June 30, 2005 was $(593,368) 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 $(861,358) 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 does not currently meet our cash
needs. We believe we will be able to generate revenues from sales and raise
capital through private placement offerings of its 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.

                                       23
<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 Standby 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 Standby 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.

                                       24
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

HWA-CHING CO. AND RELATED LAWSUITS

     In April 2004, Hwa-Ching Co. made purchases from City Network Inc.-Taiwan
for products in the aggregate amount of approximately NT$19 million or
US$575,757. In June 2004, Hwa-Ching Co. wrote a check to City Network
Inc.-Taiwan paying for such products and City Network Inc.-Taiwan successfully
cashed this check. Also in June 2004, Hwa-Ching Co. made purchases from City
Network Inc.-Taiwan for additional products in the aggregate amount of
approximately NT$18 million or US$545,454 and paid for such products with a
check that City Network Inc.-Taiwan also successfully cashed.

     During June to August 2004, Hwa-Ching Co. requested additional products
from City Network Inc.-Taiwan in the aggregate amount of approximately NT$27
million or US$818,181. City Network Inc.-Taiwan filled these orders with
confidence as Hwa-Ching had paid for the prior orders from April 2004 and June
2004. However, the check, in the amount of approximately NT$27 million or
US$818,181 that Hwa-Ching Co. wrote to City Network, Inc.-Taiwan bounced upon
deposit with the bank. Immediately thereafter, Hwa-Ching Co. closed down with
this remaining account payable balance of approximately NT$27 million or
US$818,181 outstanding and payable to City Network Inc.-Taiwan.

     In August 2004, City Network Inc.-Taiwan filed a lawsuit against Yune-Chang
Tsuo, the owner of Hwa-Ching Co., as well as the following eight individuals
including, Yong-Zhang Zhuo, Shu-Tao Lu, Yong-Yi Zhuo, Zhuan-Xuan Dai, Ya-Hui
Qiu, Mei-Zhen Huang, Zong-Ya Wu, Yao-Guo Cen in Taiwan Taipei district court of
Taiwan, in Taipei, Taiwan, alleging fraud for closing down Hwa-Ching Co. without
payment for the delivered merchandise. City Network Inc.-Taiwan sought
approximately NT$27 million or approximately US$900,000 from Yune-Chang Tsuo to
cover the outstanding account payable. To date, the court has not yet reached a
verdict on this case.

RPPI INTERNATIONAL LTD.

     As of June 21, 2005, City Network Inc.-Taiwan settled a litigation with
RPPI International Ltd. (or Rong-Dian), a vendor of the Company.

     On October 10, 2004, Rong-Dian filed a lawsuit against City Network
Inc.-Taiwan in the Taiwan Taipei district court of Taiwan, in Taipei, Taiwan,
alleging breach of contract for two different purchase agreements that City
Network Inc.-Taiwan entered with them and two third-parties. Rong-Dian sought
the aggregate amount of approximately NT$40.2 million or US$1.2 million for the
alleged breaches. One purchase agreement was for an order that City Network
Inc.-Taiwan sold to Hwa-Ching Co. in the amount of approximately NT$27.3 million
or US$900,000 and the other purchase agreement was for an order City Network
Inc.-Taiwan sold to a separate customer of the Company in the amount of
approximately NT$12.9 million or US$390,909.

     On June 21, 2005, City Network Inc.-Taiwan entered a settlement agreement
with Rong-Dian and on June 29, 2005, the district court lifted the lawsuit
against us. In the June 2005 settlement agreement, City Network Inc.-Taiwan
agreed to pay Rong-Dian a total of approximately NT$40.2 million or US$1.2
million, to cover the full amount City Network Inc.-Taiwan owed under the two
purchase agreements. In August 2005, City Network Inc.- Taiwan paid Rong-Dian
approximately NT$12.9 million or US$390,909 of the total amount owed upon
receipt of such amount from our customer. City Network Inc.- Taiwan intends to

                                       25
<PAGE>
pay the balance of approximately NT$27.3 million or US$827,272 to Rong-Dian in
54 separate checks, issued and payable by Tai-Wang Technology Co., Ltd. These
checks will be in increments of NT$500,000 or US$15,910 and payable for 53
consecutive months, beginning on August 10, 2005 with the last and 54th payment
being in the amount of NT$813,003 or US$25,870 instead of NT$500,000 or
US$15,910. To date, approximately NT$2 million or approximately US$60,000 was
paid.

     Pursuant to the June 2005 settlement  agreement,  City Network  Inc.-Taiwan
agreed to pay  Rong-Dian  the  balance of NT$27.3  million in monthly  payments.
However,  as a result  of its  relationship  with  Tai-Wang  and the  fact  that
Tai-Wang is the vendor who  introduced  City Network  Inc.-Taiwan  to Rong-Dian,
Tai-Wang  assumed  the  responsibility  for the  payment of  NT$27.3  million or
US$827,272  to  Rong-Dian.  Tai-Wang  wrote each  monthly  check in advance  and
thereafter  provided all 54 checks to Rong-Dian.  Rong-Dian  will cash one check
each month until it receives  payment of the full NT$27.3 million.  However,  as
Tai-Wang has no written  obligation  with City Network  Inc.-Taiwan to make each
monthly  payment,  beyond an oral promise to do so,  there is no assurance  that
each monthly check will be properly cashed by Rong-Dian.

     Additionally, as part of the June 2005 settlement agreement, we secured our
obligation that Tai-Wang would pay Rong-Dian the outstanding  balance of NT$27.3
million or US$827,272 by giving  Rong-Dian a first priority  mortgage on certain
property including lots 701-4 and 701-6 in Jay-hou-xiao-duan, Xi-zhi Duan, Xixhi
City,  Taipei County,  Taiwan.  The value of the first priority  mortgage on the
property is  approximately  NT$27.3 million or US$827,272,  the aggregate amount
owed to  Rong-Dian.  City  Network  Inc.-Taiwan  agreed with Rong Dian that this
mortgage will expire in 2010.

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"). (1)

         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"). (1)

         10.3     Investor Registration Rights Agreement, dated as of August 10,
                  2005, by and between the Company and the Investor. (1)

         10.4     Security Agreement, dated as of August 10, 2005, by and
                  between the Company and the Investor. (1)

                                       26
<PAGE>
         10.5     Security Agreement, dated as of August 10, 2005, by and
                  between City Technology, Inc. ("CTI") and the Investor. (1)

         10.6     Security Agreement, dated as of August 10, 2005, by and
                  between City Network, Inc. - Taiwan and the Investor. (1)

         10.7     Security Agreement, dated as of August 10, 2005, by and
                  between City Construction Co. Ltd. and the Investor. (1)

         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. (1)

         10.9     Secured Convertible Debentures, dated as of August 17, 2005,
                  executed by the Company in favor of the Investor. (1)

         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. (1)

         10.11    Registration Rights Agreement, dated as of August 10, 2005, by
                  and between the Company and Cornell Capital. (1)

         10.12    Placement Agent Agreement, dated as of August 10, 2005 by and
                  between the Company and Monitor Capital, Inc. (1)

         31.1     Certifications of the Chief Executive Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002. (2)

         31.2     Certifications of the Chief Financial Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002. (2)

         32.1     Certifications of the Chief Executive Officer and Chief
                  Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002. (2)

----------
(1)  Incorporated herein by reference to the Registrant's Form 10-QSB filed with
     the SEC on August 22, 2005.

(2)  Filed herewith.

                                       27
<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: January 27, 2006                By: /s/ Tiao-Tsan Lai
                                           ----------------------------------
                                           Tiao-Tsan Lai
                                           Chief Executive Officer
                                           (Principal Executive Officer)


Dated: January 27, 2006                By: /s/ Yun-Yi Tseng
                                           ----------------------------------
                                           Yun-Yi Tseng
                                           Chief Financial Officer
                                           (Principal Financial Officer)

                                       28