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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 1 
TO

X ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 31, 2004

___TRANSITION REPORT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______.

CHINA EXPERT TECHNOLOGY, INC.

|Nevada                   | 000-30644             | 98-0348086                       
|------------------------ | --------------------- | ---------------------------------
|(State of Incorporation) | (Commission File No.) | (IRS Employer Identification No.)

Room 2703-04, Great Eagle Centre 
23 Harbour Road 
Wanchai, Hong Kong 
(Address of principal executive offices) 
852-2802-1555 
(Registrant's telephone number)

Securities to be registered under Section 12(b) of the Act:

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|N/A                 | N/A                                      

Securities to be registered under Section 12(g) of the Act:

Common Stock, $0 .001 par value 
(Title of Class)

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. [ X ] Yes [ ]
No

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $26,831,135

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $6,861,570 as of March 11, 2005.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No N/A

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of December 31, 2004, the
Company had 24,414,679 shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Format (Check one): [ ] Yes [ X ] No

1

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

DISCLAIMER REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-KSB which are not statements of historical
fact are what are known as "forward looking statements," which are basically
statements about the future. For that reason, these statements involve risk and
uncertainty since no one can accurately predict the future. Words such as
"plans," "intends," "hopes," "seeks," "anticipates," "expects, "and the like,
often identify such forward looking statements, but are not the only indication
that a statement is a forward-looking statement. Such forward looking statements
include statements concerning our plans and objectives with respect to our
present and future operations, and statements which express or imply that such
present and future operations will or may produce revenues, income or profits.
In evaluating these forward-looking statements, you should consider various
factors, including those described in this Form 10-KSB under the heading "Risks
Related to Business and Industry" on page 4. These and other factors may cause
our actual results to differ materially from any forward-looking statement. We
caution you not to place undue reliance on these forward-looking statements.
Although we base these forward-looking statements on our expectations,
assumptions and projections about future events, actual events and results may
differ materially, and our expectations, assumptions and projections may prove
to be inaccurate. The forward-looking statements speak only as of the date
hereof, and we expressly disclaim any obligation to publicly release the results
of any revisions to these forward-looking statements to reflect events or
circumstances after the date of this filing.

Historical Corporate Development

China Expert Technology, Inc. (hereinafter also referred to as the "Company")
is a publicly traded company whose shares trade on the OTC Bulletin Board under
the trading symbol "CXTI".

The Company was first incorporated in the State of Nevada on June 18, 1990 as
QQQ- Huntor Associates, Inc. On July 21, 1995, the Company changed its domicile
to the State of Texas and merged into Unimex Transnational Consultants, Inc, a
Texas corporation. On April 26, 1996, the Company reorganized and acquired all
the issued and outstanding stock of Dakota Mining & Exploration Ltd. ("Dakota")
for 10,000,000 shares of the Company's common stock, and changed the name of the
Company to Canadian Northern Lites, Inc. As a result of the transaction in which
the Company acquired all the outstanding shares of Dakota, Dakota became a legal
subsidiary of the Company.

In August, 1999, the Company voluntarily filed a registration statement on
Form 10-SB, in order to make information concerning itself more readily
available to the public by becoming subject to the reporting requirements under
the Securities Exchange Act of 1934. As a result of filing its registration
statement, the Company is obligated to file with the Commission certain interim
and periodic reports with the U.S. Securities and Exchange Commission, including
an annual report containing audited financial statements.

On July 10, 2000 the Company merged with a Nevada corporation, Leopard
Capital Inc., and became a Nevada corporation with the new name of Leopard
Capital Inc.

On December 1, 2000, the Company spun-off Dakota, its wholly owned legal
subsidiary, by distributing the shares of Dakota on a pro-rata basis to the
shareholders of the Company. This reorganization was undertaken to address the
concern over the Company's ability to survive as a mining company because of
declining commodity prices, disappearance of investment capital for
undercapitalized exploration companies, and potential environmental liabilities.
As a result of this spin-off, the Company no longer has a subsidiary or any
other assets as of December 31, 2003.

On January 4, 2001, 1,600,000 non-voting common shares of the Company were
converted to voting common shares making the Company a subsidiary of Hudson
Capital Corporation.

On February 9, 2004, the Company completed a share exchange with the
stockholders of China Expert Network Company Limited, ("China Expert"), a Hong
Kong corporation. In the exchange, the Company acquired 30,000,000 shares of
China Expert common stock from the shareholders of China Expert, representing
all of the issued and outstanding stock of China Expert in exchange for the
issuance of 19,935,000 shares of its common stock. In conjunction with the
exchange, the Company also issued a total of 1,400,000 additional shares to
various persons, including a Director of the Company, as compensation for
services. On April 12, 2004, following completion of the share exchange
transaction, the Company changed its name to China Expert Technology, Inc.

China Expert is now a wholly owned subsidiary of the Company, and the shares
of China Expert common stock represent the Company's most significant asset. The
Company expects to continue, and expand, the existing business operations of
China Expert as our wholly owned subsidiary. The Company, through China Expert
and China Expert's wholly owned subsidiary, Expert Network (Shenzhen) Co. ("ENS")
Ltd., provides large-scale e-government infrastructure construction and
consulting services for community and municipal governments in the People's
Republic of China (PRC).

2

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On December 28, 2004, the Company entered into an agreement
with one of the Consultants for the termination of the Consulting Agreement and
the surrender of 550,000 shares of the Company's common stock previously granted
to that Consultant and such shares were canceled in December 2004.

The Company's principal office is located at Room 2703-04, Great Eagle
Centre, 23 Harbour Road, Wanchai, Hong Kong. The telephone number is
852-2802-1555. As of December 31, 2004, the website of the Company is http://tech.chinaexpertnet.com.

The Company's authorized capital includes 200,000,000 shares of common stock
with $0.001 par value. As of the close of the Company's latest fiscal year,
December 31, 2004, there were 24,414,679 shares of common stock outstanding.

Business Overview

(1) Large-Scale E-Government Construction and Maintenance

The Company has ended its development stage and is now engaging in the
provision of information technology (IT) network and infrastructure consulting
services to government and corporations that are involved with creating
electronic governments, also known as e-governments. It also provides
large-scale network infrastructure construction with solutions for enterprise
information platform construction, public LAN construction, software
development, website planning and development, workflow management and computer
hosting services. The Company is the only private enterprise with the authority
to provide technological achievement appraisal services for IT companies in
China.

The Company conducts its principal business operation through its subsidiary
ENS which is based in Shenzhen and Fujian, the PRC. Since its establishment, ENS
has obtained three contracts with three city governments in the Fujian province
of the PRC for the provision of large-scale e-government infrastructure
construction and consulting services. Particulars of the contracts are as
follows:-

|Name of City | Commencement
    Date | Completion Date* | Contract Sum US$        
|------------ | --------------------- | ---------------- | ------------------------
|Government   |                       |                  |                         
|Jinjiang     | April 2003            | January 2005     | Approx. 22
    million  
|Dehua        | April 2004            | August 2006      | Approx. 18
    million  
|Nan'an       | March 2005            | March 2007       | Approx. 14.5
    million

*The Completion Date refers to completion of the construction of the
e-government system. One year maintenance to the e-government system is included
in each contract.

Pursuant to these contracts, ENS provides website planning and development,
workflow management, computer host services, public LAN construction, software
development, hardware platform and installation, security system construction
and 1 year maintenance to the customers. The e-government construction for
Jinjiang City Government has been completed in January 2005 and the maintenance
period will end on January 2006.

In January 2005, the Company was awarded a 3-year maintenance contract for
the e-government system of Jinjiang City Government worth approximately $3.9
million for the period of February 1, 2006 to January 31, 2009.

The Fujian Provincial Government has selected the e-government system of the
Jinjiang City Government as a model e-government system for 82 cities in the
Fujian province.

(2) Information and Electronic Administration Training to Chinese Officials

In November 2004, the Company, through ENS, provided a series of Information
and Electronic administration training programs and materials to 500 officials
of Jinjiang City Government. In November 2004, the Ministry of Information
Industry of the PRC Government has selected the training as a national model for
Information and Electronic Administration Training in China.

In February 2005, the Company has been awarded a contract worth approximately
$1.8 million for the provision of Information and Electronic administration
training and program and materials to 3,500 officials of Jinjiang City
Government.

Employees

The Company's business expanded significantly in 2004. In order to meet our
operational needs, we had a maximum of up to approximately 100 employees during
part of 2004. As of December 31, 2004, we had approximately 50 employees, all of
which are full time.

Competition

3

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There is competition from other public and private companies to capture the
e-government market in China. Some of the companies with which the Company
competes have wider operations and more financial strength than the Company.
These competitors provide construction and consulting services relating to
e-government systems for government departments in China while the Company
provides services for e-government systems of municipality governments which is
a new model for e-government implementation in China. We believe our ability to
compete in this industry is based on several factors, including the following:

(a) The successful completion of
the e-government project for Jinjiang City Government which has been selected by
the Fujian Provincial Government as model e-government system for 82 cities in
Fujian province.

(b) Success in providing
information and electronic administration training for Jinjiang City officials
which has been selected by the Ministry of the Information Industry as 1 of the
4 model locations for the whole nation.

(c) The award as the only
non-government corporation with the authority to provide technological
achievement appraisal services for IT companies seeking government funding in
China.

(d) 400 experts from the Chinese
Academy of Sciences and the Chinese Academy of Engineering being the consultants
of the Company who are available to provide consulting services to the Company
and the Company's clients.

Risks Related to Business and Industry

Technology Risks:

Financial Risks:

Operation and Key Personnel Risks:

Risks related to common stock:

Intellectual Property

The Company believes that its business is dependent in part on our ability to
establish and maintain protection for our proprietary technologies, products and
processes, and the preservation of our trade secrets.

In constructing the e-government systems for our customers, the Company
designed several platforms and software programs and retains the copyrights
thereof. The Company currently has not applied for and does not hold any patents
or copyright registrations relating to any of our products and services but will
apply for registration to protect its proprietary rights in due course.

We have registered one trademark in the PRC and Hong Kong for our company
logo. The registered trademark is significant to us because we believe it will
provide us with name and market recognition for our products and services and
distinguish the same from our competitors' products.

Government Approval for Company's Products or Services

4

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The market of the Company is presently in the PRC. Generally speaking, there
is no legislation or regulation which requires the Company to obtain government
approval for the provision of the consultation and construction services
relating to e-government system in the PRC.
The Company's customers are presently city governments in the PRC. When the
Company submits tender for an e-government contract, the Company needs to submit
a feasibility report for that particular city government for assessments and
approval.Research and Development

The Company currently does not carry out any research and development
activities but it plans to do so in 2005. We intend to devote in the future, a
portion of our resources to research and development programs.

ITEM 2. DESCRIPTION OF PROPERTY

The Company does not own any real property.

For the period of January 1 to February 8, 2004, the executive,
administrative and operating offices of the Company were located at 1574 Gulf
Rd. #1505, Point Roberts, WA 98281. Terry G. Cook, the former President and a
director of the Company, provided office space to the Company at no charge. The
Company did not have a written lease or sublease agreement and Mr. Cook did not
expect to be paid or reimbursed for providing office facilities. The fair market
value of the amount of office space afforded to the Company is approximately
$200.00 per month.

Since February 9, 2004, the executive office of the Company is located at
Room 2703-04, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong. The
executive office is provided to the Company by its subsidiary, China Expert at a
monthly rental of $8,838.33. China Expert has a written lease agreement.

The Company also set up two operating offices respectively at 31/F,
Development Centre, 2010 Renminnan Road, Shenzhen, China and at Jinjiang
Industrial Park Area, Fujian, China 362261.

The offices are provided to the Company by Mr. Lai Man Yuk The Company paid
$133,404 being total rental for the offices in the fiscal year 2004 which was
predetermined by both parties with reference to market rentals. The operating
lease arrangements are cancelable and rentals are paid on a monthly basis.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.

As far as known by the management, no director, officer or affiliate of the
Company, and no owner of record or beneficial owner of more than 5.0% of the
securities of the Company, or any associate of any such director, officer or
security holder is a party adverse to the Company or has a material interest
adverse to the Company in reference to pending litigation.

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

No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of the fiscal year which ended December 31, 2004.

5

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on the OTC Bulletin Board in the United
States, having the trading symbol "CXTI."

Trading in our common stock has been limited and sporadic. The following
table shows the range of high and low bid quotations reported by the OTCBB in
each fiscal quarter from January 1, 2002 to December 31, 2004, based upon
publicly available information published on internet web sites. The OTCBB
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.

Over-the-Counter Bulletin Board Trading Activity

|Quarter Ended | High   | Low     | Close 
|------------- | ------ | ------- | ------
|12/31/04      | $1.20  | $1.14   | $1.14 
|09/30/04      | $1.21  | $1.13   | $1.21 
|06/30/04      | $1.10  | $1.05   | $1.10 
|03/31/04      | $1.46  | $1.40   | $1.41 
|12/31/03      | $10.00 | $0.005  | $2.00 
|09/30/03      | $1.05  | $0.05   | $0.05 
|06/30/03      | $1.10  | $0.005  | $0.05 
|03/31/03      | $0.03  | $0.0073 | $0.007
|12/31/02      | $0.01  | $0.007  | $0.007
|09/30/02      | $0.03  | $0.01   | $0.01 
|06/30/02      | $0.14  | $0.03   | $0.03 
|03/31/02      | $0.30  | $0.10   | $0.30 

The Company's voting common stock is issued in registered
form. Madison Stock Transfer (located in Brooklyn, New York) is the registrar
and transfer agent for the voting common stock. The Company has researched the
indirect holdings by depositories and other financial institutions and believes
it has approximately 62 holders of record of its voting common stock.

The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future. The present policy of
the Company is to retain future earnings for use in its operations and expansion
of its business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including statements in the following
discussion, which are not statements of historical fact, are what is known as
"forward looking statements", which are basically statements about the future.
For that reason, these statements involve risk and uncertainty since no one can
accurately predict the future. Words such as "plans," "intends," "will,"
"hopes," "seeks," "anticipates," "expects," and the like, often identify such
forward-looking statements, but are not the only indication that a statement is
a forward-looking statement. Such forward-looking statements include statements
concerning our plans and objectives with respect to the present and future
operations of the Company, and statements which express or imply that such
present and future operations will or may produce revenues, income or profits.
Numerous factors and future events could cause the Company to change such plans
and objectives, or fail to successfully implement such plans or achieve such
objectives, or cause such present and future operations to fail to produce
revenues, income or profits. Therefore, the reader is advised that the following
discussion should be considered in light of the discussion of risks and other
factors contained in this report on Form 10-KSB and in the Company's other
filings with the Securities and Exchange Commission. No statements contained in
the following discussion should be construed as a guarantee or assurance of
future performance or future results.

Restatement of Financial Statements

As discussed in Note 2 to the consolidated financial statements, the
financial statements for the year ended December 31, 2004 and the related notes
have been restated in order to properly reflect the compensation for consulting
services for the reverse takeover as operating costs and to reclassify certain
assets and liabilities. The effect of the adjustments is to reduce the net
income for 2004 by $2,940,000 and increase the additional paid-in capital by the
same amount.

Common stock under the stockholders' equity as of December 31, 2004 as
reported in the consolidated balance sheets and the related notes have been
restated at $24,414 to reflect the par value of common stock issued and
outstanding.

6

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Prepaid expenses reported in the consolidated balance sheets and the related
notes have been restated by reclassifying $500,000 from non-current assets to
current assets, in order to properly present the current and non-current portion
of prepaid expenses.
Amount due from a former officer as reported in the consolidated balance
sheets as of December 31, 2004 has been restated at $2,022,525 and amount due to
a former officer has been restated at $2,137,881. They have been restated by
reporting the gross amount instead of net amount.OverviewFor the fiscal year ended December 31, 2004, the Company was profitable and
generated a positive cash flow.
During the year, the Company has been awarded two new e-Government contracts
with a total contract sum of $30.1 Million, namely Dehua (1st Phase) and Nan'an.
As of December 31, 2004, there are three outstanding contracts on hand with a
total sum of $23.4 Million, the Company will continue to work on all these
projects and will bring in new contracts in 2005.
The following is a summary of the projects on hand as of December 31, 2004
(in $Million):

|                     |            | Target     |          |               |               |             
|-------------------- | ---------- | ---------- | -------- | ------------- | ------------- | ------------
|                     | Tentative  | Completion | Contract | Recognized in | Recognized in | Outstanding 
|Projects             | Start Date | Date       | Sum      | 2003          | 2004          | Contract Sum
|Jinjiang (1st Phase) | Apr 03     | Jan 05     | 24.7     | 4.7           | 17.8          | 2.2         
|Dehua (1st Phase)    | Apr 04     | Aug 06     | 15.6     | --            | 8.9           | 6.7         
|Nan'an               | Aug 05     | Mar 07     | 14.5     | --            | --            | 14.5        
|                     |            |            |          |               |               |             
|Total                |            |            | 54.8     | 4.7           | 26.7          | 23.4        

Remarks: Tentative start date and target completion date may vary from the
original contract terms. Contract sum are net of PRC business tax

The Company believes that these on-going projects will generate sufficient
revenue and cash flow for the future operation of the Company. At present, all
the e-Government contracts are within Fujian province in China, the Company will
continue to explore new e-Government business opportunities in other provinces
of China.

Results of Operations

The Company's financial statements are stated in U.S. Dollars and are
prepared in accordance with generally accepted accounting principles in the
United States of America.

The following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue:

|                                           | Year ended December 31
|------------------------------------------ | ----------------------
|                                           | 2004                  
|Revenue                                    | 100%                  
|Cost of Revenue                            | 53.93%                
|Gross Profit                               | 46.07%                
|Advertising and
    marketing expenses     | 4.10%                 
|General and
    administrative expenses    | 4.45%                 
|Consultancy fees
    for reverse takeover  | 10.96%                
|Amortization of
    intangible assets      | 1.44%                 
|Depreciation of
    property and equipment | 0.13%                 
|Income before
    income tax               | 25.01%                
|Income tax
    expenses                    | 7.02%                 
|Net Income                                 | 17.99%                

REVENUE.

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COST OF REVENUE.Cost
of revenue was $14,469,900 for the year ended December 31, 2004 as compared to
$2,706,174 for the year ended December 31, 2003. Such increase in cost of
revenue is associated with increased revenue. As a percentage of revenue, cost
of revenue was 53.93% for the year ended December 31, 2004 as compared to 47.75%
for the year ended December 31, 2003. Gross profit was $12,361,235 for the year
ended December 31, 2004 as compared to $2,960,760 for the year ended December
31, 2003. As a percentage of revenue, gross profit decreased to 46.07% for the
year ended December 31, 2004 from 52.25% for the year ended December 31, 2003.

OTHER INCOME.

ADVERTISING AND MARKETING EXPENSES.

GENERAL AND ADMINISTRATIVE EXPENSES.

|Amortization of
    prepaid consultancy fees | $437,500 
|-------------------------------------------- | ---------
|Increase in legal
    and professional fees  | 67,016   
|Decrease in
    financial advisory fees      | (122,494)
|Decrease in
    payroll expenses             | (37,899) 
|Decrease in
    overseas traveling           | (24,554) 
|Decrease in
    telephone and fax            | (14,315) 
|Others                                       | (5,704)  
|Total increase in
    expenses               | $299,550 

Apart from the amortization of prepaid consultancy fees and
increase in legal and professional fees due to the reverse takeover, there was a
general reduction of administrative expenses, especially the decreases in
financial advisory fees, payroll expenses, overseas traveling and telephone and
fax expenses.

CONSULTANCY FEES FOR REVERSE TAKEOVER.

INCOME BEFORE INCOME TAX AND INCOME TAX EXPENSES.

Income tax expenses were $1,882,671 for the year ended December 31, 2004
compared to $303,316 for the year ended December 31, 2003. This increase was due
to the increase in profit of Expert Network Shenzhen, leading to a higher PRC
enterprises income tax.

NET INCOME.

Liquidity and Capital Resources

8

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As of December 31, 2004, the Company had $3,265,318 of cash
and cash equivalents on hand as compared to $47,223 as of December 31, 2003,
representing an increase of $3,218,095 or 6,815%. The increase was mainly
attributable to the net cash provided by operating activities of $5,884,565 and
being offset by the payment of loan to a director of $3,031,479.
The net cash provided by operating activities amount to $5,884,565 in 2004,
with net income of $4,826,841 and adding back non-cash expenses compensated by
common stock of $4,041,205, and the increases in tax payables of $2,521,947,
which offset by the increase in accounts receivable of $4,438,331 and
prepayments, deposits and other receivables increased by $2,583,551. The Company
required more working capital in terms of accounts receivable because
substantial portion of Dehua (1st Phase) was completed and billed near the end
of the year. The increase in prepayments and deposits was due to prepaid
contract costs during the start-up stage of Dehua (1st Phase), as the Company
had arranged prepayments to suppliers for the purchases of hardware on behalf of
customers, and down payment to subcontractors for system development during the
start-up stage of the project.
The net cash used in investing activities amount to $5,233 in 2004 and it
represented the payment for purchase of equipment.
The net cash used in financing activities amount to $2,661,237 in 2004. It
mainly represented the payment of loan to a director of $3,031,479 in November
2004 and it was fully repaid in January 2005.
The Company anticipates that the existing cash and cash equivalent on hand,
together with the cash flow generated from the existing projects will be
sufficient to meet the working capital requirements for the on-going projects
and to sustain the business operations for the next twelve months. In the event
that the Company signs up new contracts, additional financing may be required
but there is no assurance that we will be able to obtain such additional
financing, or on acceptable terms to it.Effect of InflationThe Company's results of operations have not been affected by inflation and
management does not expect that inflation risk would cause material impact on
its operations in the future.Effect of Fluctuation in Foreign Exchange RatesThe Company's operating subsidiary is located in China. The subsidiary
purchases all products and renders services in China, and receives payment from
customers in China using Chinese Renminbi ("RMB") as the functional currency.
During the past years of operation, there were no significant changes in
exchange rates; however, unforeseen developments may cause a significant change
in exchange rates. There is no assurance that the RMB-to-USD exchange rates will
remain stable. The Company does not engage in currency hedging.ITEM 7. FINANCIAL STATEMENTS.

See the following pages.

9

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CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

|                                                            | PAGES
|----------------------------------------------------------- | -----
|Report of
    Independent Registered Public Accounting Firm | 11   
|                                                            |      
|Consolidated
    balance sheets                             | 12   
|                                                            |      
|Consolidated
    statements of income                       | 13   
|                                                            |      
|Consolidated
    statements of stockholders' equity         | 14   
|                                                            |      
|Consolidated
    statements of cash flows                   | 15   
|                                                            |      
|Notes to
    consolidated financial statements              | 16   
|                                                            |      

10

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of China Expert Technology, Inc.

We have audited the accompanying consolidated balance sheets
of China Expert Technology, Inc. and its subsidiaries as of December 31, 2004
and 2003 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of China Expert Technology, Inc. and its subsidiaries as of
December 31, 2004 and 2003 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2004 in conformity with accounting principles generally accepted in the United
States of America.

PKF 
Certified Public Accountants 
Hong Kong 
February 22, 2005 except for the restatement discussed in Note 2 
to the consolidated financial statements, as to which the date is 
March 10, 2006

11

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CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                 | December 31,
|---------------------------------------------------------------- | ------------
|                                                                 | 2004        
|                                                                 | US$         
|                                                                 | (restated)  
|ASSETS                                                           |             
|Current assets                                                   |             
|Cash and cash equivalents                                        | 3,265,318   
|Accounts receivable                                              |             
|                                                                 | 4,438,331   
|Amount due from a former officer/officer (Notes 8 and 9)         | 2,022,525   
|Loan to a director (Note 9)                                      | 3,031,479   
|Amount due from a director                                       | 360         
|Prepayments, deposits and other receivables (Note 10)            | 3,871,440   
|Current portion of prepaid expenses                              | 500,000     
|Total current
    assets                                         | 17,129,453  
|                                                                 |             
|Property and
    equipment, net (Note 5)                         | 21,131      
|Intangible
    assets, net (Note 6)                              | 289,203     
|Prepaid expenses
    (Note 7)                                    | 1,562,500   
|Deferred tax
    assets (Note 13)                                | 271,758     
|Total assets                                                     | 19,274,045  
|LIABILITIES AND
    STOCKHOLDERS' EQUITY                         |             
|Current
    liabilities                                          |             
|Accounts payable                                                 | 975,118     
|Deposits received                                                | -           
|Accrued payroll and employees' benefits                          | 29,315      
|Accruals (Note 11)                                               | 219,241     
|PRC business tax                                                 | 957,804     
|Billings in excess of costs and estimated                        |             
|earnings on uncompleted contracts (Note 12)                      | -           
|Amount due to a former officer/officer (Notes 8 and 9)           | 2,137,881   
|Amount due to a director                                         | 160,459     
|Amounts due to shareholders                                      | 730         
|Income tax payable                                               | 2,148,319   
|Total current
    liabilities                                    | 6,628,867   
|Commitments and
    contingencies                                | -           
|                                                                 |             
|Stockholders'
    equity                                         |             
|Common stock, US$0.001 par value, 200,000,000 shares authorized; |             
|24,414,679 shares issued and outstanding at December 31, 2004;   |             

|19,935,000 shares issued and outstanding at December 31, 2003 (Note 15) | 24,414     | 19,935     
|----------------------------------------------------------------------- | ---------- | -----------
|Additional Paid-in capital (Note 16)                                    | 10,394,167 | 3,836,106  
|Retained earnings/(accumulated deficit)                                 | 2,226,597  | (2,600,244)
|Total
    stockholders' equity                                          | 12,645,178 | 1,255,797  
|Total liabilities
    and stockholders' equity                          | 19,274,045 | 4,119,505  

12

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CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

|                                                  |              |                         |            
|------------------------------------------------- | ------------ | ----------------------- | -----------
|                                                  |              | Year ended December 31, |            
|                                                  | 2004         | 2003                    | 2002       
|                                                  | US$          | US$                     | US$        
|                                                  | (restated)   |                         |            
|                                                  |              |                         |            
|Revenue (Note 20)                                 | 26,831,135   | 5,666,934               | 1,250,100  
|                                                  |              |                         |            
|Cost of revenue                                   | (14,469,900) | (2,706,174)             | (356,850)  
|                                                  |              |                         |            
|Gross profit                                      | 12,361,235   | 2,960,760               | 893,250    
|                                                  |              |                         |            
|Other income                                      | 2,872        | -                       | -          
|                                                  |              |                         |            
|Advertising and
    promotional expenses          |              |                         |            
|(Notes 1 and 15)                                  | (1,101,205)  | (6,501)                 | (48,537)   
|                                                  |              |                         |            
|Consultancy fees
    for reverse takeover         | (2,940,000)  | -                       | -          
|                                                  |              |                         |            
|General and
    administrative expenses           | (1,193,849)  | (894,299)               | (1,163,848)
|                                                  |              |                         |            
|Intangible assets
    amortization (Note 6)       | (385,604)    | (385,604)               | (385,604)  
|                                                  |              |                         |            
|Depreciation and
    amortization (Note 5)        | (36,222)     | (161,372)               | (179,470)  
|                                                  |              |                         |            
|Other expenses                                    | (22,065)     | -                       | -          
|                                                  |              |                         |            
|Income/(loss)
    from operations                 | 6,685,162    | 1,512,984               | (884,209)  
|                                                  |              |                         |            
|Interest income                                   | 24,350       | 745                     | 488        
|                                                  |              |                         |            
|Income/(loss)
    before income tax               | 6,709,512    | 1,513,729               | (883,721)  
|                                                  |              |                         |            
|Income tax
    expenses (Note 13)                 | (1,882,671)  | (303,316)               | (67,167)   
|                                                  |              |                         |            
|Net income/(loss)                                 | 4,826,841    | 1,210,413               | (950,888)  
|                                                  |              |                         |            
|Basic net
    income/(loss) per share (Note 14)   | 0.20         | 0.06                    | (0.05)     
|                                                  |              |                         |            
|Diluted net
    income/(loss) per share (Note 14) | 0.20         | 0.06                    | (0.05)     

See the accompanying notes to the consolidated financial statements

13

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CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                |              |         |             |             
|----------------------------------------------- | ------------ | ------- | ----------- | ------------
|                                                |              |         |             | (Accumulated
|                                                |              |         | Additional  | deficit)/   
|                                                | Common stock | Paid-in | retained   
|                                                | Shares       | Amount  | capital     | earnings    
|                                                |              | US$     | US$         | US$         
|                                                |              |         |             |             
|At January 1,
    2002 (Note 15)                | 19,935,000   | 19,935  | 3,836,106   | (2,859,769) 
|                                                |              |         |             |             
|Loss for the year                               | -            | -       | -           | (950,888)   
|                                                |              |         |             |             
|At December 31,
    2002                        |              |         |             |             
|and January 1,
    2003 (Note 15)               | 19,935,000   | 19,935  | 3,836,106   | (3,810,657) 
|                                                |              |         |             |             
|Income for the
    year                         | -            | -       | -           | 1,210,413   
|                                                |              |         |             |             
|At December 31,
    2003                        |              |         |             |             
|and January 1,
    2004 (Note 15)               | 19,935,000   | 19,935  | 3,836,106   | (2,600,244) 
|                                                |              |         |             |             
|Shares issued for
    reverse takeover          |              |         |             |             
|(Notes 2, 15 and
    16)                        | 728,474      | 728     | 20,607      | -           
|                                                |              |         |             |             
|Shares issued in
    return for consultancy     |              |         |             |             
|services on
    reverse takeover(Notes 2, 15    |              |         |             |             
|and 16)                                         | 1,400,000    | 1,400   | 2,938,600   | -           
|                                                |              |         |             |             
|Shares issued in
    return for provision       |              |         |             |             
|of consultancy
    works (Notes 1, 15 and 16)   | 1,800,000    | 1,800   | 3,598,200   | -           
|                                                |              |         |             |             
|Shares issued in
    return for sourcing        |              |         |             |             
|of a contract
    customer (Notes 1, 15 and 16) | 1,101,205    | 1,101   | 1,100,104   | -           
|                                                |              |         |             |             
|Cancellation of
    shares previously           |              |         |             |             
|issued to a
    consultant (Notes 1, 15 and 16) | (550,000)    | (550)   | (1,099,450) | -           
|                                                |              |         |             |             
|Income for the
    year (restated)              | -            | -       | -           | 4,826,841   
|                                                |              |         |             |             
|At December 31,
    2004                        | 24,414,679   | 24,414  | 10,394,167  | 2,226,597   
|                                                |              |         |             |             

See the accompanying notes to the consolidated financial statements

14

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CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                         | Year ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         | 2004                   
|                                                         | US$                    
|                                                         | (restated)             
|Cash
    flows from operating activities:-               |                        
|Net income/(loss)                                        | 4,826,841              
|Adjustments to reconcile net income/(loss) to net cash   |                        
|provided by/(used in) operating activities:-             |                        
|Expenses compensated by common stock                     | 4,041,205              
|Intangible assets amortization                           | 385,604                
|Amortization of prepaid expenses                         | 437,500                
|Depreciation and amortization                            | 36,222                 
|Loss on disposal of property and equipment               | -                      
|Decrease/(increase) in deferred tax assets               | 43,987                 
|Other expenses                                           | 22,065                 
|Changes in operating assets and liabilities:-            |                        
|Increase in accounts receivable                          | (4,438,331)            
|Decrease in costs and estimated earnings in              |                        
|excess of billings on uncompleted contracts              | -                      
|(Increase)/decrease in prepayments, deposits and         |                        
|other receivables                                        | (2,583,551)            
|Increase/(decrease) in accounts payable                  | 965,432                
|(Decrease)/increase in accruals                          | (110,862)              
|(Decrease)/increase in accrued payroll and employees'    |                        
|benefits                                                 | (5,533)                
|Increase in PRC business tax                             | 683,262                
|(Decrease)/increase in deposits received                 | (93,141)               
|(Decrease)/increase in billings in excess of costs and   |                        
|estimated earnings on uncompleted contracts              | (164,820)              
|Increase in income tax payable                           | 1,838,685              
|Net cash provided by/(used in) operating activities      | 5,884,565              
|Cash
    flows from investing activities:-               |                        
|Proceeds from disposal of property and equipment         | -                      
|Purchase of property and equipment                       | (5,233)                
|Net cash (used in)/provided by investing activities      | (5,233)                
|Cash
    flows from financing activities:-               |                        
|Loans to a director                                      | (3,031,479)            
|Repayment of loan from a director                        | -                      
|Advance from directors                                   | 1,771,063              
|Repayment to directors                                   | (1,610,965)            
|Advance from a former officer                            | 2,489,528              
|Repayment to a former officer                            | (2,279,384)            
|Net
    cash (used in)/provided by financing activities  | (2,661,237)            
|Net
    increase/(decrease) in cash and cash equivalents | 3,218,095              
|Cash
    and cash equivalents, beginning of year         | 47,223                 
|Cash
    and cash equivalents, end of year               | 3,265,318              
|                                                         |                        

See the accompanying notes to the consolidated financial statements

15

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CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

The Company was incorporated in the State of Nevada on June 18, 1990.

Following a reverse takeover transaction as detailed in note
3, the Company has ended its development stage and is now engaging in the
provision of system integration services, consultancy services and agency
services through its subsidiaries, China Expert Network Company Limited ("CEN"),
Expert Network (Shenzhen) Limited ("ENS") and Hong Zhong Holdings Limited ("HZH").
CEN is a Hong Kong incorporated company; ENS is a limited liability company
established in the People's Republic of China (the "PRC") and HZH is a limited
liability company incorporated in the British Virgin Islands. ENS and HZH are
wholly owned by CEN.

On February 18, 2004, the Company entered into consulting
agreements (the "Consulting Agreements") with several consultants (the
"Consultants") for the provision of corporate finance and reporting, information
technology process improvement and technology support services to the Company.
The terms of these Consulting Agreements commence on February 18, 2004 and end
on February 17, 2009. In consideration of the consulting services provided, the
Company issued in aggregate 1,800,000 shares of the Company's common stock to
the Consultants (Note 15(i)).

On February 26, 2004, the Company entered into a strategic
services agreement (the "Strategic Services Agreement") with a corporate
consultant for the sourcing of e-government contracts to the Company in the
Fujian Province in the PRC. In consideration of the sourcing services provided,
the Company agreed to pay commission at 15% of the gross income of the contracts
obtained by the Company. During the year, the Company issued 1,101,205 shares of
the Company's common stock to the corporate consultant as a commission for the
contracts obtained (Note 15(ii)).

On April 12, 2004, the name of the Company was changed from Leopard Capital,
Inc. to China Expert Technology, Inc. ("CXTI").

One of the Consultants did not provide services in accordance
with the aforesaid consulting agreement. Accordingly, on December 28, 2004, the
Company and this consultant entered into an agreement for the termination of the
aforesaid consulting agreement and the surrender of 550,000 of the Company's
common stock previously granted to him. Such common stock were canceled (Note
15(iii)).

16

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CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.



|                                                 | As previously
reported | Adjustment
number (1) | Adjustment
number (2) | Adjustment
number (3) | Adjustment
number (4) | As restated
|------------------------------------------------ | ---------------------- | --------------------- | --------------------- | --------------------- | --------------------- | -----------
|                                                 | US$                    | US$                   | US$                   | US$                   | US$                   | US$        
|2004's Consolidated                              |                        |                       |                       |                       |                       |            
|Financial                                        |                        |                       |                       |                       |                       |            
|Statements                                       |                        |                       |                       |                       |                       |            
|                                                 |                        |                       |                       |                       |                       |            
|Net income                                       | 7,766,841              | (2,940,000)           | -                     | -                     | -                     | 4,826,841  
|                                                 |                        |                       |                       |                       |                       |            
|Common stock                                     | 3,879,727              | -                     | (3,855,313)           | -                     | -                     | 24,414     
|                                                 |                        |                       |                       |                       |                       |            
|Additional paid-in capital                       | 3,598,854              | 2,940,000             | 3,855,313             | -                     | -                     | 10,394,167 
|                                                 |                        |                       |                       |                       |                       |            
|Current portion
of prepaid expenses              | -                      | -                     | -                     | 500,000               | -                     | 500,000    
|                                                 |                        |                       |                       |                       |                       |            
|Prepaid expenses
presented as
non-current assets | 2,062,500              | -                     | -                     | (500,000)             | -                     | 1,562,500  
|                                                 |                        |                       |                       |                       |                       |            
|Amount due from
a former officer                 | -                      | -                     | -                     | -                     | 2,022,525             | 2,022,525  
|                                                 |                        |                       |                       |                       |                       |            
|Amount due to a
former officer                   | 115,356                | -                     | -                     | -                     | 2,022,525             | 2,137,881  
|                                                 |                        |                       |                       |                       |                       |            
|2003's Consolidated                              |                        |                       |                       |                       |                       |            
|Financial                                        |                        |                       |                       |                       |                       |            
|Statements                                       |                        |                       |                       |                       |                       |            
|                                                 |                        |                       |                       |                       |                       |            
|Common stock                                     | 3,856,041              | -                     | (3,836,106)           | -                     | -                     | 19,935     
|                                                 |                        |                       |                       |                       |                       |            
|Additional paid-in capital                       | --                     | --                    | 3,836,106             | -                     | -                     | 3,836,106  
|                                                 |                        |                       |                       |                       |                       |            
|Amount due from
a former officer                 | 94,787                 | -                     | -                     | -                     | 1,646,934             | 1,741,721  
|                                                 |                        |                       |                       |                       |                       |            
|Amount due to a
former officer                   | --                     | -                     | -                     | -                     | 1,646,934             | 1,646,934  
|                                                 |                        |                       |                       |                       |                       |            
|2002's Consolidated                              |                        |                       |                       |                       |                       |            
|Financial                                        |                        |                       |                       |                       |                       |            
|Statements                                       |                        |                       |                       |                       |                       |            
|                                                 |                        |                       |                       |                       |                       |            
|Common stock                                     | 3,856,041              | -                     | (3,836,106)           | -                     | -                     | 19,935     
|                                                 |                        |                       |                       |                       |                       |            
|Additional paid-in capital                       | --                     | --                    | 3,836,106             | -                     | -                     | 3,836,106  

|17
|--

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.

RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENTS (CONT'D)



Adjustment number:

(1)

In conjunction with the Exchange as mentioned in Note 3 below, CXTI also issued a total 1,400,000 common shares to financial institutes and advisors as compensation for consulting services for the reverse takeover in addition to 19,935,000 common shares of the Company to the Shareholders. This transaction was previously reported in the 2004 financial statements as part of the shares issued for acquisition of CEN and charged directly to equity by reference to the par value of such shares issued.

The Company has determined that such 1,400,000 common shares were issued as compensation for services rendered for the reverse takeover and the relevant costs should be charged against income as consultancy fees for reverse takeover in 2004. The fair value of the transaction costs was determined by the management to be US$2,940,000, which was based on the bid price provided by the Over the Counter Bulletin Board (OTCBB) on February 9, 2004 (representing the date of the completion of the reverse takeover).

As a result of the aforementioned adjustment, the net income for 2004 was reduced by US$2,940,000 and the additional paid-in capital was increased by the same amount.  The net income per share for 2004 was reduced from US$0.33 to US$0.20 per share and net loss per share for 2002 was increased from US$0.04 to US$0.05 per share.  This adjustment had no impact on net cash provided by operating activities reported in the 2004, 2003 and 2002 consolidated statement of cash flows.



(2)

In order to have a better presentation of the reverse takeover in 2004, the management made certain reallocation adjustments on the common stock and additional paid-in capital. In particular, US$3,855,313 of the 2004's common stock and US$3,836,106 of the 2003's and 2002's common stock was reallocated to the additional paid-in capital of the Company.

In effect, the opening outstanding common stock of the Company for 2004 represented 19,935,000 shares of par value of US$0.001 each amounted to US$19,935 issued by CXTI to the Shareholders whilst US$728 of CXTI's common stock (representing 728,474 shares of par value of US$0.001 each) immediately prior to the reverse takeover were regarded as the shares issued for the reverse takeover. This reallocation had no impact on net income, stockholders' equity and cash flows in 2004, 2003 and 2002.



(3)

Prepaid expenses reported in the 2004 consolidated balance sheet comprised of a current portion of US$500,000 that was expensed in 2005. Such current portion has been reclassified from non-current assets to current assets accordingly. This reclassification had no impact on net income, stockholders' equity and cash flows in 2004.



(4)

Amount due from a former officer and amount due to a former officer as of December 31, 2004 and 2003 have been restated by reporting the gross amounts instead of a net amount on the 2004 and 2003 consolidated balance sheets. Accordingly, amount due from a former officer was restated at US$2,022,525 and US$1,741,721 and amount due to a former officer was restated at US$2,137,881 and US$1,646,934 respectively.



3.

BASIS OF PREPARATION



The accompanying consolidated financial statements of CXTI and its subsidiaries (the Group) have been prepared in accordance with generally accepted accounting principles in the United States of America.



On February 9, 2004, CXTI completed a share exchange with the stakeholders of CEN (the Exchange). In the Exchange, CXTI acquired 30,000,000 shares representing all the issued and outstanding common stock of CEN from the stakeholders of CEN (the Shareholders) in exchange for the issuance of 19,935,000 shares of common stock of CXTI to the Shareholders.  In conjunction with the Exchange, CXTI also issued a total of 1,400,000 additional shares to financial institutes and advisors as compensation for consulting services for the reverse takeover.



The Exchange resulted in a change of control of CXTI. Upon completion of the Exchange and the related share issuance, CXTI has a total of 22,063,474 shares issued and outstanding, of which 19,935,000 or approximately 90.35% are owned by the Shareholders. As the Exchange resulted in the former stakeholders of CEN owning greater than 50% of the common stock of CXTI, the Exchange has been treated as a reverse takeover with CEN as the accounting acquirer (legal subsidiary) and CXTI as the accounting acquiree (legal parent).



Accordingly, the purchase method under reverse takeover accounting has been applied.

|  
|--
|18

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of consolidation



The consolidated financial statements for the years ended December 31, 2004, 2003 and 2002 are presented in U.S. dollars (US$) and include the accounts of the Company and its subsidiaries.  All significant inter-company balances and transactions are eliminated in consolidation.



Use of estimates



The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year.  Significant estimates required to be made by management include the recoverability of long lived assets and recognition of revenue under long term contracts.  Actual results could differ from those estimates.



Cash and cash equivalents



Cash equivalents are highly liquid investments and have maturities of three months or less at the date of purchase.



Property and Equipment



Property and equipment are stated at cost less accumulated depreciation and amortization.  Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.  Depreciation and amortization are provided using the straight-line method over the estimated useful lives at the following annual rates:-



Furniture, fixtures and office equipment

20%

Computer equipment and software

30%

Motor vehicles

30%

Leasehold improvements

the shorter of 30% or lease term



Intangible assets



Intangible assets represent information database purchased.  Cost relating to the setting up of information databases via purchases of data or information are capitalized and stated at cost less accumulated amortization and any impairment losses.  The costs of information database are amortized using the straight-line method over its estimated useful life of five years.



Prepaid expenses



Prepaid expenses represent the aggregate fair value of the Company's common stock issued in return for the consultancy works provided by certain consultants to the Company.  The fair value is determined by reference to the average price of the Company's common stock as quoted on the OTCBB at the date of issuance.  The prepaid expenses are amortized on a straight-line basis over the terms of the consulting agreements of five years.



Impairment of long-lived assets



The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable.

The impairment of long-lived assets is measured pursuant to the guidelines of Statement of Financial Accounting Standards (SFAS) No.144 Accounting for the Impairment or Disposal of Long-Lived Assets.  When an indicator of impairment has occurred, management's estimate of undiscounted cash flows attributable to the assets is compared to the carrying value of the assets to determine whether impairment has occurred.  If an impairment of the carrying value has occurred, the amount of the impairment recognized in the financial statements is determined by estimating the fair value of the assets and recording a loss of the amount that the carrying value exceeds the estimated fair value.

|19
|--

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)



Income taxes



The Company accounts for income tax under the provisions of SFAS No. 109 Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns.  Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.



Revenue recognition



Over 99% of the Company's revenue was derived from the provision of system integration services for establishment of e-government information system and network to local government bodies of Fujian Province. The system integration services contracts are fixed price and under long-term arrangements. Furthermore, an insignificant portion of the Company's revenue was derived from the provision of consultation and training services to local government bodies.



The Company generally enters into long-term fixed price contracts with local governments to provide system integration services, which included designing the framework of the e-government system, software development and system integration. The software development is subcontracting to several external software development companies at a fixed price basis. Revenue on long-term fixed price contracts is recognized under the percentage-of-completion method in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Under the percentage-of-completion method, management estimates the percentage-of-completion based upon costs incurred as a percentage of the total estimated costs to the customer. When total cost estimates exceed revenues, the Company accrues for the estimated losses immediately. The use of the percentage of completion method requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated costs. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined, such adjustments are recorded in the period in which they are first identified. For instances where the work performed on fixed price contracts is of relatively short duration, revenue is recognized when the work is completed.



Revenues for consultancy services, agency services and other services are recognized as work is performed and amounts are earned in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements as amended by SAB No. 104 Revenue Recognition. The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured. For contracts with fees based on time-and-materials or cost-plus, revenue is recognized over the period of performance.



Cost of revenue



Cost of revenue comprises mainly subcontracting costs, labor and other cost incurred by those staff directly engaged in the contracts.



Advertising and marketing expenses



Advertising and marketing expenses, which are charged to income statement as incurred, were US$1,101,205, US$6,501 and US$48,537 for the years ended December 31, 2004, 2003 and 2002, respectively.

Comprehensive income



Accumulated other comprehensive income represents foreign currency translation adjustments and is included in the consolidated statement of stockholders' equity.



|20
|--

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)



Concentration of credit risk



Concentration of credit risk is limited to accounts receivable and is subject to the financial conditions of major customer.  The Company does not require collateral or other security to support client's receivables.  The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.



Fair value of financial instruments



The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, related parties receivable and related parties payable approximate fair value due to the short-term nature of these items.



Foreign Currency Translation



The Group uses China Renminbi (RMB) as the functional currency, which is not freely convertible into foreign currencies.  Transactions denominated in currencies other than RMB are translated into RMB at the applicable rates of exchange prevailing at the dates of the transactions, quoted by the People's Bank of China (the PBOC).  Monetary assets and liabilities denominated in other currencies are translated into RMB at rates of exchange quoted by the PBOC prevailing at the balance sheet date.  Exchange gains or losses arising from changes in exchange rates subsequent to the transactions dates for monetary assets and liabilities denominated in other currencies are included in the determination of net income for the respective period.



For financial reporting purposes, RMB has been translated into United States dollars (US$) as the reporting currency.  Assets and liabilities are translated at the exchange rate in effect at period end.  Income statement accounts are translated at the average rate of exchange prevailing during the period.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as Accumulated other comprehensive income - foreign currency translation adjustments.  Gains and losses resulting from foreign currency transactions are included in other comprehensive income/(loss).  Foreign currency translation adjustment was not material.



During 2004 and 2003, there have been no significant changes in exchange rates.  Accordingly, there are no changes in other comprehensive income/ (loss).

|  
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|21

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)



New accounting pronouncements



(i)

The Statement of Financial Accounting Standards No.150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150) was issued in May 2003.  This statement affects the classification, measurement and disclosure requirements of the following three types of freestanding financial instruments:-



1)

mandatory redeemable shares, which the issuing company is obligated to buy back with cash or other assets;

2)

instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets, which include put options and forward purchase contracts; and

3)

obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuers' shares.



In general, SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of this statement had no impact on the Company's results of operations or financial position.



(ii)

Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (VIE) (FIN 46), was issued in January 2003.  FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity.  The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003.



In December 2003, the Financial Accounting Standards Board (FASB) completed deliberations on proposed modifications to FIN 46 and re-issued FIN 46 (Revised Interpretation) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003 but prior to January 1, 2004 may be accounted for either based on the original interpretation or the Revised Interpretation.  The adoption of these interpretations had no impact on the Company's results of operation or financial position.



(iii)

SFAS 132 (revised 2003), Employer's Disclosure about Pensions and Other Post-Retirement Benefits was issued in December 2003.  SFAS 132 (revised) revised employer's disclosure about pension plans and other post-retirement benefit plans.  SFAS 132 (revised) requires additional disclosures in annual financial statements about the types of plan assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit cost of defined benefit pension plans and other post-retirement benefit plans.  The annual disclosure requirements are effective for fiscal years ended after December 15, 2003. SFAS 132 (revised) also requires interim disclosure of the elements of net periodic benefit cost and the total amount of contributions paid or expected to be paid during the current fiscal year if significantly different from amounts previously disclosed.  The interim disclosure requirements of SFAS 132 (revised) are effective for interim periods beginning after December 15, 2003.  The adoption of this statement had no impact on the Company's results of operation or financial position.



The details of the Group's defined contribution pension plans are disclosed in note 18 to the consolidated financial statements.



(iv)

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. This Standard addresses the accounting for transactions in which a company receives employee services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. This Standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and requires that such transactions be accounted for using a fair-value-based method. The Standard is effective for periods beginning after June 15, 2005. The Company is currently assessing the impact of this Standard on its results of operations and financial position.

|  
|--
|22

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5.

PROPERTY AND EQUIPMENT



Property and equipment consist of the following :-

| |                                           | December 31,
| | ----------------------------------------- | ------------
| |                                           | 2004        
| |                                           | US$         
| | Purchase cost:-                           |             
| |                                           |             
| | Furniture, fixtures and office equipment  | 207,376     
| | Computer equipment and software           | 108,268     
| | Motor vehicles                            | 74,087      
| | Leasehold improvements                    | 156,652     
| |                                           |             
| | Total                                     | 546,383     
| |                                           |             
| | Accumulated depreciation and amortization | (525,252)   
| |                                           |             
| | Property and equipment, net               | 21,131      



Depreciation and amortization expenses for the years ended December 31, 2004, 2003 and 2002 amounted to US$36,222, US$161,372 and US$179,470 respectively.



During the year ended December 31, 2003, property and equipment with carrying amount of US$16,140 were disposed of at a consideration of US$12,666 resulting in a loss of US$3,474.  There were no disposal of property and equipment in 2004 and 2002.



6.

INTANGIBLE ASSETS



| |                          | December 31,
| | ------------------------ | ------------
| |                          | 2004        
| |                          | US$         
| | Purchase cost :-         |             
| |                          |             
| | Information databases    | 1,928,020   
| |                          |             
| | Accumulated amortization | (1,638,817) 
| |                          |             
| | Intangible assets, net   | 289,203     



Amortization for each of the three years ended December 31, 2004, 2003 and 2002 amounted to US$385,604.



The Company's information databases represent costs for acquiring the expert information data assembled by and lists and details of projects developed by parties independent of the Company.  The consideration for the Company's acquisition of the information databases amounted to US$1,928,020 (or HK$15,000,000) was satisfied by the issue of 15,000,000 shares of CEN at HK$1 per share in the year of 2000.

|23
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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7.

PREPAID EXPENSES



At December 31, 2004, prepaid expenses are as follows :-

| |                                              | US$      
| | -------------------------------------------- | ---------
| |                                              |          
| | Prepaid consultancy fees                     | 2,500,000
| | Accumulated amortization                     | (437,500)
| |                                              | 2,062,500
| | Less: Amount to be amortized within one year | (500,000)
| |                                              | 1,562,000



Amortization for the year ended December 31, 2004 amounted to US$437,500.





8.

BALANCE WITH AN OFFICER/A FORMER OFFICER



The balance represents current account with Mr. Lai Man Yuk (Mr. Lai).  It is interest-free, unsecured and has no fixed terms of repayment.





9.

RELATED PARTIES TRANSACTIONS



During the years ended December 31, 2004 and 2003, Mr. Lai, a former officer and currently a beneficial owner of the Company, made various cash advances to CEN for its operating expenses. On the other hand, Mr. Lai obtained cash advances from ENS. As of December 31, 2004 and 2003, amounts due from/(to) Mr. Lai are as follows:-



| |                                           | December 31,
| | ----------------------------------------- | ------------
| |                                           | 2004        
| |                                           | US$         
| |                                           |             
| | Amount due from Mr. Lai to:               |             
| | Expert Network (Shenzhen) Company Limited | 2,022,525   
| |                                           |             
| | Amount due to Mr. Lai by:                 |             
| | China Expert Network Company Limited      | (2,133,691) 
| | Hong Zhong Holdings Limited               | (4,190)     
| |                                           |             
| |                                           | (2,137,881) 



The above balances are interest free, unsecured and repayable within one year.



In 2004, a rental agreement was signed between Mr. Lai and ENS for leasing of the office premises in Shenzhen at a monthly rent of RMB91,677, which was determined by both parties with reference to the market rental. The operating lease arrangements with expiry date in December 2006 are cancelable and rentals are paid on a monthly basis. During the period ended December 31, 2004 and 2003, the Company paid rentals amounting to US$133,404 and US$133,404, respectively, to Mr. Lai.



Loan made by the Company to a director, Mr. Kung Sze Chau, in 2004 which was interest bearing at 5.22% per annum, unsecured and due by January 14, 2005 was fully repaid on the due date. Interest income received from Mr. Kung for the years ended December 31, 2004 and 2003 were US$22,111 and nil, respectively.

|  
|--
|24

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.

PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES



At December 31, 2004 and 2003, the balances comprised of the following: -



| |                           | December 31,
| | ------------------------- | ------------
| |                           | 2004        
| |                           | US$         
| |                           |             
| | Prepaid contract costs    | 3,827,136   
| | Rental and other deposits | 44,304      
| |                           |             
| |                           | 3,871,440   





11.

ACCRUALS



At December 31, 2004 and 2003, accruals comprised of the following :-



| |                        | December 31,
| | ---------------------- | ------------
| |                        | 2004        
| |                        | US$         
| |                        |             
| | Rental expense         | 32,596      
| | Accounting service fee | 23,507      
| | Auditors' remuneration | 136,890     
| | Others                 | 26,248      
| |                        |             
| | Total                  | 219,241     





12.

BILLINGS, COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS



| |                                      | December 31,
| | ------------------------------------ | ------------
| |                                      | 2004        
| |                                      | US$         
| |                                      |             
| | Costs and estimated earnings to date | 33,168,093  
| | Less : Billings                      | (33,168,093)
| |                                      |             
| |                                      | -           

|25
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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.

INCOME TAXES



United States



CXTI is incorporated in the United States of America and is subject to United States of America tax law. No provision for income taxes has been made as CXTI has no taxable income for the years ended December 31, 2004, 2003 and 2002. The statutory tax rate for each of the years ended December 31, 2004, 2003 and 2002 is 35%.



Hong Kong



CEN is incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for profits tax has been made as the subsidiary has no net assessable income for the years. The applicable statutory tax rate for the years ended December 31, 2004, 2003 and 2002 are 17.5%, 16% and 16%, respectively.



British Virgin Islands



HZH is incorporated in the British Virgin Islands and, under the current laws of the British Virgin Islands, is not subject to income taxes.



PRC



Enterprises income tax in PRC is generally charged at 33%, in which 30% is for national tax and 3% is for local tax, of the assessable profit. For foreign investment enterprises established in Shenzhen, where ENS is located, the national tax rate could be reduced to 15%. ENS is subject to PRC enterprises income tax at the applicable tax rates on the taxable income as reported in the PRC statutory accounts in accordance with the relevant enterprises income tax laws applicable to foreign enterprises.



The income tax expenses consists of the following :-



| |                                    | Year ended December 31,
| | ---------------------------------- | -----------------------
| |                                    | 2004                   
| |                                    | US$                    
| | Current:-                          |                        
| | PRC                                | (1,838,684)            
| | Total current expenses             | (1,838,684)            
| |                                    |                        
| | Deferred:-                         |                        
| | PRC                                | 6,861                  
| | Hong Kong                          | (50,848)               
| | Total deferred (expenses)/benefits | (43,987)               
| |                                    |                        
| | Total expenses for income tax      | (1,882,671)            
| |                                    |                        

|26
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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.

INCOME TAXES (CONT'D)



Income tax expenses vary from the amount computed by applying the PRC statutory income tax rate to income/(loss) before income tax as follow:-



| |                                          | Year ended December, 31
| | ---------------------------------------- | -----------------------
| |                                          | 2004                   
| |                                          | US$                    
| |                                          | (restated)             
| | Income/(loss) before income tax          | 6,709,512              
| |                                          |                        
| | Expected income tax (expenses)/          |                        
| | benefits at PRC income tax rate of 15%   | (1,006,427)            
| | Tax rates differential                   | 937,540                
| | Expenses not deductible for tax purposes | (64,812)               
| | Income subject to both PRC and           |                        
| | Hong Kong income tax                     | -                      
| | Change in valuation allowances           | (1,748,972)            
| |                                          |                        
| | Income tax expenses                      | (1,882,671)            



The major components of deferred tax assets and liabilities as of December 31, 2004 and 2003 are as follows:-



| |                                                        | December 31,
| | ------------------------------------------------------ | ------------
| |                                                        | 2004        
| |                                                        | US$         
| |                                                        | (restated)  
| | Deferred tax assets: -                                 |             
| | Excess of book depreciation expense over tax           |             
| | depreciation expense                                   | 8,683       
| | Expenses that are reported in financial statements     |             
| | prior to becoming deductible for tax purposes          | -           
| | Tax losses                                             | 2,012,047   
| | Valuation allowances                                   | (1,748,972) 
| |                                                        | 271,758     
| | Deferred tax liabilities:-                             |             
| | Expenses that are deductible for tax purposes prior to |             
| | being reported in financial statements                 | -           
| | Revenue recognized for financial reporting purposes    |             
| | before being recognized for tax purposes               | -           
| |                                                        | -           
| |                                                        |             
| |                                                        | 271,758     



At December 31, 2004 and 2003, CXTI had tax losses amounted to US$4,653,508 and US$85,018 respectively which can be carried forward twenty years from the year of loss.



At December 31, 2004 and 2003, CEN had tax losses amounted to US$2,360,431 and US$1,797,904 respectively which can be carried forward indefinitely.

|  
|--
|27

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





14.

BASIC AND DILUTED NET INCOME/ (LOSS) PER SHARE



(i)

The net income/(loss) per share is calculated using the net income/(loss) and the weighted average number of shares outstanding during the year.



| |                                | Year ended December 31, | 
| | ------------------------------ | ----------------------- | 
| |                                | 2004                    | 
| |                                | (restated)              | 
| |                                |                         | 
| | Net income/(loss) (US$)        | 4,826,841               | 
| |                                |                         | 
| | Weighted average common shares |                         | 
| | Outstanding                    | 23,673,802              | 
| |                                |                         | 
| | Basic net income/(loss)        |                         | 
| | per share (US$)                | 0.20                    | 
| |                                |                         | 

#The number represents the number of shares issued by CXTI for the Exchange.



(ii)

The diluted net income/(loss) per share is not presented as there is no dilutive effect for the years ended December 31, 2004, 2003 and 2002.





15.

COMMON STOCK



| |                                             | No. of shares |  | Amount 
| | ------------------------------------------- | ------------- |  | -------
| |                                             |               |  | US$    
| | Authorized:-                                |               |  |        
| |                                             |               |  |        
| | Common stock at US$0.001 par value          | 200,000,000   |  | 200,000
| |                                             |               |  |        
| | Issued and outstanding:-                    |               |  |        
| |                                             |               |  |        
| | Common stock at US$0.001 par value          |               |  |        
| | At January 1, 2002, 2003 and 2004           | 19,935,000    |  | 19,935 
| | Shares issued for reverse takeover          | 728,474       |  | 728    
| | Shares issued in return for consultancy     |               |  |        
| | services on reverse takeover                | 1,400,000     |  | 1,400  
| | Shares issued in return for provision of    |               |  |        
| | consultancy works (Note 15(i))              | 1,800,000     |  | 1,800  
| | Shares issued in return for the sourcing of |               |  |        
| | a contract customer (Note 15(ii))           | 1,101,205     |  | 1,101  
| | Cancellation of shares (Note 15(iii))       | (550,000)     |  | (550)  
| |                                             |               |  |        
| | At December 31, 2004                        | 24,414,679    |  | 24,414 

|  
|--
|28

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|
|

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.

COMMON STOCK (CONT'D)



(i)

On February 18, 2004, the Company entered into Consulting Agreements with the Consultants for the provision of various consultancy works.  The terms of these Consulting Agreements commence on February 18, 2004 and end on February 17, 2009. In consideration of the consulting services provided, the Company issued in aggregate 1,800,000 shares of the Company's common stock to the Consultants in February of 2004 (Note 1).



(ii)

On February 26, 2004, the Company entered into Strategic Services Agreement with a corporate consultant for the provision of the sourcing of e-government contracts in the PRC. In consideration of the consulting services provided, the Company issued 1,101,205 shares of the Company's common stock to the corporate consultant in November of 2004 (Note 1).



(iii)

On December 28, 2004, the Company entered into an agreement with one of the Consultants for the termination of the aforementioned consulting agreement and the surrender of 550,000 shares of the Company's common stock previously granted to him.  Such shares were canceled in December of 2004 (Note 1).





16.

ADDITIONAL PAID-IN CAPITAL



| |                                                         | US$         | 
| | ------------------------------------------------------- | ----------- | 
| | At December 31, 2002 and 2003                           | 3,836,106   | 
| | Common stock issued in relation to:-                    |             | 
| | Reverse takeover                                        | 20,607      | 
| | The provision of consultancy works for reverse takeover | 2,938,600   | 
| | The provision of consultancy works                      | 3,598,200   | 
| | The sourcing of a contract customer                     | 1,100,104   | 
| | Cancellation of shares                                  | (1,099,450) | 
| |                                                         |             | 
| |                                                         | 10,394,167  | 



The paid-in capital represents the excess of the aggregate fair value of the Company's common stock issued under the Consulting Agreements (Note 15(i)) and the Strategic Services Agreement (Note 15(ii)) over the par value of the stocks issued, after adjustment for the portion in relation to the shares canceled (Note 15(iii)) during the year. The fair value is determined by reference to the average price of the Company's common stock quoted on the OTCBB at the dates of issuance.



The fair values for the common stock issued in connection with the Consulting Agreements (as adjusted for the cancellation of shares) and the Strategic Services Agreement were treated as prepaid expenses (Note 7) and expensed as advertising and promotional expenses.





17.

STOCK INCENTIVE PLAN



(i)

At the annual meeting of the stockholders held on January 21, 2003, the Company's 2002 Stock Incentive Plan (the Plan) was approved. Under the Plan, the Compensation Committee of the Board of Directors, in its discretion, may grant common stock or options to purchase common stock of the Company to key employees, consultants, and non-employee directors of the Company.  The Company has reserved 825,000 shares of common stock for the options under the Plan.



The purpose of the Plan is to improve the Company's ability to attract, retain and compensate highly competent key employees, non-employee directors and consultants and to motivate selected key employees, non-employee directors and consultants of the Company to achieve long-term corporate objectives, by awarding certain options to purchase the Company's common stock, and to receive grants of common stock subject to certain restrictions.



29

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CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



17.

STOCK INCENTIVE PLAN (CONT'D)



The Compensation Committee of the Board of Directors shall have the authority to determine all matters relating to the options to be granted under the Plan including selection of the individuals to be granted awards or stock options, the number of stock, the date, the termination of the stock options or awards, the stock option term, vesting schedules and all other terms and conditions thereof.



(ii)

No options or awards have been made, exercised or lapsed since the adoption of the Plan.





18.

PENSION PLANS



CEN participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (MPF Scheme) for all its eligible employees in Hong Kong.



The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment of CEN in Hong Kong.  Contributions are made by CEN at 5% based on the participants' relevant income with a ceiling of US$2,564 (or HK$20,000).  The participants are entitled to 100% of CEN's contributions together with accrued returns irrespective of their length of service with CEN, but the benefits are required by law to be preserved until the retirement age of 65.



As stipulated by the PRC government regulations, ENS is required to contribute to PRC insurance companies organized by the PRC government which are responsible for the payments of pension benefits to retired staff.  The monthly contribution of ENS was equal to 9% of the salaries of the existing staff.  ENS has no obligation for the payment of pension benefits beyond the annual contributions described above.



The assets of the schemes are controlled by trustees and held separately from those of CEN and ENS.  Total pension cost was US$15,635 US$17,674 and US$16,629 during the years ended December 31, 2004, 2003 and 2002 respectively.





19.

COMMITMENTS



The Company leases office premises in Hong Kong under a non-cancelable operating lease agreement that expires at a date through April 2007. Minimum future commitments under this agreement with term in excess of one year as of December 31, 2004 were as follows:-



| | Year | US$     | 
| | ---- | ------- | 
| |      |         | 
| | 2005 | 106,060 | 
| | 2006 | 106,060 | 
| | 2007 | 29,166  | 
| |      |         | 
| |      | 241,286 | 



In addition, the Company leases office premises in the PRC from a former officer, Mr. Lai.  Details of operating lease arrangement are set out in Note 9.



Rental expense was US$281,621, US$339,649 the US$317,100 during the years ended December 31, 2004, 2003 and 2002, respectively.



20.

CONCENTRATION



The Company's major customers are two local government bodies in Fujian Province of the PRC which accounted for 100%, 99% and 67% of the Company's total revenue in relation to the provision of consultancy and system integration for establishment of e-government information system and network for the years ended December 31, 2004, 2003 and 2002 respectively.



30

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CHINA EXPERT TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



21.

SUPPLEMENTAL CASH FLOW INFORMATION



During the years ended December 31, 2004, 2003 and 2002, no interest and income tax payments were made by the Company.



The major non-cash transactions in the year ended December 31, 2004 are the issues of the Company's common stock for the acquisition of CEN, the provision of consultancy works and the sourcing of a contract customer as detailed in Notes 1, 15 and 16.





22.

POST BALANCE SHEET EVENTS



Subsequent to December 31, 2004, the Company paid income tax of approximately US$1.2 million.  The loan to Mr. Kung was fully repaid.



31

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

During the period of January 1 to December 31, 2004, the Company has had no
disagreements with its principal independent accountants.

ITEM 8A. CONTROLS AND PROCEDURES

The Securities and Exchange Commission defines the term disclosure controls
and procedures to mean a company's controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. The Company maintains such
a system of controls and procedures in an effort to ensure that all information
which it is required to disclose in the reports it files under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified under the SEC's rules and forms.

Based on an evaluation performed, the Company's certifying officers have
concluded that the disclosure controls and procedures were effective as of
December 31, 2004, to provide reasonable assurance of the achievement of these
objectives.

On November 16, 2004, the Company appointed Ms. Chiang Min Liang as its new
principal financial officer or CFO. The Company's Board made the decision to
appoint a new CFO in order to have a more experienced person in that position,
determined that Ms. Chiang Min Liang was well suited to the position because of
her qualification and previous work experience. The Company's previous CFO, Mr.
Cheung Ming Jeff, has continued his employment with the Company as the chief
accountant. The change of the CFO over financial reporting during the quarter
ended December 31, 2004, has not materially affected, or is reasonably unlikely
to materially affect, the Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

None.

32

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The following table sets forth the names and ages of the current officers and
directors of the Company. The Company has not had standing audit, nominating or
compensation committees of the Board of Directors or committees performing
similar functions. All such applicable functions have been performed by the
Board of Directors as a whole.

Directors and Executive Officers

|Name             | Age | Position held and
    tenure                                   
|---------------- | --- | ---------------------------------------------------------------
|Zhu Xiao Xin     | 38  | President and
    Director since February 9, 2004              
|Kung Sze Chau    | 57  | Chief Executive
    Officer and Director since February 9, 2004
|Chiang Min Liang | 40  | Chief Financial
    Officer since November 16, 2004            

Biographical Information

Below are brief descriptions of the backgrounds and experiences of the
officers and directors:

Mr. Zhu Xiao Xin.

From April 1998 to September 1999, Mr. Zhu was the Executive Manager for
Syscan Technology (Shenzhen) Company Limited. From September 1999 to June 2000,
he was President of Shenzhen Hecheng Technology Company Limited. From 2002 to
2003, he was the Vice President of Expert Network Development (Shenzhen) Company
Limited. Since December 2003, Mr. Zhu has been the President of China Expert
Network Company, Ltd. In 1987 Mr. Zhu received a Bachelor of Science from the
University of Science and Technology of China. Since 1999 he has been a
Researcher at the Jiangxi University of Finance and Economics. Mr. Zhu has
qualified as an Economist in China.

Mr. Kung Sze Chau.

Mr. Kung is the Chief Executive Officer and a director of China Expert
Network Company Limited. He has held these positions since May 2000. Mr. Kung
has over 20 years experience in investment and management. He was the past Vice
President and Managing Director of many large-scale enterprises in PRC. He also
specializes in biological pharmaceutical and property investments.

Ms. Chiang Min Liang.

Ms. Chiang received her Bachelor of Economics in 1988. In 1997, she obtained
the professional qualification of Certified Public Accountant in China. Ms.
Chiang started her career in the educational field where she taught auditing and
accounting for over 6 years. Later, Ms. Chiang worked in several leading
enterprises in finance and accounting position and few well known professional
accounting firms in China in which she was responsible for accounting, finance,
auditing, capital verification, and asset appraisal work for many listed
enterprises. Ms. Chiang has over 16 years of experience in finance and auditing
in China and Hong Kong. She has joined the China Expert group as the Chief
Accountant since June 2004.

Involvement in Certain Legal Proceedings

Other than that described above, there have been no events during the last
five years that are material to an evaluation of the ability or integrity of any
director, person nominated to become a director, executive officer, promoter or
control person including:

1. any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;

2. any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);

3. being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently enjoining, barring, suspending or otherwise limiting his/her
involvement in any type of business, securities or banking activities;

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4. being found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.Family Relationships

There are no family relationships between any of the officers and/or
directors.

Audit Committee Financial Expert

The Company does not currently have an audit committee financial expert. The
current management of the Company has only been in place since February 9, 2004,
and they have not yet had the opportunity to locate and appoint a financial
expert.

Section 16(a) Beneficial Ownership Compliance

Based solely on a review of Forms 3 and 4 furnished to the
Company during the fiscal year ended December 31, 2004, none of the officers,
directors or principal shareholders of the Company have failed to file or been
delinquent in filing reports required under Section 16(a) of the Exchange Act.

Code of Ethics

The Company does not currently have a code of ethics. When the current
management of the Company was appointed on February 9, 2004, the Company did not
have a code of ethics in place, and the current management has not yet adopted a
code of ethics. The Company intends to adopt a code of ethics in the near
future.

ITEM 10. EXECUTIVE COMPENSATION

During the fiscal years ending December 31, 2004, 2003 and 2002, none of our
executive officers was paid compensation in excess of $100,000 per year.

The following table sets forth the compensation paid by us to our chief
executive officer for fiscal years ending 2004, 2003 and 2002.



|Name and
    principal | Year | Salary ($) | Bonus ($) | Other annual    
|---------------------- | ---- | ---------- | --------- | ----------------
|position               |      |            |           | compensation ($)
|                       |      |            |           |                 
|Kung Sze Chau,         | 2004 | 0          | 0         | 0               
|Director and CEO       |      |            |           |                 
|                       | 2003 | 0          | 0         | 0               
|                       | 2002 | 0          | 0         | 0               

Directors are entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors. The Board of Directors may award special remuneration to any
Director undertaking any special services on behalf of the Company other than
services ordinarily required of a Director. During the fiscal year ended
December 31, 2004, no Director received or accrued any compensation for his
services as a Director, including committee participation or special
assignments.

The Company has no written employment agreement with Mr. Kung Sze Chau, its
CEO and director who has not received any compensation during the fiscal year
ended December 31, 2004.

The Company, through its subsidiary, ENS, has written employment agreements
with Zhu Xiao Xin, its President and Director and Chiang Min Liang, its Chief
Financial Officer.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, as of the date hereof, stock ownership of
each executive officer and director of the Company, of all executive officers
and directors of the Company, as a group, and of each person known by the
Company to be a beneficial owner of 5% or more of its Common Stock as of
December 31,2004. Except as otherwise noted, each person listed below is the
sole beneficial owner of the shares and has sole investment and voting power as
to such shares. No person listed below has any options, warrant or other right
to acquire additional securities of the Company, except as may be otherwise
noted. The amount of outstanding common stock as of December 31, 2004 is
24,414,679 shares.

|                                                                     |           | Number of Shares   | Percent of Class
|-------------------------------------------------------------------- | --------- | ------------------ | ----------------
|Name and
    Address                                                 |           | Beneficially Owned |                 
|                                                                     |           |                    |                 
|Zhu Xiaoxin (1)
    (2)                                              |           | 1,893,825          | 7.76%           
|                                                                     |           |                    |                 
|Kung Sze Chau (1)
    (3)                                            |           | 2,109,461          | 8.64%           
|Chiang Min Liang
    (1)                                             |           | 0                  | 0               
|Lai Man Yuk (4)                                                      |           | 2,535,732          | 10.39%          
|Tsang Chi Wai
    Eric (5)                                           |           | 1,459,242          | 5.98%           
|Chan Chak Mo(6)                                                      |           | 2,265,613          | 9.28%           
|                                                                     |           |                    |                 
|Li Sze Tang (7)                                                      |           | 3,709,904          | 15.20%          
|Wong Lap Woon (8)                                                    |           | 1,993,500          | 8.17%           
|China
    Data Holdings Limited (9)                                  | 9,967,500 | 40.83%            
|Ibroader Developments Limited                                        | 3,709,904 | 15.20%            
|                                                                     |           |                    |                 
|China
    Link Investment Group Limited (10)                         | 2,270,595 | 9.30%             
|                                                                     |           |                    |                 
|I-Mode Technology
    Limited                                        |           | 1,993,500          | 8.17%           
|All
    Current Officers and Directors as a Group (11) (3 in Number) | 4,003,286 | 16.40%            
|                                                                     |           |                    |                 

(1) The person listed is currently
an officer, a director, or both, of the Company.

(2) Includes 1,893,825 shares held
of record by China Data Holdings Limited, of which Mr. Zhu may be deemed to be
the beneficial owner as a result of the ownership of approximately 19% of the
share capital of China Data Holdings Limited by Supreme Top Limited, which is
wholly owned by Mr. Zhu.

(3) Includes 906,046 shares held of
record by China Data Holdings Limited, of which Mr. Kung may be deemed to be the
beneficial owner as a result of the ownership of approximately 9.09% of the
share capital of China Data Holdings Limited by Tongo Network Limited, which is
wholly owned by Mr. Kung. Also includes 1,203,415 shares held of record by China
Link Investment Group, of which Mr. Kung owns approximately 53% of the share
capital.

(4) Includes 2,535,732 shares held
of record by China Data Holdings Limited, of which Mr. Lai may be deemed to be
the beneficial owner as a result of the ownership of approximately 31.8% of the
share capital of China Data Holdings Limited by Asia Style.com Group Limited, of
which Mr. Lai owns 80% of the share capital.

(5) Includes 633,933 shares held of
record by China Data Holdings Limited, of which Mr. Tsang may be deemed to be
the beneficial owner as a result of the ownership of approximately 31.8% of the
share capital of China Data Holdings Limited by Asia Style.com Group Limited, of
which Mr. Tsang owns 20% of the share capital. Also includes 825,309 shares held
of record by China Data Holdings Limited, of which Mr. Tsang may be deemed to be
the beneficial owner as a result of ownership of approximately 8.28% of the
share capital of China Data Holdings Limited by Lucky Cyber Investments Limited,
which is wholly owned by Mr. Tsang.

(6) Includes 2,265,613 shares held
of record by China Data Holdings Limited, of which Mr. Chan may be deemed to be
the beneficial owner as a result of the ownership of approximately 22.73% of the
share capital of China Data Holdings Limited by Assembled Profits Limited, which
is wholly owned by Mr. Chan.

(7) Includes 3,709,904 shares held
of record by Ibroader Developments Limited, of which Mr. Li may be deemed to be
the beneficial owner, as a result of his ownership of Ibroader Developments
Limited.

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(8) Includes 1,993,500 shares held
of record by I-Mode Technology Limited, of which Ms. Wong may be deemed to be
the beneficial owner as a result of her ownership of I-Mode Technology Limited.
(9) Includes shares beneficially
owned by Zhu Xiaoxin and Kung Sze Chau, as described in the footnotes (2) and
(3), above. (10) Includes shares beneficially owned by Kung Sze Chau, as
described in footnote (3) above. (11) Includes shares beneficially owned by Zhu
Xiaoxin and Kung Sze Chau as described in footnotes (2) and (3), above.Equity Compensation Plans

On November 21, 2002, the Board of Directors of the Company unanimously
adopted the 2002 Stock Option Plan for the Company. Under the 2002 Stock Option
Plan, the Compensation Committee of the Board of Directors, in its discretion,
may grant common stock or stock options to purchase common stock of the Company
to key employees, consultants, and non-employee directors of the Company. The
Company has reserved 825,000 shares of common stock for the grant of options
under the plan, subject to anti-dilution provisions and adjustments for stock
splits. At the annual meeting held on January 21, 2003 the stockholders approved
the plan.

As of the date hereof, no stock or stock options have been granted under the
2002 Stock Option Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the share exchange transaction with China Expert which was
consummated on February 9, 2004, the Company issued a total of 200,000 shares to
Hudson Capital Corporation, as compensation for consulting services. Terry G.
Cook, who was the President and a Director of the Company at the time of the
share exchange transaction, is the controlling shareholder of Hudson Capital
Corporation.

The Company rents office space in Shenzhen, China for its operative office
from a former officer, Mr. Lai Man Yuk. The Company paid $133,404 being total
rental for the offices in the fiscal year 2004. The rental rate was established
by the parties based upon market rental rates.

The Company made a loan in the amount of approximately $3,000,000 to Kung Sze
Chau, one of its officers and directors. The loan is unsecured, bears interest
at the rate of 5.22% per annum, and is due and payable in full on January 15,
2005. During the year the Company received interest payments totaling $22,111
from Mr. Kung. The loan was paid in full subsequent to December 31, 2004.

ITEM 13. EXHIBITS

(a) The Exhibits listed below are filed as part of this Annual Report.

31.1 Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as amended.

31.2 Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as amended.

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by PKF, Certified Public Accountants for audit of
the Company's annual financial statements were $119,537 for the fiscal year
ended December 31, 2004, and $0 for the fiscal year ended December 31, 2003. The
aggregate fees billed by PKF, Certified Public Accountant, for review of the
Company's financial statements included in its quarterly reports on Form 10-QSB
were $23,077 during the period ended December 31, 2004. PKF, Certified Public
Accountant, has been retained on December 29, 2004 to audit the Company's annual
financial statements for the fiscal year ended December 31, 2004. PKF, Certified
Public Accountant, adopting reverse takeover accounting treatment for financial
reporting purpose, audited the annual financial statements of the Company as a
continuity of China Expert for the fiscal year ended December 31, 2003 and
December 31, 2002.

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The aggregate fees billed by Telford Sadovnick, P.L.L.C. for audit of the
Company's annual financial statements were $5,000 for the fiscal year ended
December 31, 2003, and $0 for the fiscal year ended December 31, 2002. The
aggregate fees billed by Telford Sadovnick, P.L.L.C. for review of the Company's
financial statements included in its quarterly reports on Form 10-QSB were $0
during the period ended December 31, 2003, and $0 during the period ended
December 31, 2002. Telford Sadovnick, P.L.L.C., was retained in January 2004 to
audit the Company's annual financial statements for the fiscal year ended
December 31, 2003. They were not involved prior to January 2004 and thus did not
audit the Company's annual financial statements for the fiscal year ended
December 31, 2002 and to review the quarterly reports for the fiscal year ended
December 31, 2003 or earlier.Audit-Related Fees

PKF, Certified Public Accountants, did not bill the Company any amounts for
assurance and related services that were related to its audit or review of the
Company's financial statements during the fiscal years ending December 31, 2004.

Telford Sadovnick, P.L.L.C. did not bill the Company any amounts for
assurance and related services that were related to its audit or review of the
Company's financial statements during the fiscal years ending December 31, 2003.

Tax Fees

The aggregate fees billed by PKF, Certified Public Accountants, for tax
compliance, advice and planning were $2,000 for the fiscal year ended December
31, 2004.

The aggregate fees billed by Telford Sadovnick, P.L.L.C. for tax compliance,
advice and planning were $0 for the fiscal year ended December 31, 2003.

All Other Fees

PKF, Certified Public Accountants, did not bill the Company for any products
and services other than the foregoing during the fiscal years ended December 31,
2004.

Telford Sadovnick, P.L.L.C. did not bill the Company for any products and
services other than the foregoing during the fiscal years ended December 31,
2003.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on .

CHINA EXPERT TECHNOLOGY, INC.

By: /s/
Zhu Xiaoxin
Zhu Xiaoxin
Chief Executive Officer, President and Director 
Date: June 14, 2006

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By: /s/
Huang Tao 
Huang Tao 
Chairman and Director 
Date: June 14, 2006

By: /s/
Kung Sze Chau 
Kung Sze Chau 
Director 
Date: June 14, 2006

By: /s/
Fu Wan Chung, Simon 
Fu Wan Chung, Simon 
Chief Financial Officer 
Date: June 14, 2006

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