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

                                   FORM 10-QSB

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


                  FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2006

                        COMMISSION FILE NUMBER: 001-31954


                               CITY NETWORK, INC.
           (Name of Small Business Issuer as Specified in its Charter)


             Nevada                                              88-0467944
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)


                    2F-1, No. 16, Jian Ba Road, Chung Ho City
                         Taipei County 235, Taiwan, ROC
                    (Address of Principal Executive Offices)

                               011-886-2-8226-5566
                               (Telephone Number)

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

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

As of August 21, 2006,  there were 34,967,183  shares of common stock, par value
$0.001 per share, outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X].
<PAGE>
                                Table Of Contents

PART I - FINANCIAL INFORMATION...............................................  3

     Item 1. Financial Statements............................................  3

     Item 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations....................................... 27

     Item 3. Controls and Procedures......................................... 31

PART II - OTHER INFORMATION.................................................. 32

     Item 1. Legal Proceedings............................................... 32

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 32

     Item 3. Defaults Upon Senior Securities................................. 32

     Item 4. Submission of Matters to a Vote of Security Holders............. 32

     Item 5. Other Information............................................... 32

     Item 6. Exhibits........................................................ 33

SIGNATURES................................................................... 34

                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                  CITY NETWORK INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                       June 30, 2006      December 31, 2005
                                                       -------------      -----------------
                                                        (Unaudited)
<S>                                                    <C>                  <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                            $    30,889          $   856,587
  Accounts receivable, net                               2,119,117            4,371,110
  Inventories                                              857,950              252,608
  Construction in progress                                 864,540              418,105
  Other receivables                                        533,136              241,304
  Prepayment                                             5,227,351            3,500,021
  Short-term investments-net                               920,100                   --
                                                       -----------          -----------
      TOTAL CURRENT ASSETS                              10,553,083            9,639,735
                                                       -----------          -----------

PROPERTY, PLANT AND EQUIPMENT                            4,172,917            2,243,214
                                                       -----------          -----------

OTHER ASSETS:
  Deposits                                                 423,296              503,579
  Cash held for compensating balances                    1,289,143            1,380,992
  Intangible assets                                        896,207              925,074
  Deferred assets                                          377,124              148,208
  Equity in net assets of affiliated company               838,803              790,842
                                                       -----------          -----------
      TOTAL OTHER ASSETS                                 3,824,573            3,748,695
                                                       -----------          -----------

TOTAL ASSETS                                           $18,550,573          $15,631,644
                                                       ===========          ===========
</TABLE>

                                       3
<PAGE>
                       CITY NETWORK INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             June 30,2006        December 31, 2005
                                                             ------------        -----------------
                                                              (Unaudited)
<S>                                                          <C>                    <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                      $  1,583,860           $  1,471,867
  Convertible note payable, net                                        --                250,000
  Due to related party                                            993,095              1,131,494
  Deferred revenue                                              4,100,930              3,198,414
  Current portion, long-term debt                               4,737,422              4,220,230
                                                             ------------           ------------
      TOTAL CURRENT LIABILITIES                                11,415,307             10,272,005
                                                             ------------           ------------
NON-CURRENT LIABILITIES:
  Convertible note payable, net                                   530,000                     --
  Long-term debt, net of current portion                        2,049,155                572,668
                                                             ------------           ------------
      TOTAL NON-CURRENT LIABILITIES                             2,579,155                572,668

TOTAL LIABILITIES                                              13,994,462             10,844,673
                                                             ------------           ------------
STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value, 100,000,000 shares
  authorized, 32,967,183 shares issued outstanding
   at June 30, 2006 and December 31, 2005                          32,967                 32,967
  Additional paid in capital                                    6,282,979              6,157,479
  Other comprehensive income                                      450,374                366,384
  Accumulated deficit                                          (2,210,209)            (1,769,859)
                                                             ------------           ------------
      TOTAL CAPITAL AND RETAINED DEFICIT                        4,556,111              4,786,971

Less: cost of treasury stock                                           --                     --
                                                             ------------           ------------

Total Stockholders' Equity                                      4,556,111              4,786,971
                                                             ------------           ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 18,550,573           $ 15,631,644
                                                             ============           ============
</TABLE>

                                       4
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        Three Months Ended June 30,           Six Months Ended June 30,
                                                     -------------------------------       -------------------------------
                                                         2006               2005               2006               2005
                                                     ------------       ------------       ------------       ------------
<S>                                                  <C>                <C>                <C>                <C>
Sales, net                                           $    597,758       $  3,599,366       $  3,178,820       $  4,892,716

Cost of sales                                             452,463          3,377,970          2,852,618          4,633,010
                                                     ------------       ------------       ------------       ------------

      Gross Profit                                        145,295            221,396            326,202            259,706

General and administrative expenses                       534,576            376,241            893,469            699,386
                                                     ------------       ------------       ------------       ------------

      Income (loss) from operations                      (389,281)          (154,845)          (567,267)          (439,680)
                                                     ------------       ------------       ------------       ------------
Other (Income) Expense
  Interest income                                         (11,680)            (1,688)           (18,651)            (2,087)
  Rental income                                           (15,590)           (47,910)           (62,060)           (95,580)
  Commission income                                          (160)           (31,870)           (99,296)           (35,791)
  (Gain) Loss on currency exchange                           (209)             4,977             12,468             13,235
  Other income                                            (69,680)           (56,239)          (118,378)           (56,239)
  Reserve for bad debt                                     22,548             11,154             37,541            696,154
  Equity in earnings of investee                          (77,232)              (531)           (47,961)            10,123
  Loss on  physical inventory                              42,874                 --             42,894                 --
  Miscellaneous                                           (11,194)            46,186              5,292             12,657
  Loss on sale of fixed assets                               (724)            (2,280)              (724)            79,980
  Interest expense                                         66,588             42,898            121,958             81,296
                                                     ------------       ------------       ------------       ------------

      Total other (income) expense                        (54,459)           (35,303)          (126,917)           703,748
                                                     ------------       ------------       ------------       ------------

      Loss before income taxes                           (334,822)          (119,542)          (440,350)        (1,143,428)

Provision for income taxes                                     --                178                 --                178
                                                     ------------       ------------       ------------       ------------

      Net loss                                       $   (334,822)      $   (119,720)      $   (440,350)      $ (1,143,606)
                                                     ============       ============       ============       ============
Net loss per share (basic and diluted)
  Basic                                              $     (0.012)      $     (0.004)      $     (0.015)      $     (0.042)
                                                     ============       ============       ============       ============
  Diluted                                            $     (0.012)      $     (0.004)      $     (0.015)      $     (0.042)
                                                     ============       ============       ============       ============
Weighted average number of shares
  Basic                                                28,521,728         27,500,000         28,521,728         27,500,000
  Diluted                                              28,521,728         27,500,000         28,521,728         27,500,000
</TABLE>

                                       5
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            Six Months Ended June 30,
                                                                         -------------------------------
                                                                            2006                2005
                                                                         -----------         -----------
<S>                                                                      <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Loss                                                               $  (440,350)        $(1,143,606)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
     Depreciation and amortization                                            96,521              87,730
     Equity in earnings of investee                                          (47,961)             10,123
     Bad debt                                                                 37,541                  --
     (Gain) Losses on disposal of fixed assets                                  (724)             79,980
     Loss on physical inventory                                               42,894                  --
     Loss on foreign currency exchange                                            --              13,235
     Decrease in receivables                                               2,274,300             711,181
     Increase in other receivables                                           (87,183)            (15,953)
     Increase in inventory                                                  (653,410)            (51,102)
     Increase in construction in progress                                   (448,480)            (30,316)
     Increase in prepayment and other current assets                      (1,950,812)           (421,023)
     Increase (Decrease) in accounts payable and accrued expenses            135,000            (164,439)
     Increase in deferred revenue                                            930,900              33,802
     Decrease in other liabilities                                           (38,608)                 --
                                                                         -----------         -----------
         Total Adjustments                                                   289,978             253,218
                                                                         -----------         -----------

         Net cash used in operating activities                              (150,372)           (890,388)
                                                                         -----------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from disposal of property, plant and equipment                     42,843             397,222
  Purchase on investment                                                          --             (72,931)
  Purchases of property, plant and equipment                              (1,707,283)           (194,717)
  Decrease (Increase) in deposit                                              85,075             (66,917)
  Increase in short-term investments                                        (930,900)                 --
  Payment on deferred assets                                                (151,081)                 --
  Increase in other assets                                                   103,485                  --
                                                                         -----------         -----------

         Net cash provided by (used in) investing activities              (2,557,861)             62,657
                                                                         -----------         -----------
</TABLE>


                                       6
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Six Months Ended June 30,
                                                                    -------------------------------
                                                                       2006                2005
                                                                    -----------         -----------
<S>                                                                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from short-term borrowings                               $ 2,153,941         $ 3,550,525
  Payment on notes payable                                           (1,759,802)         (4,249,488)
  Payment of loan from related party                                   (105,125)             (6,293)
  Loan from related party                                                    --              26,554
  Proceeds from long-term debts                                       1,582,530                  --
                                                                    -----------         -----------

         Net cash provided by (used in) financing activities          1,871,544            (678,702)
                                                                    -----------         -----------

Effect of exchange rate change on cash                                   10,991             192,578

Net change in cash and cash equivalents                                (825,698)         (1,313,855)
                                                                    -----------         -----------

Cash and cash equivalents at beginning of period                        856,587           2,010,644
                                                                    -----------         -----------

Cash and cash equivalents at end of period                          $    30,889         $   696,789
                                                                    ===========         ===========

Supplemental cash flows disclosures:
  Income tax payments                                               $        --         $       178
                                                                    ===========         ===========

  Interest payments                                                 $   116,459         $    81,296
                                                                    ===========         ===========
</TABLE>


                                       7
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         June 30, 2006       December 31, 2005
                                                                         -------------       -----------------
                                                                           (Unaudited)
<S>                                                                        <C>                    <C>
Common stock, number of shares
  Balance at beginning of period                                           32,967,183             27,500,000
  Common stock issued                                                              --              5,467,183
                                                                         ------------           ------------

  Balance at end of period                                                 32,967,183             32,967,183
                                                                         ============           ============
Treasury stock, number of shares
  Balance at beginning of period                                            4,445,455                     --
  Treasury stock acquired                                                          --              4,445,455
                                                                         ------------           ------------

  Balance at end of period                                                  4,445,455              4,445,455
                                                                         ============           ============
Common stock, par value $.001
  Balance at beginning of period                                         $     32,967           $     27,500
  Common stock issued                                                              --                  5,467
                                                                         ------------           ------------

  Balance at end of period                                               $     32,967           $     32,967
                                                                         ============           ============
Additional paid in capital
  Balance at beginning of period                                         $  6,157,479           $  5,937,946
  Issuance of stock                                                                --                219,533
  Deemed interest due to warrants issued related to convertible notes         125,500                     --
                                                                         ------------           ------------

  Balance at end of period                                               $  6,282,979           $  6,157,479
                                                                         ============           ============
Other comprehensive income
  Balance at beginning of period                                         $    366,384           $    142,453
  Foreign currency translation                                                 83,990                223,931
                                                                         ------------           ------------

  Balance at end of period                                               $    450,374           $    366,384
                                                                         ============           ============
Retained earnings (deficits)
  Balance at beginning of period                                         $ (1,769,859)          $   (712,383)
  Net income (loss)                                                          (440,350)            (1,057,476)
                                                                         ------------           ------------

  Balance at end of period                                               $ (2,210,209)          $ (1,769,859)
                                                                         ============           ============

Less: Cost of treasury stock                                                        0                      0
                                                                         ------------           ------------

Total stockholders' equity at end of period                              $  4,556,111           $  4,786,971
                                                                         ============           ============
</TABLE>

                                       8
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2006
                                   (UNAUDITED)

NOTE A - ORGANIZATION

      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".

      The Company  designs,  manufactures  and markets a  comprehensive  line of
      broadband   communication   and  wireless  Internet  access  products  and
      solutions.  Also, the broadband  communication product line includes VOIP,
      GUI-based remote management and routing  technology  software packages for
      simplified  setup,   extensive  network   management  and  global  network
      connectivity  capabilities,  home PNA and xDSL broadband access equipment,
      ADSL/VDSL  ACCESS  DEVICES,  HPNA  ACCESS  DEVICES,  FTTB  (Fiber  to  the
      Building) and FTTH (Fiber to the Home), PCMCIA cards and USB adapters. The
      other wireless  Internet access  solutions are used in both individual and
      corporate.

      The Company has also recently begun the  development  of its  construction
      business.   The  Company  plans  to  develop  and  build   commercial  and
      residential  buildings,   industry  factory  buildings,  and  professional
      buildings.  The  Company has entered  co-construction  agreements  for the
      development of land in Keelung,  Taiwan and the purchase of materials with
      a company in Vietnam, as further described in Note H herein.

NOTE B - 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") 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,
      2006 and 2005 are not  necessarily  indicative  of the results that may be
      expected for the year ended December 31, 2006, 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 year ended December 31, 2005.

                                       9
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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.  Service  income is
      recognized as the related  services are provided  pursuant to the terms of
      the service agreement.

      PRINCIPLES OF CONSOLIDATION

      The  consolidated  financial  statements  include  the  accounts  of  City
      Network,  Inc., and its wholly owned subsidiaries City Network Technology,
      Inc. and its wholly owned  subsidiaries,  City Network,  Inc. - Taiwan and
      City  Construction,  collectively  referred to within as the Company.  All
      material  intercompany  accounts,   transactions  and  profits  have  been
      eliminated in consolidation.

      FINANCIAL STATEMENT PRESENTATION

      Certain changes to the 2005 financial statements have been made to conform
      to the 2006 financial statement format.

      RISKS AND UNCERTAINTIES

      The  Company is subject to  substantial  risks from,  among other  things,
      intense competition from the providers of broadband products, services and
      the  telecommunication  industry in general,  other risks  associated with
      financing, liquidity requirements, rapidly changing customer requirements,
      limited operating history, and the volatility of public markets.

      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.

                                       10
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      USE OF 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.

      ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The  Company  has  made an  allowance  for  doubtful  accounts  for  trade
      receivables based on a combination of write-off  history,  aging analysis,
      and any specific known troubled accounts.

      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 charged to expense as
      incurred.  Depreciation is provided on the  straight-line  method over the
      estimated useful lives of the assets,  or the remaining term of the lease,
      as follows:

                  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 six months period ended June 30, 2006.  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.

      EXCHANGE GAIN (LOSS)

      As of June 30, 2006 and 2005,  the  transactions  of City Network,  Inc. -
      Taiwan and City  Construction  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.

                                       11
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      TRANSLATION ADJUSTMENT

      The accounts of City  Network,  Inc. - Taiwan and City  Construction  were
      maintained,  and their financial statements were expressed,  in New Taiwan
      Dollars (NTD). Such financial statements were translated into U.S. Dollars
      (USD) in accordance SFAS No. 52, "Foreign Currency Translation",  with the
      NTD as the functional currency. According to the Statement, 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 a component of shareholders' equity.

      As of June 30, 2006 and December 31, 2005 the exchange  rates  between NTD
      and the USD were  NTD$1=USD$0.03067 and  NTD$1=USD$0.03044,  respectively.
      The   weighted-average   rates  of  exchange  between  NTD  and  USD  were
      NTD$1=USD$0.03103  and  NTD$1=USD$0.03117for  the period (year) ended June
      30, 2006 and December 31, 2005, respectively. Total translation adjustment
      recognized  as of June 30, 2006 and  December  31,  2005 is  $450,374  and
      $366,384, respectively.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      Our Company  measures its financial  assets and  liabilities in accordance
      with  generally  accepted  accounting  principles.   For  certain  of  the
      Company's financial instruments,  including accounts receivable (trade and
      related party),  notes  receivable and accounts payable (trade and related
      party), and accrued expenses,  the carrying amounts approximate fair value
      due to their short  maturities.  The amounts owed for  long-term  debt and
      revolving  credit facility also  approximate  fair value because  interest
      rates and terms offered to the Company are at current market rates.

      STATEMENT OF CASH FLOWS

      In accordance with SFAS No. 95, "Statement of Cash Flows", cash flows from
      the Company's operations are based upon the local currencies. As a result,
      amounts  related to assets and  liabilities  reported on the  statement of
      cash flows will not  necessarily  agree with changes in the  corresponding
      balances on the balance sheet.

      CONCENTRATION OF CREDIT RISK

      Financial   instruments   that   potentially   subject   the   Company  to
      concentrations   of  credit  risk  are  accounts   receivable   and  other
      receivables arising from its normal business activities. The Company has a
      diversified  customer  base. The Company  controls  credit risk related to
      accounts receivable through credit approvals, credit limits and monitoring
      procedures.  The Company routinely  assesses the financial strength of its
      customers and, based upon factors surrounding the credit risk, establishes
      an  allowance,   if  required,  for  un-collectible  accounts  and,  as  a
      consequence,  believes that its accounts  receivable  credit risk exposure
      beyond such allowance is limited.

      INVENTORY

      Inventory is valued at the lower of cost or market.  Cost is determined on
      the weighted average method. As of June 30, 2006, inventory consisted only
      of finished goods.

                                       12
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      PRODUCT WARRANTIES

      The Company  estimates  its warranty  costs based on  historical  warranty
      claim  experience  and applies  this  estimate  to the revenue  stream for
      products under warranty. Future costs for warranties applicable to revenue
      recognized  in the  current  period are  charged to cost of  revenue.  The
      warranty accrual is reviewed quarterly to verify that it properly reflects
      the  remaining  obligation  based  on  anticipated  expenditures  over the
      balance  of the  obligation  period.  Adjustments  are made  when  accrual
      warranty claim experience differs from estimate.

      LONG-TERM EQUITY INVESTMENTS

      Long-term  equity  investments are accounted for by the equity method when
      the Company and its subsidiaries owns 20% or more of the investee's voting
      shares,  or less  than  20% of  investee's  voting  shares  but is able to
      exercise significant influence over the investee's operation and financial
      polices, but not more then 50%. All other long-term equity investments are
      accounted for by either the lower-of-cost-or-market method or cost method.

      For  long-term  equity  investments  accounted for under the equity method
      related to  investee's  that are  publicly  listed  companies,  unrealized
      losses resulting from declines in the market value below cost are recorded
      as a separate component of stockholders' equity.

      For long-term  equity  investments in non-listed  companies  accounted for
      under  the cost  method,  investments  are  stated  at  original  cost.  A
      write-down  of the  investment  balance to earnings is taken only if it is
      determined that there is a permanent  decline in the  investment's  value.
      Stock dividends do not result in the recognition of investment income.

      For long-term equity  investments  accounted for by the equity method, the
      investment  is initially  recorded at cost,  then reduced by dividends and
      increased or decreased by investor's proportionate share of the investee's
      net earnings or loss.

      CASH AND CASH EQUIVALENTS

      The Company considers all highly liquid investments purchased with initial
      maturities of three months or less to be cash equivalents.

      ADVERTISING

      Advertising costs are expensed in the year incurred.

      INCOME TAXES

      Provisions  for income taxes are based on taxes payable or refundable  for
      the current year and deferred taxes on temporary  differences  between the
      amount of taxable income and pretax  financial  income and between the tax
      bases  of  assets  and  liabilities  and  their  reported  amounts  in the
      financial statements.

                                       13
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      INCOME TAXES (Continued)

      Deferred  tax  assets  and  liabilities  are  included  in  the  financial
      statements at currently  enacted income tax rates applicable to the period
      in which the  deferred  tax  assets and  liabilities  are  expected  to be
      realized or settled as prescribed in SFAS No. 109,  "Accounting for Income
      Taxes".  As changes in tax laws or rates are enacted,  deferred tax assets
      and liabilities are adjusted through the provision for income taxes.

      DEFERRED OFFERING COSTS AND DISCOUNT TO CONVERTIBLE NOTES

      The Company accounts for offering cost incurred in the private  placements
      as  deferred  expense and  amortizes  it over the  economic  life of these
      convertible notes. In accordance with APB No. 14, the Company accounts for
      the fair value of warrants and  beneficial  conversion  feature  resulting
      from issuing  convertible notes as discount to these convertible notes and
      amortizes the discount over the economic life of these convertible notes.

      EARNINGS PER SHARE

      The Company uses SFAS No. 128,  "Earnings Per Share",  for calculating the
      basic and diluted  earnings  (loss) per share.  Basic earnings  (loss) per
      share are computed by dividing net income  (loss)  attributable  to common
      stockholders by the weighted average number of common shares  outstanding.
      Diluted  earnings  per share are  computed  similar to basic  earnings per
      share except that the  denominator  is  increased to include  common stock
      equivalents, if any, as if the potential common shares had been issued.

      IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

      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  were 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.

      NEW ACCOUNTING PRONOUNCEMENTS

      In March 2005, FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
      for Conditional  Asset Retirement  Obligations." FIN 47 clarifies that the
      term "Conditional  Asset Retirement  Obligation" as used in FASB Statement
      No. 143,  "Accounting for Asset Retirement  Obligation," refers to a legal
      obligation  to perform an asset  retirement  activity  in which the timing
      and/or method of settlement are  conditional on a future event that may or
      may not be within the  control of the  entity.  Accordingly,  an entity is
      required  to  recognize a  liability  for the fair value of a  Conditional
      Asset  Retirement  Obligation  if the fair value of the  liability  can be
      reasonably estimated.  FIN 47 is effective no later than the end of fiscal
      years ending after  December  15,  2005.  Management  does not believe the
      adoption of FIN 47 will have a material affect on the Company's  financial
      position, results of operations or cash flows.

      In May 2005, the Financial  Accounting  Standards  Board ("FASB") SFAS No.
      154,  Accounting  Changes and Error  Corrections  ("SFAS No. 154"),  which

                                       14
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      NEW ACCOUNTING PRONOUNCEMENTS (Continued)

      replaces  Accounting  Principles Board Opinion No. 20, Accounting  Changes
      and  SFAS  No.  3,  Reporting  Accounting  Changes  in  Interim  Financial
      Statements.  SFAS No. 154 changes the  requirements for the accounting for
      and  reporting  of  a  change  in  accounting   principles.   It  requires
      retrospective  application  to  prior  periods'  financial  statements  of
      changes in accounting principles,  unless it is impracticable to determine
      either the period-specific effects or the cumulative effect of the change.
      This  statement is effective for  accounting  changes and  corrections  of
      errors made in fiscal years  beginning after December 15, 2005. The impact
      on  the   Company's   operations   will   depend  on   future   accounting
      pronouncements or changes in accounting principles.

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

NOTE C - CONCENTRATION

      The Company had three major customers during the six months ended June 30,
      2006.  Sales to  these  customers  were  approximately  $2,705,284.  Those
      customers comprise 85% of the total sales during the six months ended June
      30, 2006. Included in accounts receivable is approximately $1,949,570 from
      these customers as of June 30, 2006.

NOTE D -CASH

      The Company  maintains its cash  balances at various banks in Taiwan.  The
      balances are insured by the Central Deposit Insurance  Corporation  (CDIC)
      up to  approximately  $30,740.  As of June 30, 2006, there was $951,773 in
      uninsured balances held at these banks.

NOTE E - COMPENSATING BALANCES

      The  company,  under the  terms of its  lines of credit  with two banks in
      Taiwan,  has agreed to maintain a  compensating  balance equal to at least
      30%  to  35% of  the  outstanding  loan  balance.  As of  June  30,  2006,
      $1,289,143 of cash is restricted for this purpose (see Note L).

                                       15
<PAGE>
NOTE F - FIXED ASSETS

      Fixed assets consist of the following:

                                           June 30, 2006       December 31, 2005
                                           -------------       -----------------
      Land                                  $ 3,306,373           $ 1,909,023
      Building and improvements                 592,684                    --
      Other equipment                           497,580               525,077
                                            -----------           -----------

                                              4,396,637             2,434,100

      Accumulated depreciation                 (223,720)             (190,886)
                                            -----------           -----------

                                            $ 4,172,917           $ 2,243,214
                                            ===========           ===========

NOTE G - INTANGIBLE ASSETS

      Intangible assets consist of the following:

                                           June 30, 2006       December 31, 2005
                                           -------------       -----------------
      Trademarks                            $     2,239           $     2,222
      Intangible asset                        1,073,450             1,065,400
                                            -----------           -----------

                                              1,075,689             1,067,622

      Accumulated amortization                 (179,482)             (142,548)
                                            -----------           -----------

                                            $   896,207           $   925,074
                                            ===========           ===========

NOTE H- COMMITMENTS

      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 $233,092  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 landowners regarding the terms of the project.

                                       16
<PAGE>
NOTE H- COMMITMENTS (Continued)

      In March 2005,  City  Construction  Co.,  Ltd.  entered a  Co-Construction
      Agreement  with  three  individuals  who own a tract  of land in  Keelung,
      Taiwan. Under the agreement, the Company will finance, construct and, upon
      completion,  will own 60% of the building  project.  The Company agreed to
      make refundable  deposits,  as security,  totaling  approximately  $91,320
      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,  2006,  the  Company has paid  $61,340 as part of the  refundable
      security deposit and $864,540 as construction in progress on the building.

      On July 20,  2005,  and as amended on  September  22,  2005,  the  Company
      entered  into a contract  with a company in Vietnam.  Per the terms of the
      contract the Company has agreed to procure materials and equipment related
      to the  construction of a commercial  building in Vietnam.  As of June 30,
      2006,  the Company  received an advance of $3,000,000 on this contract and
      is using these funds to purchase the related materials.

      On July 25, 2005 the  Company  entered  into a contract  with a company in
      Samoa to  purchase  materials  from  them  related  to the  above  Vietnam
      contract. The total purchases will be approximately $3,000,000. As of June
      30, 2006, the Company advanced approximately $2,740,000 to this vendor.

      Operating  Leases - The Company leases office  facilities  under operating
      leases that  terminate on various  dates.  Rental expense for these leases
      consisted of $24,815 for the six months  ended June 30, 2006.  The Company
      has future minimum lease obligations as follows:

                      Year                      Amount
                      ----                      ------
                      2007                      $22,082
                      2008                       20,242
                                                -------
                      Total                     $42,324
                                                =======

NOTE I - 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, 2006, the Company recognized a gain of $47,961 from their acquisition.

NOTE J - COMPENSATED ABSENSES

      Employees  earn  annual  vacation  leave at the rate of seven (7) days per
      year for the first  three  years.  Upon  completion  of the third  year of
      employment,  employees earn annual  vacation leave at the rate of ten (10)
      days per year for years four through  five.  Upon  completion of the fifth
      year of employment,  employees  earn annual  vacation leave at the rate of
      fourteen (14) days per year for years six through ten. Upon  completion of
      the tenth year of employment,  one (1) additional day for each  additional
      year,  until it  reaches  thirty  (30)  days  per  year.  At  termination,
      employees are paid for any  accumulated  annual vacation leave. As of June
      30, 2006 vacation liability existed in the amount of $2,472.

                                       17
<PAGE>
NOTE K - INCOME TAXES

      Total  Federal and State  income tax expense for the six months ended June
      30, 2006 and 2005 both  amounted to $0. For the six months  ended June 30,
      2006 and 2005,  there is no difference  between the federal  statutory tax
      rate and the effective tax rate.

      The following is a reconciliation of income tax expense:

      06/30/06         U.S.           State         International        Total
      --------         ----           -----         -------------        -----
      Current         $    0          $    0           $    0           $    0
      Deferred             0               0                0                0
                      ------          ------           ------           ------

      Total           $    0          $    0           $    0           $    0
                      ======          ======           ======           ======

      06/30/05         U.S.           State         International        Total
      --------         ----           -----         -------------        -----
      Current         $    0          $    0           $  178           $  178
      Deferred             0               0                0                0
                      ------          ------           ------           ------

      Total           $    0          $    0           $  178           $  178
                      ======          ======           ======           ======

      Reconciliation  of the  differences  between the  statutory  U.S.  Federal
      income tax rate and the effective rate is as follows:

                                              06/30/06            06/30/05
                                              --------            --------
      Federal statutory tax rate                   34%                 34%
      State, net of federal benefit                 0%                  0%
                                               ------              ------

      Effective tax rate                           34%                 34%
                                               ======              ======

NOTE L - OTHER COMPREHENSIVE INCOME

      Balances of related  after-tax  components  comprising  accumulated  other
      comprehensive income (loss), included in stockholders' equity, at June 30,
      2006 and December 31, 2005 are as follows:

                                      Foreign Currency        Accumulated Other
                                   Translation Adjustment   Comprehensive Income
                                   ----------------------   --------------------
      Balance at December 31, 2004        $142,453                $142,453
      Change for 2005                      223,931                 223,931
                                          --------                --------

      Balance at December 31, 2005         366,384                 366,384
      Change for 2006                       83,990                  83,990
                                          --------                --------

      Balance at June 30, 2006            $450,374                $450,374
                                          ========                ========

                                       18
<PAGE>
NOTE M - CONVERTIBLE NOTES

      On June 30, 2006, the Company sold a $400,000 convertible  promissory note
      to Cornell Capital Partners,  LP. The notes bears interest at 7% per annum
      and will mature two years after issuance.  A 20% redemption premium on the
      principal  amount  of the  Notes is due when  they  are  redeemed,  if the
      closing  bid price of the common  stock is less than the Fixed  Conversion
      Price.  The notes are convertible  into Common Stock based on at the lower
      of (a) $0.268 per share or (b) 95% of the lowest volume  weighted  average
      price of the Common Stock,  as reported by  Bloomberg,  LP, for the thirty
      (30) trading days preceding the conversion.  The Company bears $247,550 of
      selling expenses. For the six months ended June 30, 2006, the amortization
      of deferred offering cost was $0.

      In connection with this transaction, the Company issued to Cornell Capital
      Partners,  LP a five-year  warrant to purchase  1,000,000 shares of Common
      Stock at an exercise price of $0.001 per share. The Company  estimated the
      fair value of the  warrant  at  $120,000  by  using  Black-Scholes  option
      pricing model.  In accordance with EITF 00-27,  the Company  allocated the
      fair value of  $120,000  to the  warrant and the fair value of $280,000 to
      the  convertible  notes,  in  accordance  with relative fair value method.
      Based on the fair value of $280,000, the Company recognized the beneficial
      conversion  feature  of $0 in  accordance  with  the  market  price of the
      Company's common stock on each issuing date. Consequently, the convertible
      note of $400,000 had a total discount of $120,000. As of June 30, 2006, $0
      of  the  discount  related  to  warrant  and  $0 of  discount  related  to
      beneficial conversion feature have been amortized.

      On June 30, 2006, the Company amended and reissued the  convertible  notes
      (Original Notes)  originally issued to Highgate House Funds, Ltd on August
      17, 2005 and  December  16,  2005 in the  aggregrate  principal  amount of
      $250,000.  Each note bears  interest  at 7% per annum and will  mature two
      years after issuance.

      The above  notes are  secured  by  substantially  all of the assets of the
      Company  and its  direct  and  indirect  wholly-owned  subsidiaries,  City
      Technology,  Inc., City Network,  Inc.--Taiwan and City  Construction Co.,
      Ltd.

                                       19
<PAGE>
NOTE N - SHARE-BASED PAYMENTS

      Effective  January 1, 2006, the Company adopted the fair value recognition
      provisions  of SFAS No.  123R.  The  Company  recognized  the  share-based
      compensation  cost  based  on  the  grant-date  fair  value  estimated  in
      accordance  with the new provisions of SFAS No. 123R. As of June 30, 2006,
      the Company had outstanding  warrants to purchase 1,025,000 shares with an
      exercise price of $0.001 per share.

      The  fair  value  for the  share-based  awards  was  estimated  using  the
      Black-Scholes option pricing model with the assumptions listed below:

                                                         June 30,
                                                  -----------------------
                                                  2006               2005
                                                  ----               ----
      Expected volatility                    47.66 - 81.79%           --%
      Weighted average volatility            47.66 - 81.79%           --%
      Expected life (years)                    3.0 - 5.0              --
      Risk free interest rate                  3.55 - 4.69%           --%

      A summary  of stock  warrants  for the six months  ended June 30,  2006 is
      presented as follows:

                                                                     Weighted-
                                                      Weighted-       Average
                                                       Average       Remaining
                                                      Exercise      Contractual
           Stock Warrants                 Shares        Price      Term (Months)
           --------------                 ------        -----      -------------
      Outstanding at January 1, 2006       25,000      $ 0.001         19.33
      Granted                           1,000,000        0.001         60.00
      Exercised                                --
      Forfeited or expired                     --
                                        ---------      -------         -----
      Outstanding at June 30, 2006      1,025,000        0.001         53.00
                                        =========      =======         =====

      Exercisable at June 30, 2006      1,025,000      $ 0.001         53.00
                                        =========      =======         =====

                                       20
<PAGE>
NOTE O - DEBT

      At June 30, 2006 and  December  31,  2005,  the Company had notes  payable
      outstanding  in  the  aggregate   amount  of  $6,786,577  and  $4,792,898,
      respectively.  The notes are secured by the Company  real  properties  and
      time deposits, payable as follows:

<TABLE>
<CAPTION>
             June 30, 2006                                                 December 31, 2005
             -------------                                                 -----------------
<S>                                           <C>              <C>                                       <C>
Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 3.838% per annum,  due
October 8, 2006                                 $ 490,720       by October 8, 2006                         $ 487,040

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 3.838% per annum,  due
August 31, 2006                                   920,100       by August 31, 2006                           913,200

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 5.906% per annum,  due
January 12, 2007                                  122,680       by September 28, 2006                        232,483

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.894% per  annum,  due by                         interest at 3.838% per annum,  due
April 11, 2006                                    260,783       by January 27, 2006                           45,660

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.30%  per  annum,  due by                         interest at 3.838% per annum,  due
April 4, 2021                                   1,564,170       by February 3, 2006                           96,206

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 3.838% per annum,  due
June 16, 2007                                     422,976       by February 3, 2006                          123,693

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 3.838% per annum,  due
June 22, 2007                                     205,000       by February 17, 2006                         233,802

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.838% per  annum,  due by                         interest at 3.838% per annum,  due
July 13, 2006                                      63,101       by February 21, 2006                         219,739

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 3.894% per  annum,  due by                         interest at 3.838% per annum,  due
August 4, 2006                                    396,005       by February 25, 2006                          24,352

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 4.200% per  annum,  due by                         interest at 3.838% per annum,  due
January 24, 2012                                1,534,729       by March 3, 2006                              69,950

Note  payable  to  a   corporation   in                         Note  payable to a bank in Taiwan,
Taiwan,  no  interest,  due by February                         interest at 3.838% per annum,  due
10, 2010                                          484,985       by March 24, 2006                            295,919
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
<S>                                           <C>              <C>                                       <C>
Usance  letter of credit  payable  to a                         Note  payable to a bank in Taiwan,
bank in Taiwan,  interest  at 6.68% per                         interest at 3.838% per annum,  due
annum, due by September 21, 2006                  122,592       by April 1, 2006                             279,553

Usance  letter of credit  payable  to a                         Note  payable to a bank in Taiwan,
bank in Taiwan,  interest  at 6.68% per                         interest at 3.838% per annum,  due
annum, due by September 22, 2006                  159,719       by April 21, 2006                            435,872

Usance  letter of credit  payable  to a                         Note  payable to a bank in Taiwan,
bank in Taiwan,  interest  at 6.68% per                         interest at 3.838% per annum,  due
annum, due by September 27, 2006                   39,017       by April 28, 2006                            422,811

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by January 17, 2006                          339,950

                                                                Note payable to a  corporation  in
                                                                Taiwan,   no   interest,   due  by
                                                                February 10, 2010                            572,668
                                              -----------                                                -----------
Total                                           6,786,577                                                  4,792,898

Current portion                               $ 4,737,422                                                $ 4,220,230
                                              -----------                                                -----------

Long-term portion                             $ 2,049,155                                                $   572,668
                                              ===========                                                ===========
</TABLE>

NOTE P - 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.

      Andy Lai - As of June 30,  2006,  the Company  has a non  interest-bearing
      loan from Andy Lai, a former shareholder of the Company,  in the amount of
      $12,716.

      Stella Tseng - As of June 30, 2006, the Company has a non interest-bearing
      loan from Stella  Tseng,  a shareholder  of the Company,  in the amount of
      $980,379.

NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amounts of cash and cash  equivalents,  accounts  receivable,
      deposits and accounts payable  approximate their fair value because of the
      short maturity of those instruments.

      The carrying  amounts of the Company's  long-term debt  approximate  their
      fair value because of the short maturity  and/or  interest rates which are
      comparable to those currently available to the Company on obligations with
      similar terms.

                                       22
<PAGE>
NOTE R - SEGMENT REPORTING

      The  Company  has  two  principal  operating  segments  which  are (1) the
      production  of  broadband   communication  and  wireless  Internet  access
      products,  (2) other,  including building constructions and procurement of
      material and equipment related to construction.  These operating  segments
      were  determined  based on the nature of the products  offered.  Operating
      segments are defined as components of an enterprise  about which  separate
      financial  information  is available  that is  evaluated  regularly by the
      chief operating  decision-maker in deciding how to allocate  resources and
      in assessing performance.  The Company's chief executive officer and chief
      financial  officer have been  identified as the chief  operating  decision
      makers.   The  Company's  chief  operating   decision  makers  direct  the
      allocation of resources to operating  segments based on the profitability,
      cash flows, and other measurement factors of each respective segment.

      The Company has  determined  that  broadband  communication  and  wireless
      Internet  access  products  is a  reportable  segment  as  they  meet  the
      quantitative   thresholds  under  Financial   Accounting  Standards  Board
      Statement No. 131 (Disclosures about Segments of an Enterprise and Related
      Information).

      The Company evaluates  performance based on several factors,  of which the
      primary  financial  measure is business  segment income before taxes.  The
      Company's  construction  operating segment is currently in the development
      stage  and  has no  revenues.  The  accounting  policies  of the  business
      segments  are  the  same  as  those  described  in  "Note  A:  Summary  of
      Significant  Accounting  Policies."  The table on the following page shows
      the operations of the Company's reportable segments:

<TABLE>
<CAPTION>
                                              Broadband
                                            communication
                                             and wireless
                                           Internet access
      Six Months Ended June 30, 2006          products         Other (1)      Consolidated
      ------------------------------          --------         ---------      ------------
<S>                                         <C>                   <C>         <C>
      Sales to unaffiliated customers       $  3,178,320          $ -0-       $  3,178,820
      Intersegment sales                             -0-            -0-                -0-
      Net sales                                3,178,320            -0-          3,178,820
      Income (loss) before taxes                 (14,927)      (425,423)          (440,350)
      Total assets (2)                        11,116,041      7,434,532         18,550,573
      Property additions (3)                   1,697,974          9,309          1,707,283
      Interest expense                           103,851         18,108            121,959
      Interest revenue                             1,181         17,470             18,651
      Depreciation and amortization (3)           96,521            -0-             96,521
</TABLE>

                                       23
<PAGE>
NOTE S - SEGMENT REPORTING (Continued)

     (1)  Revenue  from   segments   below  the   quantitative   thresholds   is
          attributable to two operating segments of the Company.  Those segments
          include  building   constructions  and  procurement  of  material  and
          equipment related to construction. None of those segments has ever met
          any  of  the  quantitative   thresholds  for  determining   reportable
          segments.

     (2)  Total business  assets are the owned or allocated  assets used by each
          business.  Corporate  assets  consist  of cash and  cash  equivalents,
          unallocated fixed assets of support  divisions and common  facilities,
          and certain other assets.

     (3)  Corporate property additions and depreciation and amortization expense
          include items  attributable to the unallocated fixed assets of support
          divisions and common facilities.

      Also,  because all of the  Company's  sales are derived  from the sales of
      products outside of the United States,  all long-lived  assets are located
      outside the United States.

NOTE T - LEGAL PROCEEDINGS

      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  NT$27,313,003  or US$837,690.  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
      $670,152. 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$830,000. In January 27 2006, the court reached
      a verdict  and found  three  individuals  guilty of fraud and  another two
      individuals  not guilty.  In connection  with the  litigation  against the
      other three individuals, the court has not yet reached a verdict.

      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$178,169 to cover the  outstanding  account payable owed by Hwa-Ching to
      the Company.  In November 2005,  Taipei District Court reached judgment in
      favor of defendant.  The Company filed appeal to Taiwan High Court. During
      the appeal,  the Company  reduced the claimed  amount to  NT$3,796,000  or
      US$116,689 after Tain-Kang provided proof of payments of NT$2,000,000.  To
      date, the court has not yet ruled on this case.

      On October 10, 2004, RPPI International  Ltd. (or Rong-Dian),  a vendor of
      the  Company,  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

                                       24
<PAGE>
NOTE T - LEGAL PROCEEDINGS (Continued)

      NT$27.3 million or US$840,000 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$396,546.

      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$840,000 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$15,370  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$24,992.  As of June 30,
      2006,  approximately NT$4 million, or approximately  US$168,685,  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.

      On November 24, 2005,  the Company  entered a  settlement  agreement  with
      Shanghai  Bank and the  district  court  lifted the  lawsuit  against  the
      Company. In the settlement agreement,  City Network Inc.- Taiwan agreed to
      pay Shanghai  Bank a total of  NT$5,100,000  or US$  155,244.  In December
      2005,  City  Network,  Inc.- Taiwan paid  Shanghai  Bank  NT$1,100,000  or

                                       25
<PAGE>
NOTE T - LEGAL PROCEEDINGS (Continued)

      US$33,484.  City  Network,  Inc.-  Taiwan  intends  to pay the  balance of
      NT$4,000,000  or US$121,760 to Shanghai Bank in 4 separate  checks.  These
      checks will be payable each 2 months,  beginning on February 25, 2006.  As
      of June 30,  2006,  NT$4,100,000  or US  $125,747  has  been  paid on this
      liability.

NOTE R- GOING CONCERN

      The  Company  has  suffered   recurring  losses  from   operations,   cash
      deficiencies  and the inability to meet its maturing  obligations  without
      borrowing from related parties and restructuring  debts.  These issues may
      raise  substantial  concern  about  its  ability  to  continue  as a going
      concern.

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

      The Company is currently engaged in discussions with a number of companies
      regarding strategic  acquisitions or potential financings.  Although these
      discussions  are  ongoing,  there  can be no  assurance  that any of these
      discussions  will result in actual  acquisitions or a completed  financing
      for the Company.


                                     ******

                                       26
<PAGE>
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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.

                                       27
<PAGE>
BACKGROUND OF THE COMPANY

     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  Co., Ltd. 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".

     The  Company  designs,  manufactures  and markets a  comprehensive  line of
broadband  communication  and wireless  Internet  access  product and solutions.
Also, the broadband  communication  product line includes VOIP, GUI-based remote
management  and routing  technology  software  packages  for  simplified  setup,
extensive network management and global network connectivity capabilities,  Home
PNA and xDSL broadband access equipment,  ADSL/VDSL ACCESS DEVICES,  HPNA ACCESS
DEVICES, FTTB (Fiber to the Building) and FTTH (Fiber to the Home), PCMCIA cards
and USB adapters.  The other wireless internet access solutions are used in both
individual and corporate settings.

     In  addition,  the  Company  plans to  develop  and  build  commercial  and
residential buildings,  industry factory buildings,  and professional buildings.
The Company has entered  co-construction  agreements for the development of land
in Keelung,  Taiwan and the purchase of materials with a company in Vietnam,  as
further described in Part I herein, in the notes to the financial statements.

     The Company has also focused on the sales of LCD panels.

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

     We have suffered  recurring losses from operations,  cash  deficiencies and
the inability to meet our maturing  obligations  without  borrowing from related
parties and  restructuring  debts.  These issues may raise  substantial  concern
about our ability to continue as a going concern.

     We are  currently  engaged  in  discussions  with  a  number  of  companies
regarding  strategic  acquisitions  or  potential  financings.   Although  these
discussions are ongoing, there can be no assurance that any of these discussions
will result in actual acquisitions or a completed financing for us.

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.

                                       28
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2005

     NET SALES. Net sales for the three months ended June 30, 2006 were $597,758
compared to $3,599,366 for the three months ended June 30, 2005. The decrease in
net sales for the three  months  ended June 30,  2006 was due to a  decrease  in
demand for our products.

     COST OF SALES.  Cost of sales for the three  months ended June 30, 2006 was
$452,463 or 75.7% of net sales, as compared to $3,377,970 or 93.8% of net sales,
during  the three  months  ended  June 30,  2005.  The  decrease  was due to the
decrease  of net sales.  The  decrease in the cost of sales as a  percentage  of
revenue was due to increased sales of higher-margin products.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
were  $534,576 or 89.4% of net sales,  for the three months ended June 30, 2006,
as compared to $376,241 or 10.5% of net sales,  for the three  months ended June
30,  2005.  The increase was due to an increase in  professional  expenses.  The
increase in general and administrative  expenses as a percentage of net sales is
due to the decrease of sales and fixed  overhead that cannot readily be reduced,
including salary, rent, and depreciation.

     LOSS FROM OPERATIONS.  Loss from operations for the three months ended June
30, 2006 was  $(389,281),  compared to loss from operations for the three months
ended June 30, 2005 of $(154,845).  The increase in loss from operations for the
three  months ended June 30, 2006  compared  with loss from  operations  for the
three  months ended June 30, 2005  resulted  primarily  from  reasons  primarily
described above.

     OTHER (INCOME) EXPENSE.  Other (income) expense was $(54,459) for the three
months ended June 30, 2006,  as compared to $(35,303) for the three months ended
June 30, 2005.  This change was the result of the increase of equity in earnings
of investee.

     NET LOSS.  Net loss for three  months  ended June 30,  2006 was  $(334,822)
compared to net loss of $(119,720) for the three months ended June 30, 2005. The
change in net loss was due to the reasons described above.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2005

     NET SALES. Net sales for the six months ended June 30, 2006 were $3,178,820
compared to $4,892,716  for the six months ended June 30, 2005.  The decrease in
net sales for the six months ended June 30, 2006 was due to a decrease in demand
for our products.

     COST OF SALES.  Cost of sales for the six months  ended  June 30,  2006 was
$2,852,618  or 89.7% of net sales,  as  compared to  $4,633,010  or 94.7% of net
sales,  during the six months ended June 30, 2005. 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 was due to increased sales of higherer-margin products.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
were $893,469, or 28.1% of net sales, for the six months ended June 30, 2006, as
compared to $699,386,  or 14.3% of net sales,  for the six months ended June 30,

                                       29
<PAGE>
2005. The increase was due to an increase in professional expenses. The increase
in general and  administrative  expenses as a percentage  of net sales is due to
the  decrease  of sales and fixed  overhead  that  cannot  readily  be  reduced,
including salary, rent, and depreciation.

     INCOME  (LOSS) FROM  OPERATIONS.  Loss from  operations  for the six months
ended June 30, 2006 was  $(567,267),  compared to income from operations for the
six months ended June 30, 2005 of $(439,680).  The loss from  operations for the
six months ended June 30, 2006 compared with income from  operations for the six
months  ended  June  30,  2005  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 $(126,917) for the six
months  ended June 30,  2006,  as compared to $703,748  for the six months ended
June 30, 2005.  This change was the result of the increase of equity in earnings
of investee, commission income and other income, and the decrease in reserve for
bad debt.

     NET  LOSS.  Net loss for six  months  ended  June 30,  2006 was  $(440,350)
compared to income of  $(1,143,606)  for the six months ended June 30, 2005. The
net loss for the six months ended June 30, 2006 compared with income for the six
months ended June 30, 2005 was due to the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2006 and December 31, 2005, we had cash and cash equivalents of
$30,889 and $856,587,  respectively.  Our current assets totaled  $10,553,083 at
June 30, 2006 as compared to $9,639,735 at December 31, 2005.  Our total current
liabilities  were  $11,415,307  at June 30, 2006 as compared to  $10,272,005  at
December  31,  2005.  Working  capital  at June  30,  2006  was  $(862,224)  and
$(632,270) at December 31, 2005.  For the six months ended June 30, 2006,  total
cash used in  operations  was  $(150,372)  as compared  to net cash  provided by
operations  of $(890,388)  during the same period in 2005.  Net cash provided by
financing activities was $1,871,544,  which consisted of loans, as compared with
net cash used in financing  activities of $(678,702) during the six months ended
June 30, 2005.

WORKING CAPITAL REQUIREMENTS

     Our  operations  and short term  financing do not  currently  meet our cash
needs.  We  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.  Several  potential  investors have already
shown their interest to invest in our company.

FACTORS THAT INTERRUPT OUR OPERATIONS

    Our major risk is incurring a large amount of bad debt.  Our  short-term and
long-term liquidity may be influenced by uncollected account 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, such as
preparing accounts receivable aging reports each week and collecting the overdue
invoices.  We will try to diversify  our customer  base and control  credit risk
related to accounts  receivable  through  credit  approvals,  credit  limits and

                                       30
<PAGE>
monitoring  procedures.  Although we have already  taken these  measures,  it is
still possible to incur a large amount of bad debt.

     Financial  instruments that  potentially  subject us to  concentrations  of
credit risk are cash, accounts receivable and other receivables arising from its
normal  business  activities.  We  place  our  cash  in what  we  believe  to be
credit-worthy financial institutions.  We have a diversified customer base, most
of which are  related  parties.  We control  credit  risk  related  to  accounts
receivable through credit approvals, credit limits and monitoring procedures. We
routinely assess the financial strength of our customers and, based upon factors
surrounding  the  credit  risk,  establish  an  allowance,   if  required,   for
un-collectible  accounts  and,  as a  consequence,  believe  that  our  accounts
receivable credit risk exposure beyond such allowance is limited.

     CAPITAL  EXPENDITURES.  Total  capital  expenditures  during the six months
ended June 30, 2006 were  $1,707,283  compared  to  $194,717  for the six months
ended June 30, 2005.

     CONSTRUCTION.  The Company has begun the  development  of its  construction
business.  The Company  plans to develop and build  commercial  and  residential
buildings, industry factory buildings, and professional buildings.

OFF-BALANCE SHEET ARRANGEMENTS

     We do not have any off-balance sheet arrangements.

ITEM 3.  CONTROLS AND PROCEDURES

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including  our Chief  Executive  Officer  and the  Chief  Financial
Officer,  the Company conducted an evaluation of the effectiveness of the design
and operation of its  disclosure  controls and  procedures,  as defined in Rules
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934, as amended,
as of the end of the period  covered by this  report  (the  "Evaluation  Date").
Based on this  evaluation,  our Chief Executive  Officer and the Chief Financial
Officer  concluded  as of the  Evaluation  Date  that the  Company's  disclosure
controls  and  procedures  were  effective  such that the  material  information
required to be included in our SEC reports is  recorded,  processed,  summarized
and reported  within the time periods  specified in SEC rules and forms relating
to the Company, including our consolidating subsidiaries,  and was made known to
them by others within those entities,  particularly  during the period when this
report was being prepared.

                                       31
<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.

     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$178,169  to cover the  outstanding  account  payable owed by Hwa-Ching to the
Company.  In November 2005,  Taipei District Court reached  judgment in favor of
defendant. The Company filed appeal to Taiwan High Court. During the appeal, the
Company reduced the claimed amount to NT$3,796,000 or US$116,689 after Tain-Kang
provided proof of payments of NT$2,000,000. To date, the court has not yet ruled
on this case.

ITEM 2. UNREGISTERED SALES OF EQUITY 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.

                                       32
<PAGE>
ITEM 6. EXHIBITS

     (a) Exhibits:

         No.                              Description
         ---                              -----------
        31.1    Certification  of  Chief  Executive  Officer  pursuant  to  Rule
                13a-14(a)/15d-14(a)  of the Securities  Exchange Act of 1934, as
                adopted  pursuant  to Section 302 of the  Sarbanes-Oxley  Act of
                2002, filed herewith.

        31.2    Certification  of the Chief Financial  Officer  pursuant to Rule
                13a-14(a)/15d-14(a)  of the Securities  Exchange Act of 1934, as
                adopted  pursuant  to Section 302 of the  Sarbanes-Oxley  Act of
                2002, filed herewith.

        32.1    Certification  of Chief Executive  Officer pursuant to 18 U.S.C.
                1350  (Section  906 of the  Sarbanes-Oxley  Act of 2002),  filed
                herewith.

        32.2    Certification  of Chief Financial  Officer pursuant to 18 U.S.C.
                1350  (Section  906 of the  Sarbanes-Oxley  Act of 2002),  filed
                herewith.

                                       33
<PAGE>
                                   SIGNATURES

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

                                         CITY NETWORK, INC.


Dated: August 21, 2006                   By: /s/ Alice Chen
                                            ------------------------------------
                                            Alice Chen
                                            Chief Executive Officer
                                           (Principal Executive Officer)


Dated: August 21, 2006                   By: /s/ Yun-Yi Tseng
                                            ------------------------------------
                                            Yun-Yi Tseng
                                            Chief Financial Officer
                                           (Principal Financial Officer)

                                       34