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: September 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 November 28, 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............  33

     Item 5. Other Information..............................................  33

     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>
                                                   September 30, 2006      December 31, 2005
                                                   ------------------      -----------------
                                                       (Unaudited)           (As Adjusted)
<S>                                                    <C>                    <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                            $    41,429            $   853,964
  Accounts receivable, net                                 851,702              4,341,218
  Inventories                                              645,282                252,608
  Other receivables                                      1,243,939                234,176
  Prepayment                                             1,105,685              3,451,482
  Short-term assets - discountinued operation                   --                530,073
                                                       -----------            -----------
      TOTAL CURRENT ASSETS                               3,888,037              9,663,521
                                                       -----------            -----------

PROPERTY, PLANT AND EQUIPMENT                            4,085,259              2,243,214
                                                       -----------            -----------
OTHER ASSETS:
  Deposits                                                 123,388                180,915
  Cash held for compensating balances                           --              1,380,992
  Intangible assets                                        865,679                925,074
  Deferred assets                                          334,585                148,208
  Equity in net assets of affilaiated company              728,769                790,842
  Other assets - discountinued operation                        --                322,664
                                                       -----------            -----------
      TOTAL OTHER ASSETS                                 2,052,421              3,748,695
                                                       -----------            -----------

TOTAL ASSETS                                           $10,025,717            $15,655,430
                                                       ===========            ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                         September 30, 2006      December 31, 2005
                                                         ------------------      -----------------
                                                             (Unaudited)           (As Adjusted)
<S>                                                          <C>                    <C>
                      LIABILITIIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                      $  1,269,906           $  1,342,037
  Convertible note payable, net                                        --                250,000
  Due to related party                                          1,199,083              1,131,494
  Deferred revenue                                                  8,083              3,027,079
  Current portion, long-term debt                               2,007,499              4,220,230
  Short-term liabilities - discountinued operation                     --                301,165
                                                             ------------           ------------
      TOTAL CURRENT LIABILITIES                                 4,484,571             10,272,005
                                                             ------------           ------------

NON-CURRENT LIABILITIES:
  Convertible note payable, net                                   545,000                     --
  Long-term debt, net of current portion                        3,532,466                572,668
                                                             ------------           ------------
      TOTAL NON-CURRENT LIABILITIES                             4,077,466                572,668

TOTAL LIABILITIES                                               8,562,037             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                                      435,265                366,384
  Accumulated deficit                                          (5,287,531)            (1,746,073)
                                                             ------------           ------------
      TOTAL CAPITAL AND RETAINED DEFICIT                        1,463,680              4,810,757

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

Total Stockholders' Equity                                      1,463,680              4,810,757
                                                             ------------           ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 10,025,717           $ 15,655,430
                                                             ============           ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                Three Months Ended September 30,      Nine Months Ended September 30,
                                                -------------------------------       -------------------------------
                                                    2006               2005               2006               2005
                                                ------------       ------------       ------------       ------------
                                                                   (As Adjusted)                         (As Adjusted)
<S>                                             <C>                <C>                <C>                <C>
Sales, net                                      $  3,916,705       $  3,784,392       $  7,095,525       $  8,677,108

Cost of sales                                      4,369,434          3,427,726          7,222,052          8,060,736
                                                ------------       ------------       ------------       ------------

      Gross Profit                                  (452,729)           356,666           (126,527)           616,372

General and administrative expenses                1,046,465            483,047          1,892,877          1,131,776
                                                ------------       ------------       ------------       ------------

      Income (loss) from operations               (1,499,194)          (126,381)        (2,019,404)          (515,404)
                                                ------------       ------------       ------------       ------------
Other (Income) Expense
  Interest income                                    (19,133)            (3,543)           (20,317)            (5,598)
  Rental income                                          340            (46,575)           (61,720)          (142,155)
  Commission income                                      544                303            (98,752)           (35,488)
  (Gain) Loss on currency exchange                       (68)            (1,346)            12,400             11,889
  Other income                                        (1,601)           (31,938)          (117,612)           (88,177)
  Reserve for bad debt                             1,220,630             (5,900)         1,258,171            690,254
  Equity in earnings of investee                     110,033             15,870             62,072             25,993
  Loss on  physical inventory                           (234)                --             42,660                 --
  Miscellaneous                                      204,905             (3,704)           210,197              8,953
  (Gain) Loss on sale of fixed assets                      5               (679)              (719)             79301
  Interest expense                                    49,338             22,934            171,296            104,230
                                                ------------       ------------       ------------       ------------

      Total other (income) expense                 1,564,759            (54,578)         1,457,676            649,202
                                                ------------       ------------       ------------       ------------

      Income (Loss) before income taxes           (3,063,953)           (71,803)        (3,477,080)        (1,164,606)

Provision for income taxes                                --                161                 --                339
                                                ------------       ------------       ------------       ------------

Loss from continuing operation                    (3,063,953)           (71,964)        (3,477,080)        (1,164,945)
                                                ------------       ------------       ------------       ------------

Income (Loss) from discontinued operation             10,983            (25,313)            31,275            (75,938)
Loss on disposal of discontinued operation           (95,653)                --            (95,653)                --
                                                ------------       ------------       ------------       ------------

Net loss                                        $ (3,148,623)      $    (97,277)      $ (3,541,458)      $ (1,240,883)
                                                ============       ============       ============       ============

Income (Loss) per share - basic and diluted     $      (0.11)      $         --       $      (0.12)      $      (0.04)
                                                ============       ============       ============       ============
  Continuing operationgs - basic and diluted    $      (0.11)      $         --       $      (0.12)      $      (0.04)
                                                ============       ============       ============       ============
  Discontinued operation - basic and diluted    $         --       $         --       $         --       $         --
                                                ============       ============       ============       ============
Weighted average number of shares
  Basic                                           28,521,728         27,925,720         28,521,728         27,925,720
  Diluted                                         28,521,728         27,925,720         28,521,728         27,925,720
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended September 30,
                                                                                 ---------------------------------
                                                                                    2006                  2005
                                                                                 -----------           -----------
                                                                                                       (As Ajusted)
<S>                                                                              <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (Loss)                                                              $(3,541,458)          $(1,316,821)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Depreciation and amortization                                                   143,084               134,330
     Equity in earnings of investee                                                   62,072                25,993
     Bad debt                                                                      1,258,171                    --
     (Gain) Losses on disposal of fixed assets                                          (720)               79,301
     Loss on physical inventory                                                       42,660                    --
     Loss (Gain) on foreign currency exchange                                             --                11,889
     (Income) Loss from discontinued operation                                       (31,275)               75,938
     Loss on disposal of discontinued operation                                       95,653                    --
     Decrease (Increase) in receivables                                            2,273,493               196,964
     Decrease (Increase) in other receivables                                       (995,120)             (127,674)
     Decrease (Increase) in inventory                                               (445,297)             (163,945)
     Decrease (Increase) in construction in progress                                      --              (234,760)
     Decrease (Increase) in prepayment and other current assets                    1,937,705            (1,685,953)
     Increase (Decrease) in accounts payable and accrued expenses                    419,506            (1,944,445)
     (Decrease) Increase in deferred revenue                                              --             2,879,030
     (Decrease) Increase in other liabilities                                     (3,102,747)             (109,090)
     Cash provided by (used in) operating activities - discontinued operation        525,788               333,789
                                                                                 -----------           -----------
         Total Adjustments                                                         2,182,973              (528,633)
                                                                                 -----------           -----------

         Net cash provided by (used in) operating activities                      (1,358,485)           (1,845,454)
                                                                                 -----------           -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from disposal of investment                                               200,000                    --
  Proceeds from disposal of property, plant and equipment                             42,608               397,222
  Purchase on investment                                                                  --                    --
  Purchases of property, plant and equipment                                      (1,688,671)             (193,310)
  Decrease (Increase) in deposit                                                      57,452                23,443
  Increase in short-term investments                                                      --                    --
  Payment on deferred assets                                                        (150,253)                   --
  Decrease in other assets                                                         1,400,047                    --
  Cash used in operating activities - discontinued operation                        (327,116)           (1,434,988)
                                                                                 -----------           -----------

         Net cash provided by (used in) investing activities                        (465,933)           (1,207,633)
                                                                                 -----------           -----------
</TABLE>

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                                           ---------------------------------
                                                                              2006                  2005
                                                                           -----------           -----------
                                                                                                (As Adjusted)
<S>                                                                        <C>                   <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term borrowings                                      $ 3,871,909           $ 6,545,154
  Payment on notes payable                                                  (6,101,032)           (5,773,762)
  Payment of loan from related party                                                --                (6,293)
  Loan from related party                                                      406,920               710,815
  Proceeds from long-term debts                                              3,025,514               125,000
                                                                           -----------           -----------

         Net cash provided by (used in) financing activities                 1,203,311             1,600,914
                                                                           -----------           -----------

Effect of exchange rate change on cash                                        (194,011)              268,055

Net change in cash and cash equivalents                                       (815,158)           (1,184,118)
                                                                           -----------           -----------

Cash and cash equivalents at beginning of year                                 853,964             2,007,970
Cash and cash equivalents at beginning of year - discontinued operation          2,623                 2,674
                                                                           -----------           -----------

Cash and cash equivalents at end of year                                   $    41,429           $   826,526
                                                                           ===========           ===========
Components of cash and cash equivalents, end of period
  From discontinued operation                                              $        --           $     1,093
  From continuing operations                                                    41,429               825,433

Supplemental cash flows disclosures:
  Income tax payments                                                      $        --           $       178
                                                                           ===========           ===========
  Interest payments                                                        $   146,506           $    99,859
                                                                           ===========           ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                       September 30, 2006      December 31, 2005
                                                                       ------------------      -----------------
                                                                           (Unaudited)           (As Adjusted)
<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                                                  68,881                223,931
                                                                          ------------           ------------

  Balance at end of period                                                     435,265                366,384
                                                                          ------------           ------------
Retained earnings (deficits)
  Balance at beginning of period                                            (1,746,073)              (712,383)
  Net income (loss)                                                         (3,541,458)            (1,033,690)
                                                                          ------------           ------------

  Balance at end of period                                                  (5,287,531)            (1,746,073)
                                                                          ------------           ------------

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

Total stockholders' equity at end of period                               $  1,463,680           $  4,810,757
                                                                          ============           ============
</TABLE>

                                       8
<PAGE>
                       CITY NETWORK, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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  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. Collectively the three 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.

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 nine  months  ended  September  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)

     DISCONTINUED OPERATION

     On  August  31,  2006,   the  Company  sold  its  100%   interest  in  City
     Construction,  Inc by entered into an agreement with two  individuals  (the
     Buyer).  The Company  sold its 100%  interest in City  Construction  to the
     buyer for  $200,000.  The assets sold  consisted  primarily of cash,  trade
     accounts receivable, short-term investments, construction-in-progress,  and
     other current assets.  The buyer also assumed all the outstanding  debts of
     City  Construction.  The control of City  Construction  has been officially
     taken  over by the  Buyer  based  on the  fact  that  the  full  amount  of
     consideration of $200,000 has been received by the Company, the application
     of changing ownership signed by both parties has been filed with a relevant
     government  agency, and the share certificate of City Construction has been
     surrendered to the Buyer.

     Under the  provisions of SFAS No. 144,  "Accounting  for the  Impairment or
     Disposal of Long-Lived  Assets" (FAS 144),  the  financial  results of City
     Construction are classified as discontinued  operations in the accompanying
     Consolidated Statements of Earnings for all periods presented.

     Operating  results of the  discontinued  operations  which excluded loss on
     disposal were as follows:

<TABLE>
<CAPTION>
                       Three Months Ended September 30,       Nine Months Ended September 30,
                       --------------------------------       -------------------------------
                           2006                2005              2006                2005
                        ----------          ---------         ----------          ----------
<S>                     <C>                 <C>               <C>                 <C>
     Net sales          $  269,408          $       --        $1,042,642          $       --
     Total revenues        269,408                  --         1,042,642                  --
     Pretax income          10,983             (25,313)           31,275             (75,938)
</TABLE>

     As  of  December  31,  2005,   assets  and  liabilities  of  the  Company's
     discontinued   operations   were  classified  as  held  for  sales  in  the
     accompanying  Consolidated  Balance  Sheet  under the  following  captions:
     Short-term assets- discontinued  operation,  Long-term assets- discontinued
     operation,  short-term liabilities-  discontinued operation,  and Long-term
     liabilities-   discontinued   operation.   The   discontinued   assets  and
     liabilities at December 31, 2005 were composed of as follows:

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

     DISCONTINUED OPERATION (Continued)

                                                                  December 31,
                                                                     2005
                                                                   --------
     Short-term assets -- discontinued operation
       Cash                                                        $  2,623
       Trade receivables                                             29,892
       Other receivables                                              7,128
       Construction in progress                                     441,891
       Prepayment                                                    48,539
                                                                   --------
           Total                                                    530,073

     Other assets -- discontinued operation
       Deposits                                                     322,664
                                                                   --------

           Total assets -- discontinued operation                   $852,737
                                                                   ========
     Short-term liabilities -- discontinued operation
       Accounts payable and accrued expense                        $129,830
       Deferred revenue                                             171,335
                                                                   --------
           Total liabilities                                       $301,165
                                                                   ========

     The Company  assessed  the loss on disposal of  discontinued  operation  as
     follows:

     Carrying value of investment in City Construction
      at August 30, 2006                                           $295,653
     Proceeds expected to receive                                   200,000
                                                                   --------

     Disposal expense                                                     0
                                                                   --------

     Loss on disposal of discontinued operation                    $ 95,653
                                                                   ========

                                       11
<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,  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.

                                       12
<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 nine months period ended September 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 September 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.

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

     TRANSLATION ADJUSTMENT

     The  accounts  of  City  Network,  Inc.-  Taiwan  was  maintained,  and its
     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 September  30, 2006 and December 31, 2005 the exchange  rates between
     NTD and the USD were NTD$1=USD$0.03023 and NTD$1=USD$0.03044, respectively.
     The   weighted-average   rates  of  exchange   between  NTD  and  USD  were
     NTD$1=USD$0.03086   and  NTD$1=USD$0.03117  for  the  period  (year)  ended
     September 30, 2006 and December 31, 2005,  respectively.  Total translation
     adjustment  recognized  as of  September  30, 2006 and December 31, 2005 is
     $435,265 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 September 30, 2006,  inventory consisted
     only of finished goods.

                                       14
<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.

                                       15
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     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 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

                                       16
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     NEW ACCOUNTING PRONOUNCEMENTS (Continued)

     Interpretation  is effective for fiscal years  beginning after December 15,
     2006, with earlier adoption permitted.  The company is currently evaluating
     the provisions of FIN 48.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
     Standards (SFAS) No. 157, Fair Value  Measurement,  which provides guidance
     for  applying  the   definition   of  fair  value  to  various   accounting
     pronouncements.  SFAS 157 is effective for financial  statements issued for
     fiscal years  beginning  after  November 15, 2007. The Company is currently
     evaluating the provisions of SFAS 157.

     In September 2006, the FASB also issued SFAS No. 158, Employers' Accounting
     for Defined Benefit Pension and Other Postretirement Plans. SFAS 158 amends
     SFAS 87, 88,  106,  and 132R,  and  requires  employers  to  recognize  the
     overfunded or underfunded status of defined benefit postretirement plans as
     an asset or liability in its statement of financial position.  SFAS No. 158
     is effective as of the end of fiscal years ending after  December 15, 2006.
     SFAS 158 is not  applicable  to the Company,  as it does not have a defined
     benefit pension plan.

     In September  2006,  the Securities  and Exchange  Commission  issued Staff
     Accounting  Bulletin 108 ("SAB 108"),  Considering the Effect of Prior Year
     Misstatements when Quantifying  Misstatements in the Current Year Financial
     Statements,  that addresses how uncorrected errors in previous years should
     be  considered  when  quantifying  errors  in the  current  year  financial
     statements.  SAB 108 is effective for fiscal years ending November 15, 2006
     and,  upon  adoption,  companies  are  allowed to record  the  effects as a
     cumulative-effect  adjustment to retained earnings.  The Company will adopt
     SAB 108 for its fiscal year ending  December 31, 2006 and is assessing what
     impact, if any, the adoption of SAB 108 will have on its financial position
     and results of operations.

NOTE C - CONCENTRATION

     The Company had two major customers  during the nine months ended September
     30, 2006.  Sales to these customers were  approximately  $4,729,821.  Those
     customers  comprise  67% of the total sales  during the nine  months  ended
     September  30,  2006.  Included in  accounts  receivable  is  approximately
     $1,510,549 from these customers as of September 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  $30,230.  As of  September  30,  2006,  there  was $0 in
     uninsured balances held at these banks.

                                       17
<PAGE>
NOTE E - FIXED ASSETS

     Fixed assets consist of the following:

                                      September 30, 2006       December 31, 2005
                                      ------------------       -----------------
     Land                                $ 3,258,939              $ 1,909,023
     Building and improvements               584,180                       --
     Other equipment                         481,374                  525,077
                                         -----------              -----------
                                         $ 4,324,493              $ 2,434,100

     Accumulated depreciation               (239,234)                (190,886)
                                         -----------              -----------

                                         $ 4,085,259              $ 2,243,214
                                         ===========              ===========

NOTE F - INTANGIBLE ASSETS

     Intangible assets consist of the following:

                                     September 30, 2006        December 31, 2005
                                     ------------------        -----------------
     Trademarks                          $     2,207              $     2,222
     Intangible asset                      1,058,050                1,065,400
                                         -----------              -----------
                                         $ 1,055,843              $ 1,067,622

     Accumulated amortization               (190,164)                (142,548)
                                         -----------              -----------

                                         $   865,679              $   925,074
                                         ===========              ===========

NOTE G - COMMITMENTS

     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 nine months  ended  September  30,  2006.  The
     Company has future minimum lease obligations as follows:

           Twelve-month ended
             September 30,                  Amount
             -------------                  ------
                2007                       $27,207
                                           -------
                Total                      $27,207
                                           =======

                                       18
<PAGE>
NOTE H - 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
     September  30,  2006,  the Company  recognized a loss of $62,072 from their
     acquisition.

NOTE I - COMPENSATED ABSENCES

     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  September  30,  2006
     vacation liability existed in the amount of $0.

NOTE J - INCOME TAXES

     Total  Federal  and State  income tax  expense  for the nine  months  ended
     September  30, 2006 and 2005 were both  amounted to $0. For the nine months
     ended  September  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:

      09/30/06         U.S.           State         International        Total
      --------         ----           -----         -------------        -----
      Current         $    0          $    0           $    0           $    0
      Deferred             0               0                0                0
                      ------          ------           ------           ------

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

      09/30/05         U.S.           State         International        Total
      --------         ----           -----         -------------        -----
      Current         $    0          $    0           $  178           $  178
      Deferred             0               0                0                0
                      ------          ------           ------           ------

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

                                       19
<PAGE>
NOTE J - INCOME TAXES (Continued)

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

                                              09/30/06            09/30/05
                                              --------            --------
      Federal statutory tax rate                   34%                 34%
      State, net of federal benefit                 0%                  0%
                                               ------              ------

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

NOTE K - OTHER COMPREHENSIVE INCOME

     Balances  of related  after-tax  components  comprising  accumulated  other
     comprehensive income (loss), included in stockholders' equity, at September
     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                     $ 68,881                 $ 68,881
                                         --------                 --------

     Balance at September 30, 2006       $435,265                 $435,265
                                         ========                 ========

NOTE L - 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)  ninety-five  percent (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 nine months ended September 30, 2006,
     the amortization of deferred offering cost was $30,944.

     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 exercises price of $0.001 per share. The Company  estimated the
     fair value of the warrants  attached to the promissory  note 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 warrants issued 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

                                       20
<PAGE>
NOTE L - CONVERTIBLE NOTES (Continued)

     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  September  30, 2006,  $15,000 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. The Company is currently in default of this  security  agreement  (see
     Note M).

NOTE M - CONVERTIBLE NOTES SECURITY AGREEMENT DEFAULT

     On June 30, 2006, the Company sold a $400,000  convertible  promissory note
     to Cornell Capital  Partners,  LP, and amended and reissued the convertible
     notes originally issued to Highgate House Funds, Ltd on August 17, 2005 and
     December 16, 2005 in the aggregate  principal  amount of $250,000 (Note L).
     These 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. However,
     on  August  31,  2006,   the  Company  sold  its  100%   interest  in  City
     Construction,  Inc.  without  consent  of the  note  holders.  Based on the
     security agreement in connection with the above convertible notes, the note
     holders  are  entitled  to receive  all  distribution  with  respect to the
     pledged property. As of September 30, 2006, and the date of this report, no
     such demand has been made.

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 September 30,
     2006,  the Company had  outstanding  warrants  totaling  1,025,000  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:

                                                      September 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%            --%

                                       21
<PAGE>
NOTE N - SHARE-BASED PAYMENTS (Continued)

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

<TABLE>
<CAPTION>
                                                                        Weighted-
                                                         Weighted-       Average
                                                          Average       Remaining       Aggregrate
                                                         Exercise      Contractual      Intrinsic
           Stock Warrants                    Shares        Price      Term (Months)      (Values)
           --------------                    ------        -----      -------------      --------
<S>                                       <C>              <C>           <C>            <C>
     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 September 30, 2006     1,025,000        0.001         56.00          $121,975
                                           =========      =======        ======          ========

     Exercisable at September 30, 2006     1,025,000      $ 0.001         56.00          $121,975
                                           =========      =======        ======          ========
</TABLE>

NOTE O - DEBT

     At September 30, 2006 and December 31, 2005,  the Company had notes payable
     outstanding  in  the  aggregate  amount  of  $5,539,965  and $  $4,792,898,
     respectively. The notes are secured by the Company real properties and time
     deposits. Payable as follows:

<TABLE>
<CAPTION>
          September 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 4.022% per  annum,  due on                         interest at 3.838% per annum,  due
demand.                                       $ 2,007,499       by October 8, 2006                         $ 487,040

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                                   1,541,730       by August 31, 2006                           913,200

Note  payable  to  a  bank  in  Taiwan,                         Note  payable to a bank in Taiwan,
interest  at 4.200% per  annum,  due by                         interest at 5.906% per annum,  due
January 24, 2012                                1,512,709       by September 28, 2006                        232,483

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                                          478,027       by January 27, 2006                           45,660
</TABLE>

                                       22
<PAGE>
<TABLE>
<CAPTION>
<S>                                           <C>              <C>                                        <C>
                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by February 3, 2006                           96,206

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

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

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

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

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by March 3, 2006                              69,950

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by March 24, 2006                            295,919

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by April 1, 2006                             279,553

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                by April 21, 2006                            435,872

                                                                Note  payable to a bank in Taiwan,
                                                                interest at 3.838% per annum,  due
                                                                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                                         $ 5,539,965                                                $ 4,792,898

Current portion                               $ 2,007,499                                                $ 4,220,230
                                            -------------                                                -----------

Long-term portion                             $ 3,532,466                                                $   572,668
                                            =============                                                ===========
</TABLE>

                                       23
<PAGE>
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:

     Alice  Chen  -  As  of  September   30,   2006,   the  Company  has  a  non
     interest-bearing loan from Alice Chen, a shareholder of the Company, in the
     amount of $232,769.

     Stella  Tseng  -  As  of  September  30,  2006,   the  Company  has  a  non
     interest-bearing  loan from Stella Tseng, a shareholder of the Company,  in
     the amount of $966,314.

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.

NOTE R - 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
     $660,538. 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
     individual not guilty.  In connection to 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 the 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  due to  Tain-Kang  has  provided  the proof of  payments of
     NT$2,000,000 in the court. To date, the court has not yet reached a verdict
     on this case.

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

     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  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 instead of NT$500,000 or US$15,370. As of September
     30, 2006, approximately NT$5 million, or approximately US$151,150, 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.

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

     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,  the 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
     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 for each 2 months,  beginning  on February 25, 2006.
     As of September 30, 2006, NT$4,100,000 or US $123,943 has been paid on this
     liability.

NOTE S - 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 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.  Collectively,  the three
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.

     The Company has also  focused on the sales of LCD panels,  LCD TVs/ Monitor
and other LCD  products,  and some the LCD  TVs/Monitors  got the approved  from
customers, will be start the business next year..

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

     NET SALES.  Net sales for the three  months ended  September  30, 2006 were
$3,916,705 compared to $3,784,392 for the three months ended September 30, 2005.
The increase in net sales for the three months ended  September 30, 2006 was due
to an increase in the sales to Vietnam.

     COST OF SALES.  Cost of sales for the three months ended September 30, 2006
was $4,369,434 or 111.5% of net sales, as compared to $3,427,726 or 90.6% of net
sales, during the three months ended September 30, 2005. The increase was due to
the increase of net sales.  The increase in the cost of sales as a percentage of
revenue was due to decreased sales of higher-margin products.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
were $1,046,465 or 26.7% of net sales,  for the three months ended September 30,
2006, as compared to $483,047 or 12.8% of net sales,  for the three months ended
September 30, 2005.  The increase was due to an increase in consulting  fees for
the construction  project in Vietnam. The increase in general and administrative
expenses as a percentage of net sales is due to the increase in consulting  fees
for a construction project in Vietnam.

     LOSS FROM  OPERATIONS.  Loss from  operations  for the three  months  ended
September 30, 2006 was  $(1,499,194),  compared to loss from  operations for the
three months ended  September 30, 2005 of $(126,381).  The increase in loss from
operations for the three months ended September 30, 2006 compared with loss from
operations for the three months ended September 30, 2005 resulted primarily from
reasons primarily described above.

     OTHER (INCOME) EXPENSE. Other (income) expense was $1,564,759 for the three
months ended  September  30, 2006, as compared to $(54,578) for the three months
ended  September  30,  2005.  This  change was the reserve for bad debt and late
payment penalty charged by bank.

     NET  LOSS.  Net  loss  for  three  months  ended  September  30,  2006  was
$(3,148,623)  compared  to net loss of  $(97,277)  for the  three  months  ended
September  30, 2005.  The decrease in net loss was due to the reasons  described
above.

NINE MONTHS ENDED  SEPTEMBER 30, 2006 COMPARED WITH NINE MONTHS ENDED  SEPTEMBER
30, 2005

     NET SALES.  Net sales for the nine  months  ended  September  30, 2006 were
$7,095,525  compared to $8,677,108 for the nine months ended September 30, 2005.
The decrease in net sales for the nine months ended  September  30, 2006 was due
to a decrease in demand for our products.

     COST OF SALES.  Cost of sales for the nine months ended  September 30, 2006
was $7,222,052 or 101.8% of net sales, as compared to $8,060,736 or 92.9% of net
sales,  during the nine months ended September 30, 2005. The decrease in cost of
sales is  associated  with the  decrease in sales.  The  increase in the cost of
sales as a  percentage  of revenue was due to decreased  sales of  higher-margin
products.

                                       29
<PAGE>
     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
were $1,892,877,  or 26.7% of net sales, for the nine months ended September 30,
2006,  as compared  to  $1,131,776,  or 13.0% of net sales,  for the nine months
ended  September 30, 2005. The increase was due to an increase in consulting fee
for  the  construction   project  in  Vietnam.   The  increase  in  general  and
administrative  expenses as a percentage  of net sales is due to the increase in
consulting fee for the construction project in Vietnam.

     LOSS  FROM  OPERATIONS.  Loss from  operations  for the nine  months  ended
September 30, 2006 was $(2,019,404),  compared to income from operations for the
nine months ended September 30, 2005 of $(515,404). The loss from operations for
the nine months ended  September 30, 2006  compared with income from  operations
for the nine  months  ended  September  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 $1,457,676 for the nine
months ended  September  30,  2006,  as compared to $649,202 for the nine months
ended September 30, 2005. This change was the result of the reserve for bad debt
and late payment penalty charged by bank.

     NET  LOSS.  Net  loss  for  nine  months  ended   September  30,  2006  was
$(3,541,458)  compared  to  income of  $(1,240,883)  for the nine  months  ended
September  30, 2005.  The net loss for the nine months ended  September 30, 2006
compared with income for the nine months ended September 30, 2005 was due to the
reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

     At  September  30,  2006  and  December  31,  2005,  we had  cash  and cash
equivalents  of $41,429 and $853,964,  respectively.  Our current assets totaled
$3,888,037 at September 30, 2006 as compared to $9,663,521 at December 31, 2005.
Our total current  liabilities were $4,484,571 at September 30, 2006 as compared
to $10,272,005 at December 31, 2005.  Working  capital at September 30, 2006 was
$(596,534)  and  $(608,484)  at December  31,  2005.  For the nine months  ended
September 30, 2006,  total cash used in operations was  $(1,358,485) as compared
to net cash used in operations of  $(1,845,454)  during the same period in 2005.
Net cash provided by financing  activities was  $1,203,311,  which  consisted of
loans, as compared with net cash provided by financing  activities of $1,600,914
during the nine months ended September 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

                                       30
<PAGE>
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
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 its 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 nine months
ended  September  30, 2006 were  $1,688,671  compared  to $193,310  for the nine
months ended September 30, 2005.

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     On June 30, 2006, the Company sold a $400,000  convertible  promissory note
to Cornell Capital Partners,  LP, and amended and reissued the convertible notes
originally  issued to Highgate House Funds,  Ltd on August 17, 2005 and December
16, 2005 in the aggregate principal amount of $250,000.  These 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.  However,  on August 31, 2006, the Company sold its
100% interest in City  Construction,  Inc.  without consent of the note holders.
Based on the security  agreement in connection with the above convertible notes,
the note  holders are entitled to receive all  distribution  with respect to the
pledged property. As of September 30, 2006, and the date of this report, no such
demand has been made.

                                       32
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

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: November 29, 2006             By: /s/ Alice Chen
                                        ------------------------------------
                                        Alice Chen
                                        Chief Executive Officer
                                        (Principal Executive Officer)


Dated: November 29, 2006             By: /s/ Yun-Yi Tseng
                                        ------------------------------------
                                        Yun-Yi Tseng
                                        Chief Financial Officer
                                        (Principal Financial Officer)

                                       34