**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      20-F**




(Mark
      One)




 ̈
            REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934




OR




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




For
      the
      fiscal year ended December 31, 2006




OR




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




OR




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




Date
      of
      event requiring this shell company report




For
      the
      transition period from ___________ to ___________.




Commission
      file number: 000-




**Yucheng
      Technologies Limited**


(Exact
      name of Registrant as specified in its charter)




Not
      Applicable


(Translation
      of Registrant’s name into English)




**British
      Virgin Islands**


(Jurisdiction
      of incorporation or organization)





**3F
      Tower B, Beijing Financial Trust Building**


**5
      Anding Road, Chao Yang District, Beijing 1000029, PRC**


(Address
      of principal executive offices)







Securities
      registered or to be registered pursuant to Section 12(b) of the Act




Title
                of each class
            Name
                of each exchange on which registered**Ordinary
                Shares**
            **The
                Nasdaq Stock Market LLC**




Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act.




None


(Title
      of
      Class)




Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act.




None


(Title
      of
      Class)




Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual report:
      9,528,320 ordinary shares.




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.




 ̈ Yes   x No




If
      this
      report is an annual or transaction report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.




 ̈ Yes   x No




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.




Large
      accelerated filer  ̈  Accelerated
      filer   ̈  Non-accelerated
      filer x




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).




 ̈ Yes   x No




Indicate
      by check mark which financial statement item the registrant has elected to
      follow:




 ̈ Item
      17   x Item
      18




2


**YUCHENG
      TECHNOLOGY LIMITED**





**TABLE
      OF CONTENTS**





**Page**INTRODUCTION
              
              4FORWARD-LOOKING
                INFORMATION
              
              4PART
                I
              
              6ITEM
                  1.
              
              IDENTITY
                  OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
              
              6ITEM
                  2.
              
              OFFER
                  STATISTICS AND EXPECTED TIMETABLE
              
              6ITEM
                  3.
              
              KEY
                  INFORMATION
              
              6ITEM
                  4.
              
              INFORMATION
                  ON THE COMPANY
              
              19ITEM
                  5.
              
              OPERATING
                  AND FINANCIAL REVIEW AND PROSPECTS
              
              39ITEM
                  6.
              
              DIRECTORS,
                  SENIOR MANAGEMENT AND EMPLOYEES
              
              55ITEM
                  7.
              
              MAJOR
                  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              
              63ITEM
                  8.
              
              FINANCIAL
                  INFORMATION
              
              65ITEM
                  9.
              
              THE
                  OFFER AND LISTING
              
              65ITEM
                  10.
              
              ADDITIONAL
                  INFORMATION
              
              67ITEM
                  11.
              
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUTMARKET
                  RISK
              
              77ITEM
                  12.
              
              DESCRIPTION
                  OF SECURITIES OTHER THAN EQUITY SECURITIES
              
              78PART
                II
              
              78ITEM
                  13.
              
              DEFAULTS,
                  DIVIDEND ARREARAGES AND DELINQUENCIES
              
              78ITEM
                  14.
              
              MATERIAL
                  MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS
                  AND USE OF PROCEEDS
              
              78ITEM
                  15.
              
              CONTROLS
                  AND PROCEDURES
              
              78ITEM
                  16A.
              
              AUDIT
                  COMMITTEE FINANCIAL EXPERT.
              
              78ITEM
                  16B.
              
              CODE
                  OF ETHICS.
              
              79ITEM
                  16C.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES.
              
              79ITEM
                  16D.
              
              EXEMPTIONS
                  FROM THE LISTING STANDARDS FOR AUDITCOMMITTEES.
              
              80ITEM
                  16E.
              
              PURCHASES
                  OF EQUITY SECURITIES BY THE ISSUER ANDAFFILIATED
                  PURCHASERS.
              
              80PART
                III
              
              81ITEM
                  17.
              
              FINANCIAL
                  STATEMENTS
              
              81ITEM
                  18.
              
              FINANCIAL
                  STATEMENTS
              
              81ITEM
                  19.
              
              EXHIBITS
              
              122INDEX
                TO EXHIBITS
              
              122
 3




**INTRODUCTION**




Except
      where the context otherwise requires and for purposes of this annual report
      only:




·
            “we,”
                “us,” “our company,” “our” , “Company” , “the company” and “Yucheng” refer
                to Yucheng Technologies Limited and, in the context of describing
                our
                operations, also include our PRC operating companies, including our
                principal subsidiaries Beijing Sihitech Technology Co., Ltd and Beijing
                e-Channels Century Technology Co., Ltd.;
              Yucheng
                  Group refers to Yucheng Technologies Limited and its controlled
                  subsidiaries;
                
                Sihitech
                  BVI refers to Ahead Billion Venture Ltd.;
                
                e-Channels
                  BVI refers to Port Wing Development Co., Ltd.
                
                “Beijing
                  Sihitech”, “Sihitech” and “Sihitech Group” refer to Beijing Sihitech
                  Technology Co., Ltd. and its controlled subsidiaries;
                
                “Beijing
                  e-Channels” and “e-Channels” refer to Beijing e-Channels Century
                  Technology Co., Ltd.




·
            “shares”
                and “ordinary shares” refer to our ordinary
                shares;




·
            “China”
                or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong
                Kong and Macau;




·
            “Hong
                Kong” refers to the Hong Kong Special Administrative Region of the
                People’s Republic of China; and




·
            all
                references to “Renminbi,” “RMB” or “yuan” are to the legal currency of
                China, all references to “U.S. dollars,” “dollars,” “$” or “US $” are
                to the legal currency of the United States. Any discrepancies in
                any table
                between totals and sums of the amounts listed are due to
                rounding.




**FORWARD-LOOKING
      INFORMATION**




This
      annual report on Form 20-F contains forward-looking statements that are based
      on
      our current expectations, assumptions, estimates and projections about us and
      our industry. All statements other than statements of historical fact in this
      annual report are forward-looking statements. These forward-looking statements
      can be identified by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “estimate,” “plan,” “believe,” “is /are likely to” or other
      similar expressions. The forward-looking statements included in this annual
      report relate to, among others:




·
            our
                goals and strategies, including how we effect our goals and
                strategies;




4




·
            our
                expectations for our future business development, business prospects,
                results of operations and financial
                condition;




·
            expected
                changes in our margins and certain costs or
                expenditures;




·
            our
                future pricing strategies or
                policies;




·
            our
                plans to expand our business operations and product
                offerings;




·
            expected
                changes in our revenues from particular
                sources;




·
            competition
                from other providers of IT services and
                products;




·
            the
                time to develop and market new services and
                products;




·
            PRC
                governmental policies relating to the business development, banking
                regulation and regulation of the financial services sector;
                and




·
            other
                “forward-looking” information.




We
      believe it is important to communicate our expectations to our stockholders.
      However, there may be events in the future that we are not able to predict
      accurately or over which we have no control. The risk factors and cautionary
      language discussed in this annual report provide examples of risks,
      uncertainties and events that may cause actual results to differ materially
      from
      the expectations in these forward-looking statements, including among other
      things:




·
            changing
                interpretations of generally accepted accounting
                principles;




·
            outcomes
                of government reviews, inquiries, investigations and related
                litigation;




·
            continued
                compliance with government
                regulations;




·
            legislation
                or regulatory environments, requirements or changes adversely affecting
                the businesses in which we and our PRC operating companies are engaged;
                and




·
            geopolitical
                events and regulatory changes.




These
      forward-looking statements involve various risks, assumptions and uncertainties.
      Although we believe that our expectations expressed in these forward-looking
      statements are reasonable, we cannot assure you that our expectations will
      turn
      out to be correct. Our actual results could be materially different from and
      worse than our expectations. Important risks and factors that could cause our
      actual results to be materially different from our expectations are generally
      set forth in Item 3.D of this annual report, “Key information — Risk Factors”
and elsewhere in this annual report.




5




The
      forward-looking statements made in this annual report relate only to events
      or
      information as of the date on which the statements are made in this annual
      report. You should not place undue reliance on these forward-looking statements,
      and you should read these statements in conjunction with the risk factors
      disclosed in Item 3.D of this annual report.




All
      forward-looking statements included herein attributable to us or other parties
      or any person acting on our behalf are expressly qualified in their entirety
      by
      the cautionary statements contained or referred to in this section. Except
      to
      the extent required by applicable laws and regulations, we undertake no
      obligations to update these forward-looking statements to reflect events or
      circumstances after the date of this annual report or to reflect the occurrence
      of unanticipated events.




**PART
      I**




**ITEM
      1.**  **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS** ****




Not
      Applicable.




**ITEM
      2.**  **OFFER
      STATISTICS AND EXPECTED TIMETABLE** ****




Not
      Applicable.




**ITEM
      3.**  **KEY
      INFORMATION** ****




**A.**  **Selected
      financial data.**




Yucheng
      Technologies Limited was formed on November 24, 2006 upon consummation of a
      three party merger of China Unistone Acquisition Corporation ("China Unistone"),
      Beijing Sihitech Technology Co., Ltd., and Beijing e-Channels Century Technology
      Co., Ltd. Due to the purchase method of accounting used in consolidating
      e-Channels and China Unistone Acquisiton Corporation into Sihitech, there is
      only one month’s operating data of e-Channels included in the consolidated
      income statement for the year ended December 31, 2006 of the Yucheng Group.
      To
      provide readers with a fuller view of the combined financial condition and
      operational results of the Yucheng Group for 2006 and meaningful comparison
      with
      previous years, the following selected financial information for the Yucheng
      Group is derived from the Yucheng Group’s unaudited pro forma results as if
      Sihitech and e-Channels (the Chinese operating companies) were combined as
      of
      January 1, 2003. The summary statement of operations data for the year ended
      December 31, 2006 and the summary balance sheet data as of December 31, 2006
      are
      derived from the unaudited pro forma results in Note 20 “Acquisition of a
      subsidiary” and the audited consolidated financial statements of the Company,
      respectively, and are qualified in their entirety by reference to, the audited
      consolidated financial statements of the Company, including the notes thereto,
      which are included in this annual report. The summary statement of operations
      data for the years ended December 31, 2003, 2004 and 2005, and the summary
      balance sheet data as of December 31, 2003, 2004 and 2005 set forth below
      are derived from audited consolidated financial statements of Sihitech and
      e-Channels not included in this annual report, but filed with SEC in the Form
      S-4 Registration Statement declared effective on November 3, 2006. Our unaudited
      pro forma financial statements are assembled based on the consolidated financial
      statements or information prepared and presented in accordance with accounting
      principles generally accepted in the United States, or U.S. GAAP.




6




Pro
                forma (Unaudited), Year Ended December 312006(USD)
            
            2006(RMB)
            
            2005(RMB)
            
            2004(RMB)
            
            2003(RMB)**Revenues:****Total
                revenues**
            
            
            39,979,849
            
            
            312,190,647
            
            
            201,381,727
            
            
            260,091,930
            
            
            198,477,863**-SI**
            
            
            24,915,788
            
            
            194,559,916
            
            
            118,706,464
            
            
            206,156,475
            
            
            167,459,338**-Non-SI**
            
            
            15,064,061
            
            
            117,630,731
            
            
            82,675,263
            
            
            53,935,455
            
            
            31,018,525**Cost
                of revenues:****Total
                Cost of revenues**
            
            
            (28,599,404
            )
            
            (223,324,163
            )
            
            (141,039,821
            )
            
            (198,474,216
            )
            
            (159,447,092
            )**-SI**
            
            
            (22,017,235
            )
            
            (171,925,980
            )
            
            (107,327,345
            )
            
            (176,817,463
            )
            
            (142,622,243
            )**-Non-SI**
            
            
            (6,582,169
            )
            
            (51,398,183
            )
            
            (33,712,476
            )
            
            (21,656,753
            )
            
            (16,824,849
            )**Total
                gross profit**
            
            
            11,380,445
            
            
            88,866,484
            
            
            60,341,906
            
            
            61,617,714
            
            
            39,030,771**-SI**
            
            
            2,898,554
            
            
            22,633,936
            
            
            11,379,119
            
            
            29,339,012
            
            
            24,837,095**-Non-SI**
            
            
            8,481,892
            
            
            66,232,548
            
            
            48,962,787
            
            
            32,278,702
            
            
            14,193,676**Operating
                expenses:**Research
                and development
            
            
            (482,146
            )
            
            (3,764,931
            )
            
            (2,349,536
            )
            
            (1,416,277
            )
            
            (811,103
            )Selling
                and marketing
            
            
            (2,015,399
            )
            
            (15,737,643
            )
            
            (13,363,294
            )
            
            (16,694,697
            )
            
            (13,725,030
            )General
                and administrative
            
            
            (2,599,996
            )
            
            (20,302,592
            )
            
            (16,838,352
            )
            
            (16,173,768
            )
            
            (13,300,981
            )Subsidies
                and value-added tax refunds
            
            
            468,485
            
            
            3,658,256
            
            
            2,627,557
            
            
            1,229,499
            
            
            552,188**Total
                operating expenses**
            
            
            (4,629,056
            )
            
            (36,146,910
            )
            
            (29,923,625
            )
            
            (33,055,243
            )
            
            (27,284,926
            )**Other
                income (expenses):**Interest
                income
            
            
            17,111
            
            
            133,618
            
            
            164,063
            
            
            168,383
            
            
            220,330Interest
                expense
            
            
            (163,646
            )
            
            (1,277,861
            )
            
            (630,520
            )
            
            (224,483
            )
            
            (125,429
            )Equity
                in loss of affiliates, net
            
            
            (17,287
            )
            
            (134,986
            )
            
            (758,609
            )
            
            (444,498
            )
            
            (1,275,481
            )Other
                income(expense), net
            
            
            5,036
            
            
            39,322
            
            
            472,360
            
            
            107,639
            
            
            64,280Minority
                interests
            
            
            -
            
            
            -
            
            
            -
            
            
            (260,550
            )
            
            (244,465
            )**Income
                before income taxes**
            
            
            6,592,603
            
            
            51,479,667
            
            
            29,665,575
            
            
            27,908,962
            
            
            10,385,080Income
                tax expense
            
            
            (482,495
            )
            
            (3,767,659
            )
            
            (4,326,053
            )
            
            (2,165,796
            )
            
            (1,272,111
            )**Net
                income**
            
            
            6,110,108
            
            
            47,712,008
            
            
            25,339,522
            
            
            25,743,166
            
            
            9,112,969





7




As
                at Year Ended December 31,Derived
                from auditedfinancial statements
            
            Pro
                forma (Unaudited)**2006(USD)
                (1)**
            
            **2006(RMB)**
            
            **2005(RMB)**
            
            **2004(RMB)**
            
            **2003(RMB)****Cash**
            
            
            12,595,907
            
            
            98,357,657
            
            
            48,968,481
            
            
            45,098,376
            
            
            35,286,352**Trade
                accounts receivable**
            
            
            14,932,874
            
            
            116,606,333
            
            
            69,733,102
            
            
            53,205,165
            
            
            21,907,268**Total
                current assets**
            
            
            39,167,573
            
            
            305,847,828
            
            
            169,046,187
            
            
            119,574,721
            
            
            80,358,712**Total
                assets**
            
            
            49,834,239
            
            
            389,140,626
            
            
            186,434,530
            
            
            135,008,164
            
            
            92,739,898**Total
                current liabilities**
            
            
            18,084,760
            
            
            141,218,461
            
            
            103,840,139
            
            
            79,459,038
            
            
            51,155,864**Long-term
                liabilities**
            
            
            677,796
            
            
            5,292,707
            
            
            4,151,968
            
            
            346,225
            
            
            35,730**Minority
                interests**
            
            
            -
            
            
            -
            
            
            -
            
            
            3,001,004
            
            
            3,089,573**Stockholders'
                equity**
            
            
            31,071,683
            
            
            242,629,458
            
            
            78,442,423
            
            
            52,201,897
            
            
            38,458,731**Total
                liabilities and stockholders' equity**
            
            
            49,834,239
            
            
            389,140,626
            
            
            186,434,530
            
            
            135,008,164
            
            
            92,739,898




(1)
            Translations
                of RMB amounts into U.S. dollars were made at a rate of RMB7.8087
                to
                US $1.00, the average trading price published by the People’s Bank of
                China on December 31, 2006.




**Exchange
      Rate Information**




We
      have
      published our financial statements in U.S. dollars. Our business is primarily
      conducted in China and revenues are denominated in Renminbi. Periodic reports
      will be made to shareholders and will be expressed in U.S. dollars using the
      then-current exchange rates. The conversion of Renminbi into U.S. dollars in
      this annual report is based on the daily base exchange rate of Reminbi into
      U.S.
      dollars published by the People’s Bank of China. Unless otherwise noted, for the
      years ended December 31, 2003, 2004, 2005 and 2006, all translations from
      Renminbi to U.S. dollars in this annual report were made at RMB8.0845,
      RMB8.0845, RMB8.0702 and RMB7.8087 per $1.00, respectively, which were the
      prevailing year end rates for those years. The high and low exchange rates
      of
      Renminbi into U.S. dollars are 7.8135 and 7.7735 for January 2007, 7.7662 and
      7.7408 for February 2007, 7.7474 and 7.7303 for March 2007, 7.7349 and
      7.7055 for April 2007, 7.6971 and 7.6488 for May 2007, 7.6785 and 7.618 for
      the
      most up to date period in June 2007. We make no representation that any Renminbi
      or U.S. dollar amounts could have been, or could be, converted into U.S. dollars
      or Renminbi, as the case may be, at any particular rate, the rates stated above,
      or at all. The PRC government imposes controls over its foreign currency
      reserves in part through direct regulation of the conversion of Renminbi into
      foreign exchange and through restrictions on foreign trade.




The
      People’s Bank of China sets and publishes daily a base exchange rate. Until July
      21, 2005, the People’s Bank of China set this rate with reference primarily to
      the supply and demand of Renminbi against the U.S. dollar in the market during
      the prior day. Beginning on July 21, 2005, the People’s Bank of China has set
      this rate with reference primarily to the supply and demand of Renminbi against
      a basket of currencies in the market during the prior day. The People’s Bank of
      China also takes into account other factors such as the general conditions
      existing in the international foreign exchange markets. Although governmental
      policies were introduced in the PRC in 1996 to reduce restrictions on the
      convertibility of Renminbi into foreign currency for current account items,
      conversion of Renminbi into foreign exchange for capital items, such as foreign
      direct investment, loans or security, requires the approval of the State
      Administration for Foreign Exchange and other relevant authorities.




8




**B.**  **Capitalization
      and indebtedness** **.**




Not
      Applicable.




**C.**  **Reasons
      for the offer and use of proceeds** **.**




Not
      Applicable.




**D.**  **Risk
      factors** **.**




**Risks
      relating to our business**




**If
      Yucheng does not manage its growth after the combination, the chances for
      continued profitability may slow or stop.**




The
      acquisition of the businesses of Beijing Sihitech and e-Channels and other
      businesses such as Sunrisk Information Technology limited will permit Yucheng
      to
      take advantage of the synergies that the businesses offer one another. The
      continued success of Yucheng is partly dependent on a successful integration
      and
      being able to take advantage of the expanded opportunities presented by cross
      selling clients, developing new products and services that have higher margins
      and leveraging core banking know-how and relationships. If Yucheng experiences
      disruptions during the integration process or it is not able to take advantage
      of the currently perceived opportunities, then it is likely that the Company
      will not grow the operations and revenues as expected. Investors in Yucheng
      will
      not then experience the rewards of a growing company and may suffer a loss
      in
      the value of their investment.




**The
      business of Yucheng depends on the financial services industry, and changes
      within that industry could reduce demand for its products and
      services.**




The
      majority of the Company’s revenues have been derived from services and products
      to Chinese local banks. Unfavorable economic conditions adversely impacting
      that
      part of the financial services industry could have a material adverse effect
      on
      our business, financial condition and results of operations. For example,
      depository financial institutions have experienced, and may continue to
      experience, cyclical fluctuations in profitability as well as increasing
      challenges to improve their operating efficiencies. Due to the entrance of
      foreign global players, non-traditional competitors and the current environment
      of low interest rates, the profit margins of depository financial institutions
      have narrowed. As a result, some financial institutions have slowed, and may
      continue to slow, their capital spending, including spending on web-based
      products and solutions, which can negatively impact sales to new and existing
      clients. Decreases in, or reallocation of, capital expenditures by our current
      and potential clients, unfavorable economic conditions and new or persisting
      competitive pressures could adversely affect our business, financial condition
      and results of operations.




9




**The
      offices of the China Construction Bank will generate a significant portion
      of
      the Yucheng's revenues, the loss of which would have an adverse impact on future
      revenues and the future value of the Company to
      investors.**




Yucheng,
      on a combined basis in 2006, received approximately 54.0% of its revenues from
      services and products to different provincial branch offices and departments
      in
      the headquarters of the China Construction Bank (“CCB”), one of the largest
      banks in the PRC. The engagements with the branches and departments are under
      separate and independent contracts, and the projects vary in scope and nature
      of
      services and products. In 2006, there were 140 separate legal contracts. On
      a
      combined historical basis, the largest accounts within CCB accounted for 30.0%
      of the Company's revenues in 2006 and was with the head office of CCB. Two
      other
      accounts within the CCB Group represented 5.0% and 3.1% of revenues in 2006
      and
      were with the Beijing Branch and Liaoning Provincial Branch. The rest of the
      contracts were distributed among other provincial branches around China.
      Notwithstanding the separate legal treatment of the engagements, a substantial
      failure to provide the contracted services and products under one agreement
      may
      result in a disruption to the overall CCB relationship. Also, if the general
      IT
      spending pattern and budgeting of CCB is changed or reduced, there could be
      an
      adverse impact on the Company’s ability to offer services and win contracts from
      different entities within CCB. The Agricultural Bank of China Head Office and
      the CITIC Bank were also significant customers in 2006, representing12.6% and
      5.2% respectively of the total revenues. There are no long-term contracts with
      the CCB group on which the Company depends. There can be no assurance that
      Yucheng will be able to continue to retain these customers, and that Yucheng
      will maintain or increase their current level of business in the future.




**There
      exists substantial and increasing competition with which Yucheng must compete
      in
      service offerings and pricing and if the Company is not successful in
      addressing those issues, it may lose market share and revenue
      potential.**




In
      general, the level of competition in the PRC market to offer IT services and
      solutions to the banking services sector is intense. Yucheng will face
      competition from both local and international companies. Some of the competitors
      have longer operating histories, larger clientele, more varied service and
      product offerings and more extensive personnel and financial resources which
      place them in a better position than Yucheng to develop and expand their range
      of services and market share. It is also expected that there will be competition
      from new entrants into the industry. Current or future competitors may develop
      or offer services that are comparable or superior to ours at a lower price.
      In
      addition, only some of the products and services of the companies are protected
      by intellectual property rights, therefore competitors would not be prevented
      from copying our business techniques. If we fail to successfully compete against
      our current and future competitors, our business, financial condition and
      operating results will be adversely affected.




**In
      some service areas of the IT business, prices are decreasing which is adversely
      affecting margins in those areas; if Yucheng does not meet the resulting pricing
      structure or shift away from those areas of business to more remunerative
      services, it may experience losses.**




There
      has
      been increasing competition in some areas of IT consulting services with the
      result of more competitive pricing and falling margins being experienced by
      Yucheng. These are generally in the areas of labor intensive contracts with
      not
      much need for proprietary solutions or know-how. Smaller IT service companies
      depend on price cutting strategies to win those contracts. If Yucheng does
      not
      successfully manage its business and compete in these areas for engagements,
      it
      will suffer business or financial loss. Yucheng may also address the competitive
      situation by shifting to other service areas where margins are better or
      providing extra services or enhancements that result in different pricing.
      If it
      is not successful in implementing differentiating or other services, Yucheng
      may
      suffer losses in these particular segments of its business.




10




**The
      failure to retain existing customers or changes in their continued use of our
      services will adversely affect operating results.**




Yucheng
      competes using a service and product and fee structure designed to establish,
      solid, long term client relationships and recurring revenues through ongoing
      usage by customers. Some of the revenues are dependent on recurring revenues
      and
      the continued acceptance of services by customers in areas such as account
      presentation, payments and other financial services. The failure to retain
      the
      existing customers or a change in spending patterns and budgetary aspects of
      competing products would adversely affect the business model. Also, competitors
      may compete directly by adopting a similar business model or through the
      acquisition of companies, such as resellers, who provide complementary products
      or services.




**Yucheng
      may incur losses on projects which are undertaken on a fixed-priced basis which
      would reduce margins and profitability.**




IT
      consulting projects comprise a significant portion of the income of Yucheng
      and
      are usually undertaken on a fixed price basis where customers are charged a
      fixed price that is determined based on an evaluation of the estimated resources
      required to implement the project. If the project costs or scope of work to
      be
      done are underestimated for contracts that they win, there could result
      unanticipated costs which Yucheng will have to bear, resulting in reduced
      profits and overall business losses. This would have an adverse impact on the
      financial condition and the results of operations.




**IT
      infrastructure components are obtained from selected suppliers; if the ability
      to obtain needed items is disrupted, the business of Yucheng would be adversely
      effected.**




Many
      of
      the IT consulting services and system infrastructure installations conducted
      by
      Yucheng depend on the availability of the necessary hardware equipment and
      software applications from third parties. The current hardware vendors include
      IBM, HP, Sun and Intel for servers; Cisco, Nortel and Huawei for network
      equipment; and Oracle, Microsoft and BEA for software. The Company's operating
      companies have established relations with selected suppliers. There is no
      assurance that these vendors/distributors will continue to offer needed items
      or
      not terminate their relationship with the Company's operating companies.
      Although there are alternative suppliers for most of the needs, if Yucheng
      is
      unable to obtain the necessary IT infrastructure components from these or
      comparable vendors/distributors on a timely basis, the business, financial
      condition and results of operation would be adversely affected.




11




**If
      the senior management team and critical staff are not retained, Yucheng may
      suffer a loss of reputation, suffer an inability to manage its commitments
      and
      expand its operations as planned.**




In
      a
      service-oriented business, personal relationships, goodwill and networks are
      critical in obtaining and maintaining customer engagements. The ability to
      successfully complete engagements depends on a trained, knowledgeable and stable
      staff. Future success depends on the continued efforts of the senior management
      team in building good relationships with existing and potential customers and
      in
      the implementation of the growth and business strategy and the Company’s ability
      to retain and replace its staff. The senior management team has substantial
      experience in the services offered by Yucheng and has been instrumental in
      past
      growth and expansion. The loss of any member of the senior management team
      and
      critical staff could, without adequate replacement, have an adverse impact
      on
      the business, financial condition and results of operations.




**If
      Yucheng is unable to protect their respective proprietary technology and other
      rights, there may be an inability to effectively compete.**




Yucheng
      will rely on a combination of patent, copyright, trademark and anti-competition
      laws, as well as licensing agreements, third-party nondisclosure agreements,
      internal confidentiality policies and other contractual provisions and technical
      measures to protect the intellectual property rights. PRC law is still
      developing in this area and the enforcement of such rights at the judicial
      level
      cannot be certain. There can be no assurance that these protections will be
      adequate to prevent competitors from copying or reverse-engineering their
      products, or that competitors will not independently develop technologies that
      are substantially equivalent or superior to their technology. To protect its
      trade secrets and other proprietary information, employees, consultants,
      advisors and collaborators are required to enter into confidentiality
      agreements. There can be no assurance that these agreements will provide
      meaningful protection for the trade secrets, know-how or other proprietary
      information in the event of any unauthorized use, misappropriation or disclosure
      of such trade secrets, know-how or other proprietary information. Although
      Yucheng will hold registered rights covering certain aspects of its technology,
      there can be no assurance of the level of protection that these registrations
      will provide. Yucheng may have to resort to litigation to enforce the
      intellectual property rights, to protect the trade secrets or know-how, or
      to
      determine their scope, validity or enforceability. Enforcing or defending
      intellectual property rights is expensive, could cause diversion of resources
      and may not prove successful.




**If
      Yucheng’s proprietary rights infringe on those of other persons, we could be
      required to redesign those products, pay royalties or enter into license
      agreements with third parties or have to cease offering the infringing right,
      any of which could have an adverse impact on the business and revenues and
      profits of the Company.**




There
      can
      be no assurance that a third party will not assert that the intellectual
      property rights and services of Yucheng violate their intellectual property
      rights. To some extent the laws of the PRC is not extensively developed in
      the
      area of enforcement. As the number of products offered by the Company and
      competitors increases and the functionality of these products further overlap,
      the provision of web-based financial services technology may become increasingly
      subject to infringement claims. Any claims, whether with or without merit,
      could:




·
            be
                expensive and time consuming to defend;




12




·
            cause
                Yucheng to cease making, licensing or using products that incorporate
                the
                challenged intellectual property;




·
            require
                Yucheng to redesign our products, if feasible;




·
            divert
                management’s attention and resources; and




·
            require
                Yucheng to pay royalties or enter into licensing agreements in order
                to
                obtain the right to use necessary technologies.




**System
      failures could hurt business reputation, and Yucheng could be liable for some
      types of failures the extent or amount of which cannot be
      predicted.**




The
      operations of the Company depends on its ability to protect its systems from
      interruption caused by damage from fire, earthquake, power loss,
      telecommunications failure, unauthorized entry or other events beyond our
      control. The Company in the future plans to maintain its own offsite disaster
      recovery facility. In the event of major disasters, both primary and backup
      locations could be equally, adversely impacted. The Company does not currently
      have sufficient backup facilities to provide full Internet services, if the
      primary facility is not functioning. The Company could also experience system
      interruptions due to the failure of its systems to function as intended or
      the
      failure of the systems relied upon to deliver services such as ATM networks,
      the
      Internet, or the systems of financial institutions, processors that integrate
      with other systems and networks and systems of third parties. Loss of all or
      part of the systems for a period of time could have a material adverse effect
      on
      the business and business reputation of the Company. Yucheng may be liable
      to its clients for breach of contract for interruptions in service. Due to
      the numerous variables surrounding system disruptions, the extent or amount
      of
      any potential liability cannot be predicted.




**The
      Yucheng’s products use internally developed software and systems as well as
      third-party products, any of which may contain errors and bugs, the effect
      of
      which could cause Yucheng to spend additional sums and time to correct or cause
      a breach of services agreements and pay damages.**




The
      products of Yucheng may contain undetected errors, defects or bugs that may
      or
      may not be correctable. The products involve integration with products and
      systems developed by third parties. Complex software programs of third parties
      may contain undetected errors or bugs when they are first introduced or as
      new
      versions are released. There can be no assurance that errors will not be found
      in existing or future products or third-party products upon which company
      products are dependent, with the possible result of delays in or loss of market
      acceptance of company products, diversion of resources, injury to corporate
      reputation and increased expenses and payment of damages.




13




**Risks
      relating to the PRC**




**Adverse
      changes in political and economic policies of the PRC, including its policy
      of
      reforming its economic system, could have a material adverse effect on the
      growth of private businesses in the PRC such as ours.**




Since
      the
      late 1970’s, the PRC has been reforming its economic system and changing from a
      planned economy based on governmental dictates and priorities to one that uses
      market forces to influence deployment of economic resources, labor and capital
      and to determine business endeavors. It is impossible to predict whether or
      not
      the government will continue to encourage economic liberalization and further
      release its control over the economy and encourage private enterprise. We also
      cannot predict the timing or extent of future economic reforms that may be
      proposed. Any reimposition of planned economy regulation or similar kinds of
      restrictions could reduce the freedom of private businesses to operate in a
      profitable manner, restrict inflows of capital or stifle investor willingness
      to
      participate in the PRC economy. To the extent we need additional capital, any
      restrictions on foreign ownership, foreign investment and repatriation of
      profits will hamper our ability to find capital outside of the PRC.




**The
      economy of China has been experiencing unprecedented growth, leading to some
      inflation. If the government tries to control inflation by traditional means
      of
      monetary policy or returns to planned economic techniques, our business will
      suffer a reduction in sales growth and expansion
      opportunities.**




The
      rapid
      growth of the PRC economy has historically resulted in high levels of inflation.
      If the government tries to control inflation, it may have an adverse effect
      on
      the business climate and growth of private enterprise in the PRC. An economic
      slow down could have an adverse effect on our sales and may increase costs.
      If
      inflation is allowed to proceed unchecked, our costs would likely increase,
      and
      there can be no assurance that we would be able to increase our prices to an
      extent that would offset the increase in our expenses.




**A
      return to profit repatriation controls may limit our ability to pay dividends,
      expand business and reduce the attractiveness of investing in PRC business
      opportunities.**




PRC
      law
      allows enterprises owned by foreign investors to remit their profits, dividends
      and bonuses earned in the PRC to other countries, and the remittance does not
      require prior approval by the State Administration of Foreign Exchange, or
      SAFE.
      SAFE regulations require extensive documentation and reporting, some of which
      is
      burdensome and slows payments. If there is a return to payment restrictions
      and
      reporting, the ability of a PRC company to attract investors will be reduced.
      Also, current investors may not be able to obtain the benefits of the profits
      of
      the business generated in the PRC for other reasons. Relevant PRC laws and
      regulations permit payment of dividends only from retained earnings, if any,
      determined in accordance with PRC accounting standards and regulations. It
      is
      possible that the PRC tax authorities may require changes in determining income
      of the company that would limit its ability to pay dividends and make other
      distributions. PRC law requires companies to set aside a portion of net income
      to fund certain reserves, which amounts are not distributable as dividends.
      These rules and possible changes could restrict our PRC operating companies
      from
      repatriating funds to our stockholders as dividends.




14




**Any
      fluctuations in exchange rates could result in foreign currency exchange
      losses.**




Because
      our earnings and cash from operations are denominated in Renminbi, fluctuations
      in exchange rates between U.S. dollars and Renminbi will affect our balance
      sheet and earnings per share in U.S. dollars. In addition, appreciation or
      depreciation in the value of the Renminbi relative to the U.S. dollar would
      affect our financial results reported in U.S. dollar terms without giving effect
      to any underlying change in our business or results of operations. The People’s
      Bank of China sets and publishes daily a base exchange rate. Beginning on July
      21, 2005, the People’s Bank of China has set this rate with reference primarily
      to the supply and demand of Renminbi against a basket of currencies in the
      market during the prior day, and the People’s Bank of China also takes into
      account other factors such as the general conditions existing in the
      international foreign exchange markets. The PRC government may further adjust
      the exchange rate between the Renminbi and the U.S. dollar and other foreign
      currencies, and may further amend its policy of using a fixed-rate regime to
      govern foreign currency transactions, although the PRC government has not
      committed itself to take any such action currently. Fluctuations in the exchange
      rate will also affect the relative value of any dividend we issue which will
      be
      exchanged into U.S. dollars, the value of any U.S. dollar denominated
      investments we make in the future and any earnings on such
      investments.




**Restrictions
      on currency exchange may limit our ability to receive and use our revenues
      effectively.**




Substantially
      all our revenues and expenses are denominated in Renminbi. We may need to
      convert a portion of our revenues into other currencies to meet our foreign
      currency obligations, including, among others, payment of dividends declared,
      if
      any, in respect of our ordinary shares. Under China’s existing foreign exchange
      regulations, our PRC subsidiaries are able to pay dividends in foreign
      currencies, without prior approval from the State Administration of Foreign
      Exchange, or SAFE, by complying with certain procedural requirements. However,
      we cannot assure you that the PRC government will not take measures in the
      future to restrict access to foreign currencies for current account
      transactions.




Foreign
      exchange transactions under the capital account continue to be subject to
      significant foreign exchange controls and require the approval of PRC
      governmental authorities, including the SAFE. If our PRC Operating Companies
      borrow foreign currency loans from us or other foreign lenders, these loans
      must
      be registered with the SAFE, and if we finance our PRC subsidiaries by means
      of
      additional capital contributions, these capital contributions must be approved
      by certain government authorities including the Ministry of Commerce or its
      local counterparts. These limitations could affect the ability of our PRC
      subsidiaries to obtain foreign exchange through debt or equity financing.




**Recent
      PRC regulations relating to offshore investment activities by PRC residents
      may
      increase the administrative burden we face and create regulatory uncertainties
      that could restrict our overseas and cross border investment activity, and
      a
      failure by our shareholders who are PRC residents to make any required
      applications and filings pursuant to such regulations may prevent us from being
      able to distribute profits and could expose us and our PRC resident shareholders
      to liability under PRC law.**




15




SAFE
      recently promulgated regulations that require registration with local SAFE
      offices in connection with direct or indirect offshore investment by PRC
      residents, including PRC individual residents and PRC corporate entities. These
      regulations apply to our shareholders who are PRC residents and also apply
      to
      our prior and future offshore acquisitions. In particular, the SAFE regulations
      require PRC residents to file with competent SAFE offices information about
      offshore companies in which they have directly or indirectly invested and to
      make follow-up filings in connection with certain material transactions
      involving such offshore companies, such as increases or decreases in investment
      amount, transfers or exchanges of shares, mergers or divisions, long-term equity
      or debt investments, or external guarantees, or other material events that
      do
      not involve return investment.




The
      SAFE
      regulations retroactively require registration by March 31, 2006 of direct
      or
      indirect investments previously made by PRC residents in offshore companies.
      If
      a PRC resident with a direct or indirect stake in an offshore parent company
      fails to make the required SAFE registration, the PRC subsidiaries of such
      offshore parent company may be prohibited from making distributions of profit
      to
      the offshore parent and from paying the offshore parent proceeds from any
      reduction in capital, share transfer or liquidation in respect of the PRC
      subsidiaries. Further, failure to comply with various SAFE registration
      requirements described above could result in liability under PRC law for foreign
      exchange evasion.




Our
      major
      shareholders who are PRC residents, or whose shares are beneficially owned
      by
      PRC residents, have completed foreign exchange registration with the local
      foreign exchange bureau according to these SAFE regulations. As a result of
      the
      newness of the regulations and uncertainty concerning the reconciliation of
      the
      new regulations with other approval requirements, it remains unclear how the
      regulations, and any future legislation concerning offshore or cross-border
      transactions, will be interpreted, amended and implemented by the relevant
      government authorities. We are committed to complying and to ensuring that
      our
      shareholders who are subject to the regulations comply with the relevant rules.
      However, we cannot assure you that all of our shareholders who are PRC residents
      will comply with our request to make or obtain any applicable registrations
      or
      approvals required by the regulations or other related legislation. The failure
      or inability of our PRC resident shareholders to receive any required approvals
      or make any required registrations may subject us to fines and legal sanctions,
      restrict our overseas or cross border investment activities, limit our PRC
      subsidiaries from making distributions or paying dividends or affect our
      ownership structure, as a result of which our business operations and our
      ability to distribute dividend to you could be materially and adversely
      affected.




**If
      certain exemptions within the PRC regarding withholding taxes are removed,
      we
      may be required to deduct Chinese corporate withholding taxes from any dividends
      we may pay to our stockholders.**




According
      to the PRC’s applicable income tax laws, regulations, notices and decisions
      related to foreign investment enterprises and their investors (the “Applicable
      Foreign Enterprises Tax Law”), income such as dividends and profits distribution
      from the PRC derived from a foreign enterprise which has no establishment in
      the
      PRC is subject to a 20% withholding tax, unless the relevant income is
      specifically exempted from tax under the Applicable Foreign Enterprises Tax
      Law.
      Currently, profits derived by a stockholder, such as through dividends, from
      a
      foreign-invested enterprise (an “FIE”) is exempted. If the foregoing exemption
      is removed in the future, we may be required to deduct certain amounts from
      dividends we may pay to our stockholders to pay corporate withholding
      taxes.




16




**Dividend
      payments are subject to corporate law and accounting requirements that may
      limit
      our ability to make these payments**




Yucheng
      will rely on dividends and other distributions from our operating companies
      in
      China to provide us with cash flow and to meet our other obligations. Current
      regulations in China would permit our operating companies in China to pay
      dividends to us only out of accumulated distributable profits, if any,
      determined in accordance with Chinese accounting standards and regulations.
      In
      addition, our operating companies in China will be required to set aside at
      least 10% (up to an aggregate amount equal to half of its registered capital)
      of
      its accumulated profits each year. Such cash reserve may not be distributed
      as
      cash dividends. In addition, if our operating company in China incurs debt
      on
      its own behalf in the future, the instruments governing the debt may restrict
      its ability to pay dividends or make other payments to us.




**The
      legal authorities in China are in the process of evaluating heretofore tax
      and
      fee benefits provided to foreign investors in companies to encourage development
      within the country such that these benefits may be lessened or removed with
      the
      consequence that expenses may rise impacting margins and net
      income.**




The
      legal
      authorities are evaluating tax and fee benefits that have been available to
      foreign investors and companies operating in China and tax holidays for new
      enterprises. In the near term, there are going to be changes that substantially
      reduce or eliminate many, if not all, the tax and other governmental fee
      advantages that heretofore have been available to foreign entities and newly
      created entities whether or not such new entities are foreign. The goal is
      to
      institute greater equalization of tax and government fee treatment of all
      corporate and similar entities in China. China is being encouraged to create
      this more equal treatment because of its WTO obligations and public opinion
      within China. There are to be phase-ins of various taxes and tax rates and
      fees
      for entities that currently benefit from either no or lower tax rates and fees
      compared to wholly Chinese companies and entities, but there can be no assurance
      of this. Even if there are phase-in periods, the length of such periods is
      not
      known, but may be as long as five years. In addition, there are expected to
      be
      changes to allowable business deductions, reduced tax rates for certain
      industries, and to definitions of foreign enterprises. Any one or some of these
      changes may have an adverse impact on operating margins and net
      income.




**The
      PRC legal system has inherent uncertainties that could limit the legal
      protections available to you.**




Nearly
      all of our assets and all of our operations are in the PRC. The PRC legal system
      is based on written statutes. Prior court decisions may be cited for reference
      but are not binding on subsequent cases and have limited precedential value.
      Since 1979, the PRC legislative bodies have promulgated laws and regulations
      dealing with such economic matters as foreign investment, corporate organization
      and governance, commerce, taxation and trade. However, because these laws and
      regulations are relatively new, and because of the limited volume of published
      decisions and their non-binding nature, the interpretation and enforcement
      of
      these laws and regulations involve uncertainties. The laws in the PRC differ
      from the laws in the United States and may afford less protection to our
      stockholders.




17




**You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in the PRC based on United States
      judgments against us, our subsidiaries, our officers and directors and experts
      named in the annual report.**




We
      are
      incorporated in the British Virgin Islands and our PRC operating companies
      are
      formed under PRC law. Substantially all of our assets are located in the PRC.
      In
      addition, most of our directors and executive officers reside within the PRC,
      and substantially all of the assets of these persons are located within the
      PRC.
      It may not be possible to effect service of process within the United States
      or
      elsewhere outside the PRC upon our directors, or executive officers and experts
      named in the annual report, including effecting service of process with respect
      to matters arising under United States federal securities laws or applicable
      state securities laws. The PRC does not have treaties providing for the
      reciprocal recognition and enforcement of judgments of courts with the United
      States and many other countries. As a result, recognition and enforcement in
      the
      PRC of judgments of a court in the United States and many other jurisdictions
      in
      relation to any matter, including securities laws, may be difficult or
      impossible. Furthermore, an original action may be brought in the PRC against
      our assets and our subsidiaries, our directors and executive officers and
      experts named in the annual report only if the actions are not required to
      be
      arbitrated by PRC law and only if the facts alleged in the complaint give rise
      to a cause of action under PRC law. In connection with any such original action,
      a PRC court may award civil liability, including monetary damages.




**Risks
      relating to our shares**




**There
      will be a substantial number of shares of common stock available for sale in
      the
      future which may increase volumes of common stock available and lead to a
      decline in the market price of the common stock.**




The
      initial purchase price for the acquisition of operating companies in the PRC
      and
      subsidiaries included 5,328,320 ordinary shares. These shares were not
      registered, and a substantial portion of them are held by insiders; therefore
      they are restricted. Commencing on November 24, 2007, one year after the
      consummation of the acquisition, these shares will become eligible for resale
      in
      the public market under SEC Rule 144 with limitations, and after two years
      some
      of these shares will become eligible for resale in the public market under
      SEC
      Rule 144(k). As a result, the number of shares available for sale will likely
      increase over time, which tends to reduce the market price of a stock.




**If
      certain financial or financing objectives are achieved, management will be
      entitled to receive shares of our stock which would result in dilution and
      might
      have an adverse effect on the market price of our common
      stock.**




Management
      has the right to earn up to 952,832 shares based on net profit targets. There
      is
      no obligation to register the stock after issuance. However, after being held
      for the appropriate periods, the shares will be eligible for resale under Rule
      144. If the additional shares are earned, they will significantly increase
      the
      number of shares outstanding. The issuance of the additional shares will have
      a
      dilutive effect on the stock already outstanding and may cause a reduction
      in
      the trading price of our common stock in the public market.




18




**Voting
      control by executive officers, directors and other of our affiliates may limit
      investors’ ability to influence the outcome of director elections and other
      matters requiring stockholder approval.**




Our
      executive officers and directors, Messrs. Chih T. Cheung, Chairman of the Board,
      Weidong Hong, CEO and director and Shuo Zeng, COO and director own about 35%
      of
      our issued and outstanding ordinary shares. These three major shareholders
      may
      maintain significant control over the outcome of some corporate transactions
      or
      other matters submitted to our shareholders for approval, including the election
      of directors and the approval of other business transactions. This concentration
      of ownership could have the effect of delaying or preventing a change in our
      control or discouraging a potential acquirer from attempting to obtain control
      of us, which in turn could have a material adverse effect on the market price
      of
      our common stock or prevent stockholders from realizing a premium over the
      market price for their shares of our common stock. In addition, if our major
      shareholders chose to dispose of a material portion of the ordinary shares
      they
      hold, the prevailing market price of our securities may decline.




**Certain
      provisions in our organizational documents may discourage our acquisition by
      a
      third party, which could limit your opportunity to sell your shares at a
      premium.**




Our
      memorandum and articles of association include provisions that could limit
      the
      ability of others to acquire control of us. Under those provisions, the board
      of
      directors has the power to issue preferred shares with such rights attaching
      to
      them as they decide and that this power could be used in a manner that would
      delay, defer of prevent a change of control of the company. These provisions
      could have the effect of depriving you of an opportunity to sell your shares
      at
      a premium over prevailing market prices by discouraging third parties from
      seeking to acquire control of us in a tender offer or similar
      transactions.




**We
      qualify as a foreign private issuer and as a result are subject to reduced
      requirements with respect to the reporting of financial statements and other
      material events to our stockholders and the SEC.**




As
      a
      foreign private issuer, we are obligated to file an annual report with audited
      financial statements and 6-K reports at such times as we release information
      to
      the public either voluntarily or pursuant to the laws of the British Virgin
      Islands or the PRC. Therefore, the regularity of financial and other information
      will be less than would be applicable to a domestic United States registered
      company under the rules and regulations of the SEC. Investors may not receive
      information on a timely basis, therefore increasing their risk of
      investment.




**ITEM
      4. INFORMATION ON THE COMPANY** ****




**A.**  **History
      and development of the Company** **.**




Beijing
      Sihitech Technology Co., Ltd. (“Sihitech”) was founded in June 1999, and
      Beijing e-Channels Century Technology Co., Ltd. (“eChannels”) was founded in
      2001. Each of these companies is organized and operating under PRC law. They
      are
      the principal subsidiaries of Yucheng, but there are several other subsidiary
      companies through which the Company operates throughout China and acts as
      holding companies for its operating companies.




19




China
      Unistone was formed on May 7, 2004, to serve as a vehicle to effect a stock
      purchase, capital stock exchange, asset acquisition or other similar business
      combination with an unidentified operating business with operations in the
      PRC.




China
      Unistone acquired Sihitech and e-Channels on November 24, 2006. As part of
      the
      acquisition transaction of Sihitech and e-Channels, China Unistone merged with
      and into its wholly-owned subsidiary, Yucheng Technologies Limited for the
      purpose of redomestication of the surviving company out of the United States.
      Yucheng Technologies Limited (“Yucheng”), incorporated on November 24, 2006
      under the laws of the British Virgin Islands, and its subsidiaries are engaged
      in system integration, software development, information technology (“IT”)
      consulting and training services, maintenance and support, technology
      development, sales of self-developed products, computer software, hardware
      and
      peripheral equipment, communication equipment and undertaking computer network
      projects. Its major customers are first tier state-owned commercial banks in
      China.




**B.**  **Business
      overview** **.**




*Business
      Overview*




Yucheng
      operates in China providing IT (Intellectual Technology) solutions and services
      to the banking industry in China. The Company currently focuses on offering
      IT
      solutions and services to first tier Chinese local banks, with plans to
      expand its core offerings beyond internet banking, call center and customer
      data platforms to other participants in the financial services industry in
      the
      future, including smaller regional banks, insurance companies, investment banks
      and securities firms.




Yucheng
      has seven operating subsidiaries which include Sihitech, e-Channels, Beijing
      Sihitech Software, Shanghai Sihitech, Shanghai Sihitech Software, Guangzhou
      Sihitech and Beijing Yuxinyicheng Technologies Limited. There also are three
      representative offices in Fuzhou, Chengdu and Xian. The Company had
      approximately 612 employees as of December 31, 2006.




*Financial
      Services Industry Overview*




The
      market for Yucheng services and products is estimated by management to be
      substantial. Management believes that there are more than 40,000 financial
      institutions operating in China today. Most of these institutions are entirely
      state-owned, either directly or through state-owned companies. In recent years,
      however, there is a growing number of privately owned banks and significant
      changes are taking place in all banks as they search for strategic investors,
      plan for eventual listing on foreign exchanges, and come into line with the
      WTO
      (World Trade Organization) requirements. The banking industry in China continues
      to be the primary provider of capital in China and bank deposits remain the
      primary choice for domestic savings.




20




The
      Chinese banking industry can be classified into four tiers, including:




·
            Tier
                I state-owned commercial banks. Also known as the “Big Four,” the
                Agricultural Bank of China (“ABC”), Bank of China (“BOC”), China
                Construction Bank (“CCB”) and Industrial and Commercial Bank of China
                (“ICBC”) are the largest among domestic banks in terms of assets, deposit
                base, loan portfolio and nationwide branch network. The Big Four
                together
                account for over 50% of industry assets. Historically, ABC was involved
                mainly in agricultural and rural loans and deposits; BOC has been
                strong
                in the foreign exchange business and foreign trade-related financing;
                CCB’s strength has been in loans to construction and infrastructure
                projects; and ICBC’s focus has been in providing working capital finance
                to the industrial and urban sectors.




·
            Tier
                II joint stock commercial banks. This group comprises of 13 other
                national
                commercial banks, which are owned by a combination of government
                entities,
                state-owned enterprises and other investors. The most prominent members
                of
                this group are listed domestically and in Hong Kong, and include
                China
                Merchants Bank (“Merchants”), China Minsheng Banking Corp (“Minsheng”),
                Hua Xia Bank (“Huaxia”), Shanghai Pudong Development Bank (“Pudong”)
                Shenzhen Development Bank (“Shenzhen”), and Bank of Communications
                (“BoComm”).




·
            Tier
                III banking institutions. This tier group, management believes, includes
                over 100 city commercial banks, over 34,000 credit cooperatives,
                over 200
                foreign financial institutions, 65 trust and investment companies
                and over
                70 finance companies.




The
      three
      policy banks—Agricultural Development Bank of China, State Development Bank of
      China and Export-Import Bank of China—were established in the mid-1990s as a
      result of banking reforms, to take over the policy lending function from the
      Big
      Four.




The
      primary institutions overseeing China’s banks include:




·
            Ministry
                of Finance (MOF)




·
            People’s
                Bank of China (PBOC)




·
            China
                Banking Regulatory Commission (CBRC)




·
            State
                Administration of Foreign Exchange (SAFE)




·
            China
                SAFE Investments Limited (Huijin), a.k.a. Central Huijin Investment
                Company




While
      the
      overall environment is still evolving from a level well below OECD (Organization
      for Economic Co-Operation and Development) standards, which is typical of an
      emerging market, supervision and regulation of China’s banks has improved
      dramatically in recent years with oversight continuing to improve.




21




In
      recent
      years, the Chinese financial system appears to have been undergoing changes
      and
      evolving to a market-oriented system. The two driving forces of changes to
      China’s banking industry are the growing economy and the ongoing regulatory
      reform which is partially driven by China’s ongoing WTO commitments. China has
      experienced economic growth over the past two decades largely as a result of
      the
      PRC government’s extensive economic reforms. China’s economic growth combined
      with increasing fixed capital formation, high household savings rates, a fixed
      currency, fixed interest rates and a closed capital account have driven the
      growth of the Chinese banks in the past decade.




Additionally,
      the PRC’s accession as a member of the WTO in December 2001 and its ongoing
      commitments to introduce modern management and accounting systems have served
      as
      a catalyst for regulatory reforms in the banking sector. Since its formation
      in
      April 2003, the China Banking Regulatory Commission (“CBRC”) has pushed for
      improved disclosure, management accountability, higher prudential and regulatory
      standards and more efficient operations. It has also played a key role in
      carving out bad debts, recapitalizing key banks, scrutinizing bank operations
      and cleaning up the system. Improvements in corporate governance, risk
      management, internal controls and disclosure are all the result of CBRC actions.




As
      required by the WTO ascension agreement, China has been slowly phasing out
      limits on foreign financial institutions. While a very gradual market opening
      has taken place to date, more dynamic change is anticipated after
      December 2006 when a number of important restrictions on foreign financial
      institutions will be removed, including, geographic restrictions on business
      activities and the permitted scope of business. The removal of current
      restrictions will eliminate two key advantages that Chinese banks currently
      enjoy: 1) the ability to take Renminbi deposits; and 2) their broad
      network scale. Management believes that the liberalization of the banking and
      financial services industry in the PRC will force both the domestic and foreign
      banks and financial institutions to upgrade their operations to offer their
      customers a range of financial products and services, breadth of services and
      the level of service quality that are in line with international standards.
      As
      such, financial institutions could seek technology and outsourced solutions
      to
      resolve inefficiencies and lower costs so that they can compete effectively
      in
      the market place. The financial services industry has traditionally been one
      of
      the largest and most aggressive users of technology in developed countries
      like
      the United States and we believe this characteristic could emerge in China
      as
      well.




*Markets
      Served and Customers*




The
      customer base for IT solutions in the banking sector is mainly composed of
      the
      large Tier 1 and Tier II national banks that look for customized IT solutions
      to
      meet specific business and operations requirements. Management believes that
      Yucheng will be well-positioned in the market, with nearly all of the Tier
      I and
      Tier II banks as part of its combined customer base of 74
      institutions.




A
      significant portion of the business of Yucheng comes from the different
      constituents of CCB. Separate contracts for services exist with different
      departments, branches and provincial offices and the head office of CCB and
      each
      of them are effectively separate customers since the decision makers and budgets
      are unrelated. Its largest customer in 2006 was the CCB head office, which
      contributed about 30% of the total revenues. Also, management maintains a good
      relationship with CCB in multiple levels and the Company is designated by CCB
      as
      one of its four strategic IT partners. CCB has been a customer of the company
      since 1999 and the repeat business indicates that CCB has been satisfied with
      the company’s services. The Agricultural Bank of China Head Office and the CITIC
      Bank were also significant customers in 2006, representing 12.6% and 5.2% of
      the
      total revenues.




22




Yucheng
      realizes the risk of overdependence on one or a few organizations and has put
      in
      place plans for vertical and horizontal expansion of its business to mitigate
      this risk. In addition to CCB, the Agricultural Bank of China Head Office and
      the CITIC Bank, the Yucheng current customer base includes the People’s Bank of
      China, Bank of communications, the Bank of China, China Merchants Bank, Shenzhen
      Development Bank, Shanghai Pudong Development Bank, Industrial Bank
      Co., Ltd, Social Insurance Bureau (Hebi), Guotai Fund Management, Guandong
      Development Bank Industrial and Commercial Bank, Beijing Commerce Bank, Export
      and Import Bank of China, and Weihai Commerce Bank, Huaxia Bank, and Bank of
      Shanghai.




Management
      believes that one of the near term opportunities of Yucheng is the cross selling
      of existing products and services to the breadth of its client base.
      Furthermore, while the customer base is composed mostly of the large, Tier
      1 and
      2 national banks, it is management’s opinion that over time, smaller and
      regional banks will have to dramatically increase IT investments due to
      competitive pressures and Yucheng will be well positioned to provide packaged
      applications and products that could meet their needs as well.




*Management*




Management
      believes that one of its key competitive strengths of Yucheng is its management
      team. Management believes that the team has experience in the banking sector
      and
      the China market that has given it insight into Chinese banking practices and
      operations and built long-term relationships with banks, other financial
      institutions, key partner vendors, and government regulatory agencies.
      Management believes that these experiences and relationships contributed
      significantly to Yuchengs’ current market position and a competitive advantage
      over other players, including foreign competitors.




The
      senior management of Yucheng has experience in serving the financial service
      industry in multiple disciplines: core banking know-how; capabilities in
      software development; and system integration consulting. Additionally, the
      executive management have assembled a team of experienced managers and skilled
      technical professionals. Many of the key mangers have experience in servicing
      the banking sector in multiple disciplines including sales, consulting and
      engineering. The IT team has capabilities in software development and system
      integration consulting. Moreover, the operations team has the experience and
      know-how to deliver high quality and reliable operations management. Yucheng
      reinforces the objective of providing high quality and reliable services through
      various incentives schemes (such as salary increase, promotion and bonus
      schemes) in which talented and well-performing employees, particularly those
      involved in the management, are rewarded for maintaining and contributing to
      the
      Company’s customer value propositions.




23




*Future
      Strategies*




Yucheng’s
      goal is to become the dominating Chinese-based provider of IT and outsourced
      services to the banking sector in China and to enhance the competitiveness
      of
      its clients through information technology and outsourced services. To achieve
      such goal, it will execute a growth strategy with three core components. First,
      the Company will focus on product value chain migration. For example, the
      Company will continue to move from the traditionally lower margin system
      integration services into the higher margin IT solutions, consulting and
      outsourced operations and services. Lower margin service refers to system
      integration services. Higher margin services refer to IT consulting, e-Channels
      applications, and maintenance and support services. Yucheng will take the
      following steps to facilitate the product value chain migration:




·
            expand
                service offerings to credit card operations, customer data management
                and
                bill payment;




·
            expand
                cross-selling opportunities;




·
            acquire
                companies with proprietary business solutions or established customer
                bases;




·
            continue
                to develop current core application and solution, such as web-banking
                and
                call centers; and




·
            increase
                research and development activities to have more proprietary and
                leading-edge IT solutions, applications, and platforms specific to
                the
                Chinese banking industry.




·
            explore
                outsourced services required by banking clients due to their consideration
                of cost-cutting, improvement of service quality, and competitiveness
                improvement.




Yucheng
      plans to leverage its existing knowledge of core banking know-how and extensive
      relationships with leading banks to win mandates in outsourced operations.
      The
      basic plan is that management will continue building market share in IT
      consulting and expand the e-banking software platform. In 2007-2008, the Company
      plans to concentrate on winning high profiled outsourcing mandates and continue
      development of its core offerings related to the e-banking platform. In 2009
      and
      beyond, the focus will be on consolidating market share as well as potentially
      moving into new solution segments such as transaction and data service
      management and business process outsourcing.




The
      second key initiative will be to seek accretive acquisitions and form joint
      ventures to 1) expand service offerings in related financial technology
      outsourced and infrastructure services such as payment processing, credit card
      operations, customer data management and bill payment, 2) acquire clients,
      and 3) expand cross-selling opportunities. By these means, Yucheng believes
      it can deepen the number of relationships with customers and achieve high
      retention rates with its existing clients. The local IT services industry for
      the financial services sector is currently highly fragmented and expected to
      consolidate. Management believes that Yucheng could be a market consolidator
      and
      be able to acquire some companies that can accelerate its growth in the future.
      As one step in this objective, Yucheng acquired Sunrisk in February
      2007.




24




The
      third
      key initiative is related to product value chain migration and acquisitions.
      Yucheng plans to expand its product and service offerings horizontally into
      other segments of financial services such as insurance, asset management,
      securities brokerage and investment banking.




Underlying
      the strategic growth plan is a core belief that it is important to organize
      Yucheng around its strengths and to leverage competencies and investments while
      focusing on customer services, technical advancement and product innovation.
      Management intends to invest significant resources and capital toward these
      strategic initiatives for years to come. In doing so, management is committed
      to
      extending its relationships with its partners and clients in order to become
      the
      leading provider of IT and outsourced services to the banking sector in China
      and to enhance the competitiveness of its clients through information
      technology. There can be no assurance given that Yucheng will be able to expand
      its business and thereby increase its revenue and profits, based on the above
      strategy and on the basis of being a combined company.




*Products
      and Services*




Yucheng
      provides basically three types of services to banks: 1) system integration;
      2) IT consulting, and 3) software and outsourced operations. Unlike
      the more mature US market, the banking clients in China expect total “one-stop”
solution from its IT service vendor. As such, system integration could remain
      an
      important component of the combined company’s business mix in the foreseeable
      future because system integration play an important role in securing and
      solidifying customer relationships and building awareness of the company’s brand
      and other product and service offerings. Like in the US, the margins for system
      integration have declined over the past few years from as high as 20% to high
      single digits to low teens today. Thus, while the combined company will continue
      to maintain its system integration business, the focus will be on expanding
      its
      other businesses such as IT consulting, outsourced operations and software
      products and in order to drive gross margins expansion.




E-Channel
      Solution Suite




Yucheng
      provides banks with complete solutions for service channel integration and
      management, which allows clients to integrate and better manage its applications
      such as telephone banking, internet banking, counter system and mobile phone
      banking. These are based on e-Channels’ internet banking and multi-channel
      integration platform. The e-Channel solution suite includes the multi-channel
      integration platform, web banking application, teller application software
      and
      channel integration system supervision software. Also, it provides banking
      and
      other financial institutions with a basic J2EE application platform, which
      can
      be used to develop J2EE applications and process business rules process and
      data. The platform includes a basic application framework, as well as
      development environment and application supervision platform based on the
      framework. J2EE is Sun Microsystems version of Java for developing and deploying
      enterprise applications.




25







The
      e-Channels solution suite offers a comprehensive platform for banks and
      financial institutions to manage data, information flow, and product
      presentation in a secure environment. The suite solution of software offers
      the
      following specific features:




·
            Database
                Operation:
                A
                bank’s IT solution suites are always dealing with massive amounts of data.
                Database operations and transaction processing are often the bottlenecks
                to banking system performance. e-Channel Solution Suite includes
                high-speed and reliable proceeding modules for database access and
                data
                processing. This allows high-speed, reliable access to various databases.




·
            Layered
                Platform Structure:
                A
                bank’s operations require the IT systems to be able to conduct a large
                number of parallel procedures, enable control transaction integration
                and
                process large data sets. e-Channels Core Transaction Platform has
                successfully established a reliable platformthat
                can support parallel processing, transaction integration, complicated
                communication modes, database access and data analysis.




·
            Extensibility
                and Quick Development Capability:
                The e-Channel Solution Suite is built with a layered platform structure,
                providing the banking clients with supporting modules at each level
                and a
                development environment with maximum interoperability and flexibility.
                These supporting modules allows its customers to utilize the extensibility
                of the platform to develop its own related support applications.
                For
                example, the Industrial and Commercial Bank of China has developed
                more
                than 10 add-on application systems based on this platform.




·
            Web
                Banking Front-End Interface:
                This module allows banks to provide internet banking to its retail
                and
                corporate customers. Management believes that its Web Banking Front-End
                Interface is better tailored and has more features for local banking
                practices than other competitive products in the market.




·
            Security
                Control Component:
                e-Channels develops security control components using Microsoft ActiveX®
                technology, technologies developed by Microsoft for sharing information
                among different applications. Banks purchase such additional components
                to
                enhance the security of their web banking system. e-Channels currently
                is
                the only web banking solution provider in China offering such components.




·
            Dynamic
                Password Application System (DPAS):
                e-Channels provides integrated DPAS. DPAS is a security access method
                that
                allows customers to log into an internet banking system using a uniquely
                numbered physical plastic card with rows and columns of passwords
                on the
                back. Upon entering the user’s unique card number, the user is challenged
                to look up the correct password in the corresponding prompted row
                and
                column. In this way, one has a unique one-time only password to the
                user’s
                internet banking accounts. DPAS provides banks with a flexible cost
                effective solution that enables a balance between security, flexibility
                and cost. Firstly, adoption of DPAS is acceptable to banks because
                it is
                easy to use. Secondly, DPAS helps enhance the system security
                significantly while also lowering costs through wider adoption of
                DPAS.
                e-Channels is in the process of filing the patent application for
                DPAS.




26




·
            Security
                Management Center (SMC):
                SMC is a command console and interface that helps users to locate
                error
                events and take immediate action. SMC can efficiently supervise and
                manage
                system security by suggesting problem solutions and assisting resolving
                errors promptly. Thus SMC makes it possible to reduce range, degree
                and
                amount of system downtime.




The
      Teller application software contains the following attributes:




·
            J2EE
                architecture—It enables flexible architecture and deployment and reduces
                overall processing cost.




·
            Complete
                development platform—This visible development platform for teller
                applications can be used to accelerate installation of teller applications
                and to add new functions.




·
            Reasonable
                and flexible mechanism of teller management and authorization—The software
                provides mechanism of teller management and authorization that can
                be
                customized to meet the unique business rules and requirements of
                each bank
                client.




·
            Seemless
                integration with the core systems from international vendors—As a result
                of some teller business process and attributes being unique in China,
                many
                requirements of domestic teller applications can not be satisfied
                by
                foreign core systems. e-Channel’s teller systems provide modules to enable
                such business requirements due to layered teller management and management
                of significant blank vouches.




System
      Integration




Currently,
      Sihitech provides a full scope of system integration covering server, network
      and storage infrastructure. The system integration solutions consist of the
      following four steps—design, implementation, testing and system performance
      optimization. During the design phase, a customer requirement analysis, cost
      analysis, hardware/operating system design and installation design is
      undertaken. During the implementation phase, the Company’s engineers install
      operating systems, system-level application software and database system onto
      server hardware. During the testing phase, the Company’s technical
      team
      test effectiveness and performance of the server system infrastructure. During
      the system performance optimization phase, the Company will further optimize
      the
      system infrastructure’s performance according to testing result and real
      application environment.




27




As
      part
      of the implementation phase, Sihitech also provides hardware and banking
      peripherals primarily as part of the total solution packages to its customers.
      The products Sihitech typically distributes include hardware/software products
      from IBM, HP, EMC and Microsoft; as well as network products from Cisco and
      Huawei. The IBM hardware products we distribute include PSeries &
RS/6000, IBM Storage Products and IBM ATM; while the IBM software products
      we
      distribute include AIM, DM and Tivoli.




The
      main
      categories of banking systems that Sihitech have built for its banking clients
      includes the following:




·
            Credit
                Management System.
                Credit management is an important aspect of financial operations.
                A
                successful credit management system allows banks to expand high value
                low-risks customers and reduce its credit default risks. Sihitech
                has
                implemented a credit management system that enables the bank to
                investigate and evaluate the credit risk profile of a customer, as
                well as
                examine, approve, grant, check and seek repayment of the credit granted
                to
                each customer.




·
            Risks
                Monitoring System.
                This is a system to help banks supervise and estimate their risks
                in every
                operational area and in the branch offices by providing an analysis
                of
                various risk factors and provide advance risk warning to banks. The
                risks
                monitoring system is currently used in the State Development Bank
                of China
                and the Agricultural Bank of China.




·
            Call
                Center System.
                Sihitech has built call centre systems primarily for retail customer
                services such as credit cards and deposits. It often includes an
                interactive voice response system which enables responses to be generated
                and given for frequently asked questions through computers without
                the
                need for human operators. In addition, though automation, the call
                center
                system is operational 24 hours a day and can achieve a more friendly
                service interface than through the use of human operators. The call
                center
                system results from the use of two types of communications technology—the
                PSTN Exchange and the IP telephony technologies. The Call Center
                System is
                currently being used by several branches of the China Construction
                Bank
                including Shandong, Hunan, Liaoning, Shanghai and Beijing.




·
            Consumer
                Credit Management System.
                With rising consumer affluence, PRC banks have in recent years launched
                various consumer credit products. Demand for such products is currently
                strong and is expected to grow even further. The Sihitech consumer
                credit
                management system is an integrated system which includes account
                management, consumer credit risk control, consumer credit bookkeeping
                and
                operations management capabilities. Users of the Consumer Credit
                Management System include the Shaanxi branch of the China Construction
                Bank.




·
            Data
                Consolidation System.
                Faced with an increasing demand from its bank clients for IT systems
                with
                the capabilities to centralize the handling of account data, Sihitech
                has
                deployed Data Consolidation System which transfers all operations
                data
                from each bank branches to regional centers and hence streamlines
                the
                management and maintenance of information andsubstantially
                increases data security and integrity. Users of the Data Consolidation
                System include the Beijing and Liaoning Branch offices of China
                Construction Bank.




28




As
      part
      of this division, Sihitech also provides maintenance and enhancement services
      for the banking systems built by the System Integration division. The
      maintenance services are undertaken to ensure that the systems are in workable
      conditions, constantly fine-tuned and optimized to operate at an expected
      efficiency level as the number of end-users of the applications software within
      the banks’ network increases. The enhancement services are undertaken to
      generate new functionalities in the applications software to meet our customer’s
      changing business requirements. Historically, banks in China have traditionally
      dedicated significant financial resources to the management of IT systems.
      Increasingly, the outsourcing of IT system management has become an option
      for
      banks and financial institutions to improve customer satisfaction and reduce
      operating costs.




IT
      Consulting and Support Services




The
      IT
      consulting services division provides consulting services for banks and
      financial institutions in the PRC which are currently developing their IT
      capabilities in order to meet the challenges of their future business
      requirements. The IT consulting consists of teams of IT professionals with
      experience in IT applications in the PRC banking industry..




The
      division works closely with banks and financial institutions or in partnership
      to provide customized solutions that meet the customers’ unique requirements.
      The strategy is to establish a leadership position for consulting services
      in
      selected focus areas, which include:




·
            IT
                strategy review.  The
                review of clients’ IT strategies entails understanding the clients’
                operating IT environment and the assessment of its suitability in
                providing the client with the level of IT support necessary for achieving
                their business objectives. The performance of an IT strategy review
                often
                requires an in-depth knowledge of IT architectures and understanding
                of
                the clients’ business operations.




·
            IT
                strategy formulation.  Following
                the review of the clients’ IT strategies, the team will identify areas
                where the existing strategies need to be improved and assist clients
                in
                formulating their future IT strategies. This requires an in-depth
                understanding of their business priorities and a thorough appreciation
                of
                a wide range of available IT capabilities and solutions. The team
                generally makes recommendations to clients on their future system
                requirements and the various types of hardware required for the
                construction of their IT infrastructures and how IT should be operated
                and
                managed within an enterprise.




·
            IT
                infrastructure architecture.  After
                formulating an IT strategy, the team will assist the clients in designing
                their IT infrastructures which comprise various architectural components.
                This includes hardware, system software, application software and
                the
                selection of the appropriate solutions. It is important to ensure
                that the
                components, which are usually supplied by different vendors, are
                compatible and can be integrated to perform the desired functions.




29




*Business
      Operation Agreements*




The
      majority of the services of Yucheng are provided under written agreements.
      Because of the number of transactions, there is no single agreement that
      accounts for a significant transaction. Currently the companies seek to use
      its
      form agreement and the majority are this form or substantially similar. Such
      agreements include technology service agreements, service agreements, software
      sales agreements, software license agreements and software development
      agreements. The Company's operating companies attempt to conform their services
      to these agreements to assure uniformity in their ability to maintain standards
      and provide adequate protection for their intellectual property rights.
      Financial terms are negotiated for each transaction and largely depend on the
      scope of the project. A typical software development agreement requires payment
      in three installments with the first payment at the time of contract being
      equal
      to 30% of the fee, then a payment of about 65% at the time of delivery and
      the
      final 5% due within a short period after the contract completion. A system
      integration contract generally requires three installments of 30% each, payable
      at the signing, at time of delivery and then three months after delivery and
      the
      final 10% payable six months after delivery. Contracts are for durations of
      a
      few months to three years, depending on the project size and complexity of
      the
      undertaking. Typical software agreements require payment of 90% of the contract
      price after customers receive the product and opportunity to first assess the
      product delivered, with the balance due at the time of final assessment of
      the
      product, both subject to invoicing by the Company. The timing of projects
      undertaken by the Company depends on the scope of the assignment and complexity
      of the tasks. Although the foregoing describes the general forms of agreements,
      during the course of contract fulfillment the Company's operating companies
      may
      negotiate or accept changes to certain terms, including the payment timing,
      to
      accommodate changes in the customers’ requirements and implementation of the
      contract.




*Intellectual
      Property Rights*




Yucheng
      relies on a combination of intellectual property registrations, copyright and
      trademarks laws, trade secrets, confidentiality procedures and contractual
      provisions to protect its proprietary rights. The company also believes that
      factors such as the technological and creative skills of its personnel, new
      product developments, frequent product enhancements, increasing name recognition
      in its specific markets and reliable product development and maintenance are
      essential in establishing and maintaining a technology leadership position.
      The
      company understands that intellectual property laws only offer limited
      protection in any jurisdiction, and particularly in the PRC, where the law
      is
      still developing and enforcement of rights at the judicial level is not yet
      certain. Therefore, the Company tends to rely on contractual provisions, secrecy
      and leadership position for the protection of its rights.




The
      following is a list of the principal software owned by Yucheng through its
      e-Channels subsidiary, that e-Channels developed and has registered with the
      National Copyright Administration of the PRC pursuant to the Regulations for
      the
      Protection of Computer Software ((2002). Each of the registrations has a
      registered life expiring on the 31st of the fiftieth year after first
      publication of the software registration.




·
            e-Channels
                CTP V3.0 (Registration Number: 2002SR01908) (Expiration date:
                April 3, 2052)




e-Channels
        Financial Channel Core Transaction Platform: CTP




30






·
            e-Channels
                eATM V3.0 (Registration Number: 2002SR1912) (Expiration date:
                September 17, 2051)




e-Channels
      Financial Channel ATM System: eATM




·
            e-Channels
                Sisal V3.0 (Registration Number: 2002SR2383) (Expiration date:
                September 18, 2051)




e-Channels
      Financial Channel Teller System: Sisal




·
            e-Channels
                Liana V3.0 (Registration Number: 2002SR2384) (Expiration date:
                September 17, 2051




e-Channels
      Web Banking Transaction Platform: Liana




·
            e-Channels
                IDE V3.0 (Registration Number: 2002SR2385) (Expiration date:
                September 17, 2051)




e-Channels
      Financial Channel Software Development Environment: IDE




·
            e-Channels
                CTP V4.0 (Registration Number: 2004SR05572) (Expiration date:
                April 30, 2054)




e-Channels
      Financial Channel Core Transaction Platform: CTP




·
            e-Channels
                CMS V1.0 (Registration Number: 2004SR09399) (Expiration date: June 1,
                2054)




e-Channels
      Content Management System: CMS




·
            e-Channels
                TestRecorder V3.0 (Registration Number: 2004SR09400) (Expiration
                date:
                April 20, 2054)




e-Channels
      Test Management System: TestRecorder




·
            e-Channels
                imSafe V1.0 (Registration Number: 2004SR09401) (Expiration date:
                May 24, 2054)




e-Channels
      Electronic Input Coffer System: imSafe




·
            e-Channels
                CTS V1.0 (Registration Number: 2005SR2144) (Expiration date:
                January 8, 2055)




e-Channels
      Card Transaction System: CTS




·
            e-Channels
                DynamicCipher V1.0 (Registration Number: 2005SR2145) (Expiration
                date:
                December 7, 2054)




e-Channels
      Dynamic Password System: DynamicCipher




·
            e-Channels
                MCI Saker V1.0 (Registration Number: 2005SR2149) (Expiration date:
                September 30, 2054)




e-Channels
      MCI Supervision Platform: Saker




31




·
            e-Channels
                B/S WADP V1.0 (Registration Number: 2005SR2150) (Expiration date:
                September 10, 2054)




e-Channels
      B/S System Development Platform: WADP




·
            e-Channels
                CTP V4.7 (Registration Number: 2005SR12183) (Expiration date:
                April 20, 2055)




e-Channels
      Financial Channel Core Transaction Platform: CTP




The
      e-Channels Financial Channel Core Transaction Platform is a multi-channel
      applications platform that provides support for development and an operational
      environment that suits most types of transaction systems. A transaction includes
      the whole interactive process between multi-channel terminals and systems.




The
      e-Channels Financial Channel ATM System is an application system for
      self-service equipment. It enables sharing of transaction types defined in
      a web
      banking system or teller system. Thus it facilitates expansion of the functions
      of an ATM network, like storing and drawing out cash and transferring payments
      and making payments.




The
      e-Channels Financial Channel Teller System, Sisal, is a network teller system.
      Sisal is a network teller system, installed with many self-contained service
      modules. It provides complete business customization modes through outside
      parameter configurations.




The
      e-Channels Web Banking Transaction Platform, Liana, is an application system
      based on the e-Channels core transaction platform, designed to facilitate
      internet access. Liana provides flexible personal web banking, enterprise web
      banking and an independent B2B/B2C online payment platform.




The
      e-Channels Financial Channel Software Development Environment, IDE, is an
      integrated development environment for channel integration application system.
      IDE facilitates the development of channel integration application systems
      by
      building up integration models and providing maintenance tools. IDE is based
      on
      ECLIPSE technology, and works in conjugation with Eclipse/WSAD, a J2EE
      application tool. IDE supports development of uniform channel transaction
      processes and special channel applications such as counter channel, HTML
      channel, etc.




The
      e-Channels Content Management System, CMS, provides an entire management system
      for content collection, compiling to publishing of website content and news.
      CMS
      can also help keep the order of data and provide functional model design.




The
      e-Channels Test Management System, TestRecorder, focuses on “finding a problem
      and resolving it’. TestRecorder is a testing process assistance tool which
      focuses on a problem, helps all relative members to work together on the
      problem, and then enables fast communication and data report analysis.




The
      e-Channels Electronic Input Coffer System, imSafe, is a tool used to protect
      sensitive transaction data. imSafe has following attributes:




1.  Separate
      input data from displayed data and send input data into coffer for protection;




32




2.  Prevent
      a
      hostile program from modifying input data or stealing sensitive information;




3.  Prevent
      intention of copy- paste;




4.  Friendly
      user interface; and




5.  Specially
      designed submission interface, to avoid leak of sensitive
      information.




The
      e-Channels Card Transaction System, CTS, is a preposition system for a bank’s
      network to connect with settlement networks such as VisaNet, Mastercard and
      Chinese Union Pay. CTS can be used for card issuing and settlement purposes
      also.




The
      e-Channels Dynamic Password System, DynamicCipher, is a novel system of password
      verification. DynamicCipher is suitable for all B/S application systems that
      require password verification, and for industries that require high system
      security level such as banking and telecommunications.




The
      e-Channels MCI Supervision Platform, Saker, is a platform for the supervision
      of
      business systems. Saker provides supervision on system resources and running
      status, real-time allocation and maintenance of system resources and
      configuration.




WADP
      functions as a basic platform, and is suitable for developing and operating
      all
      types of transaction systems. WADP is equipped with a transaction framework
      suitable for all B/S systems, highly abstracted transaction models, developing
      standards and modes and highly efficient service modules.




e-Channels
      also has two patent applications filed with State Intellectual Property Office
      of the Peoples Republic of China. One is a kind of dynamic password method
      and
      system with encryption (Patent application number: 200510069255.4) and the
      second is a kind of dynamic password method and system based on mobile
      communication terminals (Patent application number: 200510073434.5).




The
      market for the Company’s products and services is characterized by rapid
      technological change and the need of PRC banks to upgrade their technology
      to
      come in line with international accords. Therefore the life cycles of the
      Company’s products are difficult to estimate.




*Suppliers*




Yucheng
      works with the leading global hardware vendors such as IBM, HP, Sun and Intel
      for servers; Cisco, Nortel and Huawei for network equipments and Oracle,
      Microsoft and BEA for software. Yucheng is not dependant on any single supplier
      and believes that there are numerous and adequate alternatives for the supplies
      that they acquired from the aforementioned sources for system integration
      projects. Additionally, particularly in the software areas, internal product
      development has reduced the need for using third parties’ products.




33




*Competition*




The
      IT
      solution market for China’s banking industry can be characterized by intense
      competition and rapid technological change. Yucheng faces direct competition
      from software solutions providers locally and internationally, whose products
      and services are specifically targeted at the banking and finance industry.




Yucheng
      faces two groups of competitors, one from global IT vendors, the other from
      local competitors. Global IT vendors include IBM Global Service, Accenture,
      Sungard, and Bearing Point. They are strong in high-level enterprise-wide IT
      strategy consulting. Compared with global IT vendors, Yucheng provides more
      comprehensive end-to-end localized solutions at a reasonable price. Moreover,
      Chinese local banks have vested interests in supporting local IT and outsourced
      providers. Local competitors include Digital China, Longtop, Client Server
      International Inc., Global Info Tech, Hi Sun Technology Holdings Ltd, and Vanda
      System & Communications Holdings Limited . Digital China is listed on
      the Hong Kong Stock Exchange and is the largest IT product distributor in China.
      It is also a significant IT service provider but the Company is not focused
      on
      the financial industry. Nevertheless, in the future, Digital China may become
      a
      more serious competitor since the Company has publicly announced a corporate
      goal to expand high-end IT consulting services to the financial institution
      segment. Client Server International Inc., a United States registered
      company, mainly operating in the PRC, is a competitor in the web banking
      segment. Its focus is on providing cheaper web banking solutions for smaller
      and
      middle tier banks so direct competition is limited unless Yucheng moves into
      the
      Tier III banks. In addition, management believes that another group of
      competitors is the banks’ internal IT departments which may be capable of
      creating in-house solutions. Longtop is an IT service and solution provider
      to
      Fortune 2000. It’s strong in providing ATM solution and services to the Chinese
      banking industry. Longtop is diversifying into off-shore outsourcing businesses.
      Global Info Tech, a company which focuses mainly on providing integrated IT
      services to state owned enterprises, foreign investment enterprises and
      companies in the financial, insurance, securities and telecommunications
      industries. Vanda System & Communications Holdings Limited is listed on
      the Hong Kong Stock Exchange and its operations are mainly in the Asian region.
      It provides IT services mainly to PRC banks in the mainframe area. Compared
      with
      the local competitors, as a pure play in the banking sector, Yucheng provides
      a
      more comprehensive end-to-end solutions at a premium price as its established
      leadership in some key segments, such as web-banking and call-center
      solution.




In
      addition to the competitors listed above, there are many smaller providers
      of IT
      services to Chinese banks. Most of these providers are small to middle sized
      companies, and most of them only focus on narrowly specified niche market of
      IT
      solutions that offer limited services and have limited capabilities. Management
      believes that many of these companies are not going to be successful in the
      long
      term as margins continue to be compressed and banks are moving toward
      consolidating their vendor relationships to fewer strategic ones. These
      smaller IT service providers will present many roll-up opportunities for Yucheng
      to further expand its product and service offerings and its customer
      base.





34




*Regulatory
      Matters*




The
      business of Yucheng is not regulated. The PRC has not published any laws and
      regulations governing the standards that have to be met to supply solutions
      or
      infrastructure to state-owned or other commercial banks. Over time, management
      expects that aspects of its business may become directly or indirectly affected
      by changes in PRC banking regulatory policies promulgated by the China Banking
      Regulatory Commission, laws and regulations, such as those affecting the extent
      to which it can engage in specific businesses, as well as changes in other
      governmental policies. Notwithstanding the foregoing, certain banks in China
      have promulgated internal regulations with respect to computer information
      security, and/or technology in general, but such information is not available
      in
      public domain. If and when the companies have contracts with these entities,
      they are made known to them and they comply with them in the provision of
      products and services. To date, the company has not encountered any problems
      in
      meeting these internal regulations required by is customers.




To
      some
      extent, the products and services of Yucheng will be affected by the Basel
      Capital Accords relating to international banking, and therefore internal
      banking practices of the PRC. The Basel Capital Accord, or Basel I, was
      introduced by the Basel Committee on Banking Supervision, or Basel Committee,
      in
      1988. Since 1999, the Basel Committee has issued certain proposals for a New
      Capital Adequacy Framework, or Basel II, to replace Basel I. Basel II will
      be
      available for implementation in its entirety as of the end of 2007. Basel I
      was
      not adopted in the PRC and is not legally binding on PRC banks. Chinese
      government committed that all Chinese banks will be Basel Accord II compliance
      by 2012. The PRC, during the last five years, has developed a more comprehensive
      body of laws to protect intellectual property rights within the country. This,
      in part, has been prompted by China’s commitment for entry into the WTO. In
      July 2000 a comprehensive patent law was adopted. In October 2000 a
      comprehensive copyright law was adopted. In January 2002, there was adopted
      a law on the regulation of computer software protection. Also, in 2002, the
      Ministry of Information Industry developed an administration rule on Internet
      domain names. As these laws are developed and enforced, they will have impact
      on
      the property rights of Yucheng to add protection for those items registered
      and
      facilitate enforcement of rights.




*Product
      Liability*




e-Channels’
      product lines are channel-oriented, and therefore do not deal with the back-end
      data of a customer. Sihitech also does not deal with customers’ back-end data.
      Consequently, the ultimate responsibility of data integrity and recovery issues
      lies with the customers. Therefore, there is little risk of liability arising
      from the integration of data and the manipulation thereof and overall data
      integrity. Yucheng also routinely enters into confidentiality agreements whereby
      they agree to respect the confidentiality of any customer data that should
      be
      revealed to them during the course of providing services.




35




There
      may
      be some potential liability to Sihitech arising from the provision of systems
      maintenance contracts from time to time. The liability would arise from
      unanticipated down-time of a system that is related to the work of Sihitech.
      Often these amount are quantified in the contract in the nature of liquidated
      damages. Sihitech has one contract that could result in such penalties being
      due
      at the rate of RMB280,000 per day, but Sihitech does not believe that the
      likelihood of system disruption is high. Yucheng could be liable for the failure
      to provide products and services that meet the requirements of its clients.
      In
      some areas of the products and services provided, the clients are relying on
      the
      expertise of Yucheng the failure of which could have consequential damages
      to
      the client. The Company's operating companies attempt to protect themselves
      through contractual limitations in the client engagements, and in the future
      will seek insurance for such events as such insurance becomes more readily
      available in the PRC market and the potential for claims increases in response
      to the growth of their businesses. Notwithstanding the contractual limitations,
      the Company's operating companies may face breach of contract and product
      liability claims.




*Research
      and Development*




The
      market for the Company’s products and services is characterized by rapid
      technological change and the need of PRC banks to upgrade their technology
      to
      come into line with international accords. Therefore, the life cycles of the
      Company's operating companies’ products are difficult to estimate. The future
      success of the Company will depend on its ability to enhance on a timely basis
      its current products, develop and introduce new products that keep pace with
      technological developments, client needs and emerging industry standards and
      address the increasingly complex and sophisticated environment in which the
      products have to work.




Yucheng
      engages in research and development work to develop new features and
      functionalities on the existing products and platform and bring the implemented
      solutions to modulized and robust product lines. Through research and
      development work, Yucheng plans to stay at the leading edge of IT solution
      providing to Chinese banking industry. According to US GAAP, research and
      development-related expenses can only be capitalized after the technological
      feasibility point is reached. So, the amounts shown on the R&D expense line
      of the audited income statement indicates only those R&D expenditures
      non-qualified for capitalization. In addition with capitalized R&D
      expenditures, Yucheng incurs substantial R&D-related costs. The following
      table sets out the R&D expense amount shown on the income statement:




Expenditure
      on R&D for the last three years is the following:




**R&D
                Expenditure**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004****(USD)**
            
            **(RMB)**
            
            **(RMB)**
            
            **(RMB)**482,146
            
            
            3,764,931
            
            
            2,349,536
            
            
            1,416,277




36




*Employees*




As
      of
      December 31, 2006, Yucheng had approximately 612 full-time employees. None
      of the employees is known by the Company's operating companies to be represented
      by a collective bargaining agreement and Yucheng has never experienced a strike
      or similar work stoppage. Yucheng considers its relations with its employees
      to
      be good.




*Tax*




PRC
      enterprise income tax is calculated based on taxable income determined under
      PRC
      accounting principles. In accordance with “Income Tax of China for Enterprises
      with Foreign Investment and Foreign Enterprises,” or the Income Tax Law, and the
      related implementing rules, foreign invested enterprises incorporated in the
      PRC
      are generally subject to an enterprise income tax rate of 33.0% (30.0% of state
      income tax plus 3.0% local income tax). PRC domestic companies are governed
      by
      the Enterprise Income Tax Laws of the PRC and are generally subject to an
      enterprise income tax rate of 33.0%.




Yucheng
      is a tax-exempted company incorporated in the British Virgin Islands. Our PRC
      operating companies are incorporated in the PRC and governed by the PRC
      laws.




Pursuant
      to the Provisional Regulation of China on Value Added Tax (“VAT”) and their
      implementing rules, all entities and individuals that are engaged in the sale
      of
      goods, the provision of repairs and replacement services and the importation
      of
      goods in China are generally required to pay VAT at a rate of 17.0% of the
      gross
      sales proceeds received, less any deductible VAT already paid or borne by the
      taxpayer.




*Dividend
      Distribution*




Under
      PRC
      law, foreign-invested enterprises in China may pay dividends only out of their
      accumulated profits, if any, determined in accordance with PRC accounting
      principles. In addition, a foreign-invested enterprise in China are required
      to
      set aside at least 10% of their after-tax profit based on PRC accounting
      standards each year to its general reserves until the accumulative amount of
      such reserves reach 50% of its registered capital. These reserves are not
      distributable as cash dividends. The board of directors of a foreign-invested
      enterprise has the discretion to allocate a portion of its after-tax profits
      to
      staff welfare and bonus funds, and expansion (development) fund which may not
      be
      distributed to equity owners except in the event of liquidation.




We
      believe that we are currently in compliance with all applicable PRC laws and
      regulations relating to our business.




37




**C.**  **Organizational
      structure** **.**




Yucheng
      is a holding company with no operations of its own. It conducts its operations
      in China primarily through its several PRC operating companies. The following
      diagram illustrates our organizational structure as of December 31,
      2006




img1 logo




(1)
      Yucheng Group: refers to Yucheng Technologies Limited and its controlled
      subsidiaries;




(2)
      Sihitech BVI: refers to Ahead Billion Venture Ltd.;




(3)
      e-Channels BVI: refers to Port Wing Development Co., Ltd.




(4)
      “Beijing Sihitech”, “Sihitech” and “Sihitech Group”: refer to Beijing Sihitech
      Technology Co., Ltd. and its controlled subsidiaries;




(5)
      “Beijing e-Channels” and “e-Channels”: refer to Beijing e-Channels Century
      Technology Co., Ltd.




**D.**  **Property,
      plant and equipment** **.**




Our
      principal executive offices are located in the ChaoYang District in Beijing
      where we lease approximately 1,710 square meters of office. The Company has
      5
      other office locations in the PRC, in Shanghai, Guangzhou, Xian, Xiamen and
      Chengdu, representing an aggregate of 1,202 square meters of rented space.
      The
      aggregate rent for all the offices is $339,574. The leased facilities are rented
      at regular commercial rates, and management believes other facilities are
      available at competitive rates should it be required to change locations or
      add
      facilities.




We
      believe that our existing facilities are adequate to conduct our current and
      foreseeable future business operations.




38




**ITEM
      5.**  **OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS** ****




Yucheng
      was formed on November 24, 2006 upon consummation of a three-party merger of
      China Unistone, Beijing Sihitech Technology Co., Ltd., and Beijing e-Channels
      Century Technology Co., Ltd. Due to the purchase method of accounting used
      in
      consolidating e-Channels and China Unistone into Sihitech, there is only one
      month’s operating data of e-Channels included in the consolidated income
      statements for the year ended December 31, 2006 for the Yucheng Group. Therefore
      the following discussion of our financial condition as of December 31, 2006
      and
      our results of operations for the year then ended is based upon and should
      be
      read in conjunction with the audited consolidated financial statements for
      the
      year ended December 31, 2006 and the unaudited pro forma result in Note 20
      “Acquisition of a subsidiary” and their related notes, to provide readers with a
      more complete view of the financial condition and operating results for the
      Yucheng Group for the year of 2006. In order to provide a meaningful comparison
      between 2006, 2005, 2004 and 2003, the following discussion of our financial
      condition and results of operations for the years ended December 31, 2003,
      2004,
      and 2005 is based on the Yucheng Group’s unaudited pro forma results derived
      from audited financial statements of Sihitech and e-Channels previously filed
      with SEC for the years ended December 31, 2003, 2004, and 2005 as if Sihitech
      and e-Channels (Chinese operating companies) were combined as of January 1,
      2003. The pro forma statements/results based on which the discussion in this
      section is conducted hereafter are unaudited pro forma financial information
      and
      not intended to represent or be indicative of the Yucheng Group's consolidated
      results of operations or financial condition that would have been reported
      had
      the acquisition been completed as of the beginning of the periods presented
      and
      should not be taken as indicative of the Yucheng Group's future consolidated
      results of operations or financial condition. This report contains
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including,
      without limitation, statements regarding our expectations, beliefs, intentions
      or future strategies that are signified by the words “expect”, “anticipate”,
“intend”, “believe”, or similar language. All forward-looking statements
      included in this annual report are based on information available to us on
      the
      date hereof, and we assume no obligation to update any such forward — looking
      statements. Actual results could differ materially from those projected in
      the
      forward — looking statements. In evaluating our business, you should carefully
      consider the information provided under the caption “Risk Factors” in this
      annual report on Form 20-F. We caution you that our businesses and financial
      performance are subject to substantial risks and uncertainties.




**A.**  **Operating
      Results** **.**




MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
      YUCHENG




Overview




*Business*




Yucheng
      and its subsidiaries (the ‘‘Yucheng Group’’) currently provide a comprehensive
      suite of IT solutions and services to the banking industry in China. As Chinese
      banks are getting more sophisticated in terms of information technology adoption
      and utilization, Yucheng continues to migrate its business focus from
      traditional system integration services to high-growth IT consulting and
      maintenance services.




Yucheng
      was formed as a combined entity on November 24, 2006 upon consummation of a
      three-party merger among Sihitech, e-Channels, and China Unistone, an OTCBB
      listed shell company (CUAQ.OB). Both Sihitech and e-Channels are Chinese
      operating companies in the field of IT solution and services provision to
      Chinese banking industry.




39




*Business
      Trends Potentially Affecting the Yucheng Group*




The
      Chinese banking industry is undergoing substantive expansion and change as
      a
      result of the rapid growth in the Chinese economy. Therefore, the domestic
      banks
      are experiencing a need for IT services and solutions which are viewed as
      increasingly critical to meet their growth and business objectives.




The
      PRC’s
      accession as a member of the WTO in December 2001 was a catalyst for the opening
      up of the domestic banking and financial services industry to foreign
      participation and exposure to substantive competition. This is a gradual process
      that will include, amongst other things, permitting foreign financial
      institutions to eventually provide a full range of financial services in both
      foreign currency as well as RMB in China to both individuals and corporate
      entities. Management believes that the liberalization of the banking and
      financial services industry in the PRC will enable foreign banks to compete
      on
      the same level as domestic banks and financial institutions in the future and
      that protectionist measures previously afforded to domestic banks and financial
      institutions will gradually be removed.




Under
      this change to the Chinese banking industry, management expects domestic banks
      and financial institutions to take the necessary steps to position themselves
      to
      compete with a larger pool of financial institutions. In order to meet the
      anticipated challenges presented by foreign banks and financial institutions,
      management believes that the domestic banks must be able to offer their
      customers a greater range of financial products and services that is in line
      with international standards and which are comparable to those offered by the
      foreign financial institutions in terms of the breadth of services and the
      level
      of service quality. Management believes that the PRC banks will need to
      undertake significant IT infrastructure revisions and enhancements to ensure
      that they are able to compete in the new competitive environment. There is
      an
      increased need by PRC banks and financial institutions to re-engineer their
      IT
      infrastructures and channel applications from web-banking to call centers to
      improve their customer service quality and to have ready access to data on
      their
      customers in an efficient manner.




Chinese
      tier I banks are also going through an internal reformation to prepare for
      raising additional investor capital in both the domestic and overseas capital
      markets. Coupled with compliance requirements under the Basel Accord II agreed
      to by the Chinese government, management believes that information technology
      will be heavily relied on to improve bank operating efficiency, risk management
      and internal controls.




Another
      trend is that the financial service industry is gradually being deregulated
      by
      the government. As a result, Chinese banks are being allowed to provide
      additional services to customers, including for example, insurance and brokerage
      services. This trend to mixed operations for PRC banks will require the brand
      new IT infrastructure and applications be set up to support the new businesses
      conducted by the banks.




*Overview
      of Revenues*




From
      theYucheng Group’s business perspective, management regards the aggregate of
      system integration, agency fees, and license fees shown on the audited financial
      statements and unaudited pro forma financials as system integration
      business, and the aggregate of e-Channels solutions, IT consulting, software
      development, and maintenance and support shown on the audited financial
      statements and unaudited pro forma financials as non-system
      integration.




40




For
      the
      year ended December 31, 2006 and 2005, the Yucheng Group achieved unaudited
      pro
      forma consolidated net income of RMB47,712,008 (US $6,110,108) and
      RMB25,339,522, respectively. The Yucheng Group generated RMB312,190,647
      (US $39,979, 849) in total unaudited pro forma consolidated revenues for
      the year ended December 31, 2006, compared to RMB201,381,727 for the year ended
      December 31, 2005. System integration services represented 62.3% of total
      unaudited pro forma consolidated revenues, with non-system integration
      contributing 37.7% of the unaudited pro forma consolidated revenues for the
      year
      ended December 31, 2006. System integration services contributed 25.5% of the
      unaudited pro forma consolidated gross profit for the year ended December 31,
      2006, while non-system integration contributed the remaining 74.5%.




For
      the
      years ended December 31, 2005, 2004 and 2003, the Yucheng Group achieved
      unaudited pro forma consolidated net income of RMB25,339,522
      (US $3,139,888), RMB25,743,166 and RMB9,112,969, respectively. The Yucheng
      Group generated RMB201,381,727 (US $24,953,747) in total consolidated
      revenues in 2005, compared to RMB260,091,930 in 2004 and RMB198,477,863 in
      2003.
      System integration services represented 58.9% of total unaudited pro forma
      consolidated revenue, with non-system integration contributing 41.1% of the
      consolidated revenues in 2005. System integration services contributed 18.9%
      of
      the unaudited pro forma consolidated gross profit in 2005, while non-system
      integration contributed the remaining 81.1%. This reflects both the result
      of
      management focus to grow high-growth and high-margin non-SI business over the
      years and flat sales in system integration for the years.




Critical
      Accounting Policies




The
      discussion and analysis of the Yucheng Group’s financial condition and results
      of operations is based upon its unaudited pro forma consolidated financial
      statements, which have been prepared in accordance with generally accepted
      accounting principles in the U.S. (‘‘US GAAP’’). The preparation of the
      consolidated financial statements requires management to make estimates and
      judgments that affect the reported amount of assets and liabilities, revenues
      and expenses and related disclosure of contingent assets and liabilities. Actual
      results may differ from these estimates under different assumptions or
      conditions.




Critical
      accounting policies are those that reflect significant judgments or
      uncertainties, and potentially result in materially different results under
      different assumptions and conditions.




Management
      has described below what it believes are the Yucheng Group’s most critical
      accounting policies that involve a high degree of judgment and the methods
      of
      their application.




*Revenue
      recognition*




As
      more
      fully described in Note 2(l) to the consolidated financial statements, the
      Yucheng Group generates revenues primarily from system integration, software
      development, IT consulting, maintenance and support, and agency services.
      Generally speaking, the Yucheng Group recognizes revenue when persuasive
      evidence of an arrangement exists, services have been rendered or products
      have
      been delivered, the price is fixed and determinable, and collectibility is
      reasonably assured. Due to our business characteristic of having substantial
      repeat business from a particular customer or branch, it is quite common that
      the Yucheng Group has already started the project without the contract signed.
      Accordingly, the Yucheng Group defers revenue until persuasive evidence of
      an
      arrangement exists. Management has a stringent internal approval process in
      place to mitigate the risks of not being able to receive compensation for the
      work done without contracts. Due to the high quality of our customers and the
      customer satisfaction of our service level, the Yucheng Group has not
      encountered any losses from this kind of arrangements. For software development
      and IT consulting contracts requiring significant production, modification,
      or
      customization, the Yucheng Group uses the percentage of completion method to
      recognize revenues. In the case of multiple element arrangements contained
      in a
      sales contract, revenue is allocated to the various elements based on
      vendor-specific objective evidence of fair value, regardless of any separate
      prices stated within the contract for each element. If sufficient
      vendor-specific objective evidence does not exist for the allocation of revenue
      to the various elements of the arrangement, all earnings from the arrangement
      is
      deferred until the earlier of the point at which such sufficient vendor-specific
      objective evidence does exist or all elements of the arrangement have been
      delivered. If the only undelivered element is post-contract customer support
      (‘‘PCS’’), revenue and costs are recognized on a zero margin basis and all
      earnings are recognized ratably over the PCS period.




41




*Trade
      accounts receivable and its collectibility*




Trade
      accounts receivable are recorded at the invoiced amount and do not bear
      interest. The Yucheng Group’s unaudited pro forma accounts receivable were
      RMB116,606,333 (US $14,932,874) as at December 31, 2006 compared to
      RMB69,733,102 as at December 31, 2005. The Yucheng Group’s days sales
      outstanding (“DSO”)
      decreased from
      113 days for 2005 to 110 days for 2006.




The
      marginal improvement of DSO from 2005 to 2006 is a reflection of concerted
      efforts of cash collection throughout the organization of the Yucheng Group.
      Management will continue to work on cash collection to reduce DSO to a
      reasonable level. As the majority of our customers are Tier I banks in China,
      management does not believe there were any collectibility issues on accounts
      receivable as of December 31, 2006 or 2005. Accordingly, no provision for bad
      debt expense was recognized for the years ended December 31, 2006 and 2005.




The
      customary terms of system integration contracts is normally structured in a
      way
      that 30% of the payment is made on signing, 30% of the payment is made on
      testing and acceptance, 30% of the payment is made three months after delivery
      and 10% of the payment is made 180 days after the end of the contract. Software
      development contracts are generally structured in such a way that 30% is paid
      on
      signing, 65% is paid on implementation and 5% is paid in 6 months after the
      end
      of the contract.




*Impairment
      of long-lived assets*




The
      Yucheng Group evaluates impairment for its long-lived assets to be held and
      used, including office equipment and motor vehicles, intangible assets and
      other
      non-current assets, when events or changes in circumstances indicate, in
      management’s judgment, that the carrying value of such assets may not be
      recoverable in accordance with FASB Statement No. 144, Accounting for the
      Impairment or Disposal of Long-Lived Assets. Recoverability of assets to be
      held
      and used is measured by a comparison of the carrying amount of an asset to
      estimate undiscounted future cash flows expected to be generated by the asset.
      If the carrying value of an asset exceeds its estimated future cash flows,
      an
      impairment charge is recognized by the amount that the carrying value exceeds
      the estimated fair value.




42




Assets
      to
      be disposed of would be separately presented in the balance sheet and reported
      at the lower of carrying amount or estimated fair value less the cost to sell,
      and are no longer depreciated.




Judgments
      and assumptions are inherent in management’s estimate of undiscounted future
      cash flows used to determine recoverability of an asset and the estimate of
      an
      asset’s fair value used to calculate the amount of impairment to recognize. The
      use of alternate judgments and/or assumptions could result in the recognition
      of
      different levels of impairment charges in the consolidated financial
      statements.





*Research
      and development costs*




Research
      and development costs include payroll, employee benefits, and other
      headcount-related costs associated with product development. The Yucheng Group
      records expenditure incurred before technological feasibility is established
      into research and development cost and capitalizes expenditures incurred after
      that point into the cost of intangible assets. Unaudited pro forma research
      and
      development costs were RMB6,482,426 (US $830,154) ,
      RMB5,397,349 and RMB3,899,779 in 2006, 2005 and 2004, respectively, among which
      RMB2,717,496 (US $348,009) ,
      RMB3,047,812 and RMB2,483,502 were capitalized in 2006, 2005 and
      2004.




*Precontract
      costs*




Due
      to
      the business environment in which the Yucheng Group operates, it is common
      practice that the Yucheng Group commences the software development or IT
      consulting project for its banking clients without commercial contracts being
      signed. If the contracts are not obtained during the reporting period where
      implementation costs have been incurred, the Yucheng Group defers revenue
      recognition for the related contracts until contracts are obtained. In
      accordance with SOP 81-1, as modified by SOP 98-5, costs that are incurred
      for a
      specific anticipated contract and that will result in no future benefits unless
      the contract is obtained, including cost of equipment, direct labour costs,
      and
      other ancillary costs, are deferred until receipt of the signed contract, and
      are then included in contract costs or inventory. Such deferred costs, subject
      to their not being related to costs of start-up activities, are evaluated
      periodically for probability of recoverability. If deemed unrecoverable,
      deferred costs are expensed to operating expenses.





*Goodwill*





Goodwill
      represents the excess of the purchase price and related costs over the valued
      assigned to net tangible and identifiable intangible assets of business acquired
      and accounted for under the purchase method.





The
      Yucheng Group accounted for the acquisition of e-Channels BVI in accordance
      with
      SFAS No. 141 Business Combinations, which resulted in the recognition of
      goodwill. Goodwill represents the excess of acquisition cost over the estimated
      fair value of the net assets acquired as of November 24, 2006. The portion
      of
      the purchase price allocated to goodwill was RMB37,273,607.





In
      accordance with SFAS No. 142 Goodwill and Other Tangible Assets, the impairment
      evaluation of goodwill is conducted annually, or more frequently, if events
      or
      changes in circumstances indicate that an asset might be impaired. The
      evaluation is performed by using a two-step process. In the first step, the
      fair
      value of each reporting unit is compared with the carrying amount of the
      reporting unit, including goodwill. The estimated fair value of the reporting
      unit is generally determined on the basis of discounted future cash flows.
      If
      the estimated fair value of the reporting unit is less than the carrying amount
      of the reporting unit, then a second step must be completed in order to
      determine the amount of the goodwill impairment that should be recorded. In
      the
      step, the implied fair value of the reporting unit’s goodwill is determined by
      allocating the reporting unit’s fair value to all of its assets and liabilities
      other than goodwill (including any unrecognized intangible assets) in a manner
      similar to a purchase price allocation. The resulting implied fair value of
      the
      goodwill that results from the application of the second step is then compared
      to the carrying amount of the goodwill and an impairment charge is recorded
      for
      the difference.




43





The
      assumptions used in the estimate of fair value are generally consistent with
      the
      past performance of each reporting unit and are consistent with the projections
      and assumptions that are used in current operating plans. Such assumptions
      are
      subject to change as a result of changing economic and competitive
      conditions.





Results
      of Operations




*The
      year ended December 31, 2006 as compared to the year ended December 31, 2005*




From
      theYucheng Group’s business perspective, management regards the aggregate of
      system integration, agency fees, and license fees shown on the audited financial
      statements and unaudited pro forma financials as system integration business,
      and the aggregate of e-Channels solutions, IT consulting, software development,
      and maintenance and support shown on the audited financial statements and
      unaudited pro forma financials as non-system integration.




Total
      unaudited pro forma revenue increased by 55% from RMB201,381,727 for the
      year ended December 31, 2005 to RMB312,190,647(US $39,979,849) for the year
      ended December 31, 2006.The mix of total revenue for 2006 is RMB194,559,916
      (US $24,915,788) for system integration and RMB117,630,731
      (US $15,064,061) for non-system integration businesses.




The
      total
      unaudited pro forma system integration revenue increased by 63.9% from
      RMB118,706,464 in 2005 to RMB194,559,916 (US $24,915,788) in 2006. The
      unaudited pro forma non-system integration revenue continued to grow at 42.3%
      from RMB82,675,263 in 2005 to RMB117,630,731 (US $15,064,061) in 2006
      maintaining the growth momentum seen in the previous years, mainly due to the
      increase of IT consulting and e-Channels solutions. This reflects the results
      of
      management’s efforts to migrate from low-margin system integration business to
      higher-margin IT consulting, e-Channels solutions and maintenance and support
      service businesses since 2004. System integration will remain an important
      component of the company’s business mix in the foreseeable future because system
      integration plays an important role in securing and solidifying customer
      relationships and building awareness of the company’s brand and other product
      and service offerings.




Total
      cost of the revenue on an unaudited pro forma basis increased by 58.3% or
      RMB82,284,342 (US $10,537,521) from RMB141,039,821 in 2005 to
      RMB223,324,163 (US $28,599,404) in 2006. Cost of revenue for system
      integration on an unaudited pro forma basis increased by 60.2% or RMB64,598,635
      (US $8,272,649) from RMB107,327,345 in 2005 to RMB171,925,980
      (US $22,017,235) in 2006. The lower growth rate of cost of revenue for
      system integration was mainly due to the better management of sales and bidding
      process resulting in higher gross margin on annual blended basis. Cost of
      revenue for non-system integration on an unaudited pro forma basis
      increased by 52.5% or RMB17,685,707(US $2,264,872) from RMB 33,712,476 in
      2005 to RMB51,398,183(US $6,582,169) in 2006. The increase was mainly
      attributable to the increase of the salaries and benefits.




44




The
      overall gross margin on an unaudited pro forma basis was 28.5% for the year
      ended December 31, 2006, as compared to 30% for the year ended December 31,
      2005. The gross margin decrease was mainly due to the significant increase
      of
      system integration revenue and its percentage of the overall revenue, which
      made
      system integration’s contribution to the company’s overall gross margin
      increased from 18.9% in 2005 to 25.5% in 2006.




Selling
      and marketing expenses on an unaudited pro forma basis increased by 17.8%
      from RMB13,363,294 in 2005 to RMB15,737,643 (US $2,015,399) in 2006. In
      2006, approximately RMB7.46million (US $0.96 million) was spent on salaries
      and benefits, RMB2.78million (US $0.36 million) was spent on entertainment
      and RMB2.92 million (US $0.37 million) was for traveling and
      transportation. This increase is in line with the expansion of the business
      scope.




General
      and administrative expenses on an unaudited pro forma basis increased by
      20.6% to RMB20,302,592(US $2,599,996) in 2006 from RMB16,838,352 in 2005.
      Of the RMB20.3 million (US $2.6 million) in 2006, approximately RMB8.60
      million (US $1.10million) was for salaries and benefits, RMB2.65 million
      (US $0.34million) was for rent, RMB1.89 million (US $0.24 million)
      related to depreciation and amortization, RMB1.57million (US $0.20million)
      was for audit fees and RMB0.46million (US $0.06 million) was for
      entertainment. The increase is in line with the expansion of the business
      scope.




Research
      and development (“R&D”)
      expense on an
      unaudited pro forma basis increased by 60.2% to RMB3,764,931
      (US $482,146) in 2006 from RMB2,349,536 in 2005. The increase is mainly due
      to increased R&D activities and amortization of capitalized R&D
      expenditures in the previous years. The R&D expense amount do not reflect
      the total picture of the Yucheng Group’s research and development activities, as
      R&D expense is only the portion expensed for costs incurred prior to
      establishing technological feasibility for the development of marketable
      computer software according to US GAAP. A significant portion of the related
      R&D expenditure was capitalized as intangible assets and is being amortized
      into net earnings on straight line basis over a 3 years period. The total
      research and development expenditure on a pro forma basis was RMB6,482,426
      (US $830,154) in 2006 as compared to RMB5,397,349 in 2005.




Subsidies
      and tax refunds on an unaudited pro forma basis were RMB3,658,256
      (US $468,485) in 2006 compared to RMB2,627,557 in 2005, mainly due to the
      increase of technology subsidy received from RMB652,000 in 2005 to RMB1,451,200
      (US $185,844) in 2006.




Interest
      income on an unaudited pro forma basis decreased to RMB133,618
      (US $17,111) in 2006 from RMB164,063 in 2005. The decrease of interest
      income is primarily due to the decrease in the average cash balances deposited
      in the bank.




45




Interest
      expense on an unaudited pro forma basis increased to RMB1,277,861
      (US $163,646) in 2006 from RMB630,520 in 2005. This was mainly due to the
      increase of working capital loans from the bank outstanding during the period.




Income
      tax expense on an unaudited pro forma basis decreased to RMB3,767,659
      (US $482,495) in 2006 from RMB4,326,053 in 2005. The Yucheng Group’s
      effective income tax rate was 7.3% in 2006 compared with 14.6% in 2005, mainly
      because Shanghai Sihitech Software Co, Ltd. tax holiday was approved in 2006
      and
      the Yucheng Group’s effective tax planning of utilizing newly obtained tax
      holiday of Shanghai Software Co., Ltd.’s and income tax credit from increased
      research and development activities.




Net
      income on an unaudited pro forma basis increased by 88.3% to RMB47,712,008
      (US $6,110,108) in 2006 as compared to RMB25,339,522 in 2005, for the
      reasons described above.




*Year
      Ended December 31, 2005 as compared to year Ended December 31, 2004*




Total
      unaudited pro forma revenue decreased by 22.6% from RMB260,091,930 for the
      year
      ended December 31, 2004 to RMB201,381,727 (US $24,953,747) for the year
      ended December 31, 2005. The mix of total revenue for 2005 is RMB118,706,464
      (US $14,709,235) for system integration and
      RMB82,675,263(US $10,244,512) for non-system integration businesses. The
      overall decrease was due to the combining effect of decrease of the system
      integration revenue and increase of non-system integration revenue. The year
      of
      2005 was a transitional year for the Yucheng Group where the Company was
      accelerating the migration from low-margin system integration business to
      higher-margin non-system integration business.




The
      total
      unaudited pro forma system integration revenue decreased by 42.4% from
      RMB206,156,475 in 2004 to RMB118,706,464 (US $14,709,235) in 2005. Total
      unaudited pro forma non-system integration revenue increased by 53.3% from
      RMB53,935,455 in 2004 to RMB82,675,263(US $10,244,512) in 2005, mainly due
      to the increase of maintenance and support services , IT consulting and
      e-Channels solutions. The increase in unaudited pro forma maintenance and
      support services revenue was mainly due to the Yucheng Group’s business strategy
      of developing this high-margin and high-growth business line and the fact that
      there is an increasing need for IT hardware maintenance services from our
      banking clients as original manufacture warranty expires. The increase in
      unaudited pro forma e-Channels solutions and IT consulting revenue was mainly
      due to Chinese banks heavy investments to improve their channel services through
      building more call centers and upgrading web-banking application and
      platforms.




Total
      cost of the revenue on an unaudited pro forma basis decreased by 28.9% or
      RMB57,434,395 (US $7,116,849) from RMB198,474,216 in 2004 to RMB141,039,821
      (US $17,476,620) in 2005. Cost of revenue for system integration on an
      unaudited pro forma basis decreased by 39.3% or RMB69,490,118
      (US $8,610,706) from RMB176,817,463 in 2004 to RMB107,327,345
      (US $13,299,217) in 2005. The decrease was roughly in line with the revenue
      decrease of system integration. Cost of revenue for non-system integration
      on an
      unaudited pro forma basis increased by 55.7% from RMB21,656,753 in 2004 to
      RMB33,712,476 (US $4,177,403) in 2005. The higher growth rate of cost of
      revenue for non-system integration was mainly from the increase in IT consulting
      segment due to the Yucheng Group’s undertaking some projects with lower gross
      margin during the year to secure subsequent follow-on projects with higher
      margin in the future.




46




The
      overall gross margin on an unaudited pro forma basis was 30% for the year
      ended December 31, 2005, as compared to 23.7% for the year ended December 31,
      2004. The gross margin increase was mainly due to greater gross margin
      contribution by higher margin non-system integration businesses. Non-system
      integration businesses’ contribution to overall gross margin increased from
      52.4% in 2004 to 81.1% in 2005, and system integration’s contribution to overall
      gross margin decreased from 47.6% in 2004 to 18.9% in 2005.




Selling
      and marketing expenses on an unaudited pro forma basis decreased by 20%
      from RMB16,694,697 in 2004 to RMB13,363,294 (US $1,655,881) in 2005. In
      2005, approximately RMB9.14 million (US $1.13million) was spent on salaries
      and benefits, RMB2.33 million (US $0.29 million) was for traveling and
      transportation and RMB0.38 million (US $0.05 million) was spent on
      telecommunications. In 2004, approximately RMB9.48 million was spent on salaries
      and benefits, RMB3.41 million for traveling and transportation and RMB0.34
      million was for telecommunications. The decrease is primarily due to the
      efficient cost control in 2005.




General
      and administrative expenses on an unaudited pro forma basis increased by
      4.1% to RMB16,838,352 (US $2,086,485) in 2005 from RMB16,173,768 in 2004.
      Of the RMB16.84 million (US $2.09 million) in 2005, approximately RMB8.7
      million (US $1.08 million) was for salaries and benefits, RMB2.73 million
      (US $0.34 million) was for rent, RMB1.56 million (US $0.19 million)
      related to depreciation and amortization and RMB0.5 million (US $0.06
      million) was for transportation. The increase is in line with the expansion
      of
      the business scope.




Research
      and development expenses on an unaudited pro forma basis increased by 65.9%
      to
      RMB2,349,536 (US $291,137) in 2005 from RMB1,416,277 in 2004. These amounts
      do not reflect the total picture of the Yucheng Group’s research and development
      activities, as R&D expense is only the portion expensed for costs incurred
      prior to establishing technological feasibility for the development of
      marketable computer software and computer software for internal use according
      to
      US GAAP. The majority of the related R&D expenditure was capitalized as
      intangible assets and is being amortized into net earnings. The total research
      and development expenditure on an unaudited pro forma basis was
      RMB5,397,349 (US $668,800) in 2005 as compared to RMB3,899,779 in 2004. As
      the business focus is constantly moving from the traditional system integration
      to software development, the Yucheng Group expects to devote more resources
      to
      research and development; thus, management expects the trend in increasing
      R&D expenditures to continue year over year.




Subsidies
      and tax refunds on an unaudited  pro forma basis were RMB2,627,557
      (US $325,588) in 2005 compared to RMB1,229,499 in 2004. This increase is
      mainly due to the increase of V.A.T(Value-added Tax) refund for software
      products sold.




Interest
      income on an unaudited pro forma basis decreased to RMB164,063
      (US $20,329) in 2005 from RMB168,383 in 2004. The decrease of interest
      income is primarily due to the decrease in the average cash balances deposited
      in the bank.




Interest
      expense on an unaudited pro forma basis increased to RMB630,520
      (US $78,129) in 2005 from RMB224,483 in 2004. This was mainly due to
      additional working capital loans from the bank outstanding during the period.




47




Equity
      in
      loss of affiliates, net on an unaudited pro forma basis was RMB758,609
      (US $94,001) in 2005 compared to RMB444,898 in 2004.




The
      minority shareholders of Shanghai Sihitech Technology Co., Ltd. and Guangzhou
      Sihitech Technology Co., Ltd. transferred their ownership to Mr. Weidong Hong
      in
      exchange for a portion of his ownership interest in the Beijing Sihitech
      Technology Co., Ltd. Mr. Weidong Hong agreed to waive his rights to his
      respective share of any dividends or equity in any subsequent income or losses
      and any gains or losses upon liquidation of the net assets of these
      subsidiaries. Minority interests on an unaudited pro forma basis was nil in
      2005 compared with RMB260,550 in 2004.




Income
      tax expense on an unaudited pro forma basis increased to RMB4,326,053
      (US $536,053) in 2005 from RMB2,165,796 in 2004. Our effective income tax
      rate was 14.6% in 2005 and 7.8% in 2004. The main reason for the increase in
      the
      effective tax rate is the combined factors of expiry of tax holidays of Beijing
      Sihitech Software Co., Ltd. resulting in an increase tax rate at 7.5% in 2005
      from zero tax rate in 2004 , newly incorporated Shanghai Sihitech Software
      Co.,
      Ltd. tax holiday not being approved yet in 2005 resulting in a 7.5% tax rate
      for
      the year, and decreased non-taxable income which increased e-Channels’ tax
      expenses.




Unaudited
      pro forma net income decreased by 1.6% to RMB25,339,522 (US $3,139,888) in
      2005 as compared to RMB25,743,166 in 2004, for reasons described above.




*Year
      Ended December 31, 2004 Compared To Year Ended December 31, 2003*




Total
      unaudited pro forma consolidated revenues increased by 31% from RMB198,477,863
      in 2003 to RMB260,091,930 in 2004. The mix of total revenues for 2004 is
      RMB206,156,475 for system integration and RMB53,935,455 for non-system
      integration businesses. Approximately 63% of the revenue increase was generated
      from system integration business. The remaining revenue increase was generated
      by non-system integration business.




The
      total
      unaudited pro forma system integration revenue increased by 23.1% from
      RMB167,459,338 in 2003 to RMB206,156,475 in 2004. Unaudited pro forma non-system
      integration revenue increased by 73.9% or RMB22,916,930 from RMB31,018,525
      in
      2003 to RMB53,935,455 in 2004. The majority of the revenue increase came from
      IT
      consulting and e-Channels solutions. As Chinese banks are investing more and
      more on channels application, such as web-banking and call centers, e-Channels
      is benefiting the most in the current Chinese banking business and IT spending
      needs in channels application due to its robust and scalable web-banking
      platform and application.




Total
      cost of the revenue on an unaudited pro forma basis increased by 24.5% or
      RMB39,027,124 from RMB159,447,092 in 2003 to RMB198,474,216 in 2004. Cost of
      revenue for system integration on an unaudited pro forma basis increased by
      24%
      or RMB34,195,220 from RMB142,622,243 in 2003 to RMB176,817,463 in 2004,
      accounting for approximately 88% of the total cost of revenue increase. The
      increase was roughly in line with the revenue increase of system integration,
      but reflected a slight decrease in gross margin in this segment. Cost of revenue
      for non-system integration on an unaudited pro forma basis increased by
      28.7% or RMB4,831,904 from RMB16,824,849 in 2003 to RMB21,656,753 in 2004.
      The
      lower growth rate of cost of revenue for non-system integration was mainly
      from
      the increase in channels application due to the Yucheng Group’s undertaking some
      projects with higher gross margin.




48




The
      overall gross margin on an unaudited pro forma basis was 23.7% in the year
      ended December 31, 2004, as compared with 19.7% in the year ended December
      31,
      2003. The gross margin increase was mainly due to the increase in higher margin
      non-system integration business revenue. Non-system integration businesses’
contribution to overall gross margin increased from 36.4% in 2003 to 52.4%
      in
      2004, and system integration’s contribution to overall gross margin decreased
      from 63.6% in 2003 to 47.6% in 2004.




Selling
      and marketing expenses on an unaudited pro forma basis increased by 21.6%
      or (RMB2.97 million) from RMB13,725,030 in 2003 to RMB16,694,697 in 2004. Of
      the
      RMB16.69 million in 2004, approximately RMB9.48 million was for salaries and
      benefits, RMB3.41million was for traveling and transportation, and RMB2.85
      million was for marketing. RMB0.34 million was for telecommunications. The
      total
      increase in selling and marketing expenses was primarily due to an increase
      in
      salaries and benefits of RMB1.85 million, an increase in traveling and
      transportation of RMB0.56 million, and an increase in telecommunications of
      RMB0.06 million. All of this can be attributed to the increase in the scale
      of
      our operation.




General
      and administrative expenses on an unaudited pro forma basis increased by
      21.6% to RMB16,173,768 in 2004 from RMB13,300,981 in 2003. The total increase
      of
      RMB2.87 million was primarily due to increases of salaries and benefits by
      RMB2.08 million and an increase of traveling expenses by 0.50 million. All
      of
      this can also be attributed to the increase in the scale of the Yucheng Group’s
      operations.




Research
      and development expense on an unaudited pro forma basis increased by 74.6%
      to RMB1,416,277 in 2004 from RMB811,103 in 2003. These amounts do not reflect
      the total picture of the Yucheng Group’s research and development activities, as
      R&D expense is only the portion expensed for costs incurred prior to
      establishing technological feasibility for the development marketable computer
      software and computer software for internal use according to US GAAP. The
      majority of the related R&D expenditure was capitalized as intangible assets
      and is being amortized into net earnings. As the business focus is constantly
      moving from the traditional system integration to software development, the
      Yucheng Group expects to devote more resources to research and development;
      thus, management expects the trend in increasing R&D expenditures to
      continue year over year.




Subsidies
      and tax refunds on an unaudited pro forma basis was RMB1,229,499 in 2004
      compared to RMB552,188 in 2003. Equity in losses of affiliates, net on an
      unaudited pro forma basis decreased by 65% to RMB444,898 in 2004 from
      RMB1,275,481 in 2003. The improvement is primarily due to better local
      management at the affiliate companies compared to previous years.




Interest
      income on an unaudited pro forma basis decreased by 23.6% to RMB168,383 in
      2004 from RMB220,330 in 2003. Interest income is mainly generated from cash
      in
      the bank, and the decrease in interest income is primarily due to the decrease
      in the average cash balances during the year.




49




Interest
      expense on an unaudited pro forma basis increased by 79% to RMB224,483 in
      2004 from RMB125,429 in 2003. This is mainly due to the increase in short-term
      loans of RMB12,000,000 in 2004.




Minority
      interests on an unaudited pro forma basis increased by 6.6% from RMB244,465
      in 2003 to RMB260,550 in 2004.




Income
      tax expense on an unaudited pro forma basis increased by 70.3% to
      RMB2,165,796 in 2004 from RMB1,272,111 in 2003. The Yucheng Group’s effective
      income tax rate in 2004 was 7.8% compared to 12.2% in 2003. The reason for
      decline in the effective income tax rate in 2004 was the combined factors of
      the
      50% reduction in tax rate granted by the government in e-Channels ,
      proportionately less nondeductible expenses in Sihitech, an income tax refund
      and the recognition of net deferred tax assets that are expected to be realized
      at tax rates greater than the tax rate in preferential exemption period. If
      Yucheng and its subsidiaries had not had tax holidays and reduced favorable
      rates, income tax expense would have been RMB4,718,006 in 2004 and RMB2,526,505
      in 2003.




Net
      income on an unaudited pro forma basis increased by 182.5% to RMB25,743,166
      in 2004 as compared to RMB9,112,969 in 2003 for reasons described above.




Liquidity
      and capital resource




The
      following table set forth the Yucheng Group’s cash flows with respect to
      operating activities, investing activities and financing activities for the
      periods indicated:


Year
                    Ended December 31Audited
                
                Pro
                    forma (Unuaudited)2006(USD)
                
                2006(RMB)
                
                2005(RMB)
                
                2005(RMB)
                
                2004
                    (RMB)Net
                    cash (used in) provided by operating activities
                
                
                (1,723,656
                )
                
                (13,459,510
                )
                
                14,805,904
                
                
                16,658,414
                
                
                1,799,852Net
                    cash used in investing activities
                
                
                (6,922,961
                )
                
                (54,059,330
                )
                
                (13,555,598
                )
                
                (14,149,546
                )
                
                (6,119,337
                )Net
                    cash provided by financing activities
                
                
                15,772,252
                
                
                123,160,786
                
                
                1,634,797
                
                
                1,361,237
                
                
                14,131,509Net
                    increase in cash
                
                
                7,125,635
                
                
                55,641,946
                
                
                2,885,103
                
                
                3,870,105
                
                
                9,812,024Cash,
                    beginning of the year
                
                
                5,470,272
                
                
                42,715,712
                
                
                39,830,609
                
                
                45,098,376
                
                
                35,286,352Cash,
                    end of period
                
                
                12,595,907
                
                
                98,357,658
                
                
                42,715,712
                
                
                48,968,481
                
                
                45,098,376


While
      total consolidated audited revenue increased by 63.3% from RMB177,326,680 in
      2005 to RMB289,650,425 (US $37,093,296) in 2006, cash flows from operating
      activities resulted in a net cash outflow of RMB13,459,510 (US $1,723,656)
      in 2006 compared with net cash inflow of RMB14,805,904 in 2005. This is mainly
      due to increased trade accounts receivable of RMB47,822,765
      (US $6,124,293), the decrease in trade accounts payable of
      RMB10,461,863(US $1,339,770) and the decrease in billings in excess of
      costs and estimated earnings of RMB6,276,883(US $803,832). The increase of
      trade accounts receivable is in line with the increase of total revenue. DSO
      achieved a marginal improvement from 113 days in 2005 to 110 days in 2006.
      Management believes that better accounts payable management will resolve the
      operating cash outflow problem in the subsequent reporting periods.




50






Unaudited
      pro forma net cash provided by operating activities for the year ended December
      31, 2005 was RMB16,658,414, while the net cash provided by operating activities
      for the year ended December 31, 2004 was RMB1,799,852. The decrease in unaudited
      pro forma cash generated from operating activities is mainly due to increased
      trade accounts payable balance at RMB22,727,506 (US $2,816,226) resulted
      from the prolonged trade accounts payable cycle due to our better payable
      management practice and offset by the increase of other current assets at
      RMB11,026,410 (US $1,366,312), and the increase of trade accounts
      receivable of RMB17,744,449 (US $2,198,762). The increase of Yucheng’s
      trade accounts receivable in 2005 is due mainly to a prolonged payment cycle
      of
      a significant customer that resulted from a more stringent internal approval
      process by the customer. The amount of accounts receivable outstanding from
      this
      particular customer was RMB 33,381,120 (US $4,136,344) as of December 31,
      2005. Management of Yucheng has considered the change in the payment cycle
      occurring in 2005, and it does not expect its trade accounts receivable
      collectibility estimate to change. The increase of inventory for the year ended
      December 31, 2005 is attributable to one undelivered customer order of RMB6.9
      million. Even though the Yucheng Group’s overall unaudited pro forma revenues
      decreased in 2005 compared with 2004, its unaudited pro forma IT consulting
      revenue and e-Channels solutions increased significantly in 2005. Costs and
      estimated earnings in excess of billings increased significantly from December
      31, 2004 to 2005. Unaudited pro forma costs and estimated earnings in excess
      of
      billings are comprised of IT consulting contracts. The increase of unaudited
      pro
      forma costs and estimated earnings in excess of billings is due to increased
      unaudited pro forma IT consulting revenue in 2005 and more uncompleted contracts
      as of the end of 2005. The Yucheng Group’s gross margin is a blended gross
      margin of system integration, IT consulting,e-Channels solutions and maintenance
      and support. Lower unaudited pro forma gross margin of system integration brings
      down the Yucheng Group’s overall unaudited pro forma gross margin. As costs and
      estimated earnings in excess of billings are comprised of IT consulting
      contracts, the unaudited pro forma gross margin on unbilled costs as of December
      31, 2005 and 2004 is 51% and 76%, higher than the unaudited pro forma earned
      gross margins of 25% and 21% during these two years. Total unaudited pro forma
      consolidated revenues increased by 31% from RMB198,477,863 for the year ended
      December 31, 2003 to RMB260,091,930 for the year ended December 31, 2004, but
      unaudited pro forma net cash provided by operating activities decreased from
      17,652,772 in 2003 to 1,799,852 in 2004. It was primarily due to the increase
      in
      unaudited pro forma accounts receivable balances as of December 31, 2004. DSO
      has increased from 33 days in 2003 to 53 days in 2004, which was still in line
      with the usual payment terms arranged with the Yucheng Group’s banking clients.
      The increase in unaudited pro forma accounts receivable in 2004 was
      mainly due to the increased unaudited pro forma sales in system integration
      services toward the end of the year. As the majority of its customers are
      Chinese tier I state-owned banks and the Yucheng Group has not historically
      encountered any accounts receivable collectibility problems, management does
      not
      expect any significant collectibility problems with its accounts receivable
      at
      December 31, 2004.




Net
      cash
      used in investing activities for the year ended December 31, 2006 was
      RMB54,059,330 (US $6,922,961), which is mainly comprised of the investments
      deposits paid on acquisition of a new subsidiary and the payment to
      purchase a new subsidiary of RMB52,543,085(US $6,728,787) and capital
      expenditures of RMB2,884,970(US $369,455) and offset by
      RMB1,282,212(US $164,203) from disposal of its shareholding of an
      affiliate. The capital expenditures were partly for purchased and developed
      software amounting to RMB1,366,549 (US $175,003), with the remainder of
      RMB1,518,421 (UD$ 194,452) for office equipment, furniture and motor vehicles.
      Net cash used in investing activities for the year ended December 31, 2005
      was
      RMB14,149,546 (US $1,753,308) mainly comprising capital expenditures and
      deposits paid for business to be acquired. The capital expenditure were partly
      for purchased and developed software amounting to RMB3,936,855
      (US $487,826) with the reminder of RMB2,936,078(US $363,817) for
      office equipment, furniture and motor vehicles. The Yucheng Group also incurred
      an amount of RMB7,000,000 as the prepayment for the acquisition of a related
      company named Jianyin Computer Co., Limited ("Jianyin Computer"). Unaudited
      pro
      forma net cash used in investing activities for the year ended December 31,
      2004
      was mainly comprised of capital expenditure of RMB5,131,813 including
      RMB3,179,891 for software development and the remainder for office
      equipment, furniture and motor vehicles.




51




Net
      cash
      provided by financing activities for the year ended December 31, 2006 was
      RMB123,160,786 (US $15,772,252). The RMB123,160,786 cash inflow provided in
      2006 is mainly comprised of the RMB138,213,541 (US $17,699,942) proceeds
      from Share Exchange Transactions and the RMB20,000,000 (US $2,561,246) from
      bank borrowings, offset by the RMB21,332,463 (US $2,731,884) payments for
      deemed distribution, the RMB3,500,000 (US $448,218) repayments to the bank,
      the RMB5,720,291 (US $732,554) dividends paid to ex-owners and the
      RMB4,000,000 (US $512,249) repayments of borrowings to an ex-owner.
      Unaudited pro forma cash inflow of RMBl,361,237 in 2005 is comprised of several
      transactions including the RMB25,890,000 proceeds from bank borrowings, the
      RMB4,000,000 capital contribution from an ex-owner and the RMB2,976,000
      borrowing from Jianyin Computer, offset by the RMB21,163,560 repayment of bank
      borrowings, the RMB8,379,710 dividends paid to ex-owners and the RMB950,000
      repayment of borrowing from affiliates. Unaudited pro forma cash inflow of
      RMB14,131,509 in 2004 is mainly attributed to the bank borrowing of
      RMB12,713,560.




The
      Yucheng Group historically has had access to sufficient sources of liquidity
      to
      satisfy its cash requirements. Management believes that the Yucheng Group’s cash
      on hand, together with its access to financing sources, will continue to be
      sufficient to meet its working capital and capital expenditure needs. However,
      it is possible that its cash requirement could increase beyond current forecasts
      as a result of a number of factors, including unfavorable timing of cash
      collections of accounts receivable and cash payments for costs and expenses,
      the
      decision to increase marketing and development activities or the use of cash
      for
      the acquisition of one or more of its competitors to accelerate its rate of
      growth.




Contractual
      Obligation and Commercial Commitments.




The
      Yucheng Group’s contractual obligations and commercial commitments as of
      December 31, 2006 were as follows:


Payment
                    Due by PeriodWithin
                    1Total
                
                Year
                
                2008
                
                2009RMB
                
                RMB
                
                RMB
                
                RMBBank
                    Debt
                
                
                35,500,000
                
                
                35,500,000Interest
                    on Bank Debt
                
                
                923,474
                
                
                923,474Operating
                    leases
                
                
                4,346,283
                
                
                2,782,369
                
                
                1,353,377
                
                
                210,537Total
                
                
                40,769,757
                
                
                39,205,843
                
                
                1,353,377
                
                
                210,537
 
 52
 
 Off-Balance
        Sheet Arrangements


Except
        as
        described above under ‘‘contract obligation and commercial commitments,’’ we
        have not entered into any financial guarantees or other commitments to guarantee
        the payment obligations of any third parties.
  Quantitative
        and Qualitative Disclosure About Market Risks
  The
        Yucheng Group is exposed to various market risks. First, the Company faces
        the
        potential risk of failing to adapt to rapid technological changes in the
        dynamic
        Chinese IT industry, which could cause the company to lose revenue
        opportunities. The Company expects to address this business challenge with
        continued investment in its intellectual and human resources. Nonetheless,
        as an
        early-stage growth company, it will be subject to the general risks,
        uncertainties and problems frequently encountered by similar companies operating
        in the Chinese IT industry. Changes in the financial services industry also
        could have adverse impacts on the Yucheng Group’s revenue since the majority of
        the revenues of the Company are derived from services and products to Chinese
        banks. Unfavorable economic conditions adversely impacting that part of the
        financial services industry could have a material adverse effect on the
        business, financial condition and results of operations of the Company. The
        Yucheng Group generates significant portion of its revenues from various
        provincial branches and head office of China Construction Bank and the loss
        of
        which would have an adverse impact on the financial condition and results
        of
        operation of the Company. Even though the IT purchasing practice and
        decision-making process are independent of each other and vary across different
        provincial branches and the headquarters and are treated as separate customers
        with separate legal engagement contracts, any disruptions to the CCB
        relationship in one department could result in an adversely impact on the
        overall business relationship with CCB. Also, if the general IT spending
        pattern
        and budgeting of CCB is changed or reduced, there could be an adverse impact
        on
        the Yucheng Group’s financial performance. The failure to retain existing
        customers or changes in their continued use of our services will adversely
        affect the company’s operating results. Further, if projects are not managed or
        completed to the satisfaction of our customers, the due contract installments
        may not be paid or we may suffer a loss of the customer and reputation, which
        in
        turn will have an adverse effect on the Company’s revenues and future ability to
        market its solutions and products. Another risk is that a failure to retain
        key
        management and technical personnel would cause disruptions to the daily
        businesses and operation, which in turn would negatively impact the Company’s
        financial performance and change in foreign currency exchanges rates may
        affect
        the Company’s financial performance in US dollar terms. However, the Yucheng
        Group’s product sales, assets and liabilities are denominated in RMB and
        therefore its actual exposure to foreign currency exchange risk is minimal
        unless its financial figures are converted and presented in US $. The
        Yucheng Group also has an exposure to the changes in interest rates primarily
        related to our short-term working capital bank debt and long-term debt. The
        current bank loan rate is about 5.76%, and the future interest expenses may
        fluctuate in line with changes in interest rates.
 
 53
  Stock
        option plan and option agreements
  Our
        stock
        options are granted under the China Unistone Acquisition Corporation 2005
        Performance Equity Plan, which became the Yucheng Technologies Limited 2005
        Performance Equity Plan (the “Plan”) by operation of law under the terms of our
        merger with China Unistone Acquisition Corporation. We adopted and obtained
        shareholder approval of the Plan in November 2006, under which we could issue
        share options with the right to purchase up to 1,500,000 ordinary shares
        to our
        directors, officers, employees, individual consultants and advisors. We granted
        no options under the Plan as of December 31, 2006.
  54
  **ITEM
        6.**  **DIRECTORS,
        SENIOR MANAGEMENT AND EMPLOYEES** ****
  **A.**  **Directors
        and senior management** **.**
  The
        following table sets forth certain information regarding our directors and
        executive officers as of April 30, 2007.
  **Name**
              
              **Age**
              
              **Position**Chih
                  T. Cheung
              
              36
              
              Non-Executive
                  Chairman of the BoardWeidong
                  Hong
              
              40
              
              Director
                  and Chief Executive OfficerShuo
                  Zeng
              
              37
              
              Director
                  and Chief Operating OfficerLi
                  Liao
              
              41
              
              DirectorTao
                  Huang (Michael)
              
              43
              
              DirectorChi
                  Wei Joong
              
              51
              
              DirectorHenry
                  Wang
              
              48
              
              DirectorPeter
                  Li
              
              42
              
              Chief
                  Financial Officer
  *Chih
        T. Cheung* was the
        Chairman of the Board of China Unistone and predecessor from May, 2004 to
        November, 2006 and became the non-executive chairman of the board of
        Yucheng since November, 2006. Since September 2005, Mr. Cheung has
        been the Managing General Partner of Staples Asia Investment Limited, a
        subsidiary of Staples, Inc., created to make investments and form
        partnerships in the office product market in Asia. He currently sits on the
        boards of a number of private companies. From March 2003 until
        February 2006, he was a senior advisor to the chairman of the Chinatrust
        Commercial Bank. Prior to that, Mr. Cheung co-founded and was the chief
        executive officer of HelloAsia Corporation from its inception in 1999 until
        February 2002. In February 2002, Mr. Cheung negotiated the merger
        of HelloAsia into Brience, Inc. and served as executive vice president of
        Brience until February 2003. Prior to forming HelloAsia, Mr. Cheung
        co-founded and was the chief executive officer of Crimson Solutions.
        Mr. Cheung graduated from Harvard College, received an A.M. from
        Harvard Graduate School of Arts and Sciences, a J.D. from Harvard Law School
        and
        an M.B.A. from Harvard Business School.
  *Weidong
        Hong* became the Chief Executive Officer and a director of Yucheng since
        November, 2004. Mr. Hong is a founder and is also the Chairman and Chief
        Executive Officer of Sihitech. Prior to founding Sihitech in June, 1999,
        he was
        part of the senior management of Secom China Ltd., the Japanese publicly
        listed based electronic security services provider, from December 1994 to
        May 1997, where he served as the Vice President of the PC Department. From
        May 1997 to June 1999, Mr. Hong held the position of General
        Manager of GIT, a company engaged in the business of providing IT services
        to
        the Chinese banking industry. He holds B.E and EMBA degrees from Tsinghua
        University.
  *Shuo
        Zeng* became the Chief Operating Officer and a director of Yucheng since
        November, 2004. Mr. Zeng is a founder and is also the Chairman and Chief
        Executive Officer of e-Channels. From July 1991 to May 2000,
        Mr. Zeng held several senior positions in the Nantian Group, a manufacturer
        electronic and communication equipment in China publicly listed in Shenzhen,
        including as the General Manager of Information Product Department and Finance
        Project & System Integration Department. He holds a B.E in Automation
        from Beijing Polytechnic University.
  55
  *Li
        Liao* became a director of Yucheng since November, 2006. Mr. Li has been a
        distinguished academician, serving as the Associate Dean and Director of
        EMBA
        Program as well as a Professor of Finance at the prestigious School of Economics
        and Management of Tsinghua University since September 2000. Between
        May 1999 and August 2000 he served as the Assistant to Chairman at the
        Esquel Group, a company engaged in apparel manufacturing. He finished his
        BE in
        Electrical Engineering and Ph. D in Engineering Economics from Tsinghua
        University followed by an MBA in Financial Engineering from the coveted MIT
        Sloan School of Management in the US. Mr. Li will be considered an
        independent director.
  *Tao
        Huang (Michael)* became a director of Yucheng since November, 2006. Since March 2005,
        Mr. Huang has served as the Chairman and director of China Expert
        Technology Inc., a company listed on the OTC-BB (ticker: CSTI) and engaged
        in the business of providing e-government infrastructure and consulting services
        to community and governments in China. From August 1990 until
        March 2005, he worked at the Bank of China. He served as Deputy General
        Manager and Manager for the Retail Banking Department for the Bank of China,
        in
        charge of strategy and marketing between October 1998 and May 2004.
        From February 1997 to October 1998, he was the Deputy Manager of Bank
        of China’s Credit Card division. Prior to that, he managed the Board
        Secretariat, worked in the International Business Department and the Branch
        Banking division at Bank of China. Mr. Huang earned a degree in English
        language from Nanjing Normal University and a degree in Business Economy
        at
        China Academy of Social Sciences. Mr. Huang will be considered an
        independent director. .
  *Chi
        Wei Joong* became a director of Yucheng since November, 2006. Since March 2004,
        Mr. Joong has been the General Manager and President for the Credit Card
        division of China Merchants Bank, the largest credit issuer in China. Before
        that, he was an Executive Vice President of the retail banking division of
        Chinatrust Commercial Bank, the largest credit issuer and one of the leading
        financial holdings company in Taiwan, from March 1999 to January 2004.
        From 1997 to 1998, he served as the Financial Director of AIG Credit Card
        Company (Taiwan). Between 1995 and 1997, he served as Financial Director
        for the
        credit card division of the Taipei City Bank (Taiwan). He also worked at
        American Express in the U.S. Currently, he also serves on the advisory board
        for
        Visa International. Mr. Joong has a degree from Keynes University and one
        from New York University. Mr. Joong is considered an independent director.
  *Henry
        Wang* became a director of Yucheng since November, 2006. Since
        February 2003, Mr. Wang has served as the General Manager of the
        Operating Center of China Construction Bank. From July 2000 to
        February 2003, he served as General Manager of Settlement Accounts
        Department of China Construction Bank. Before that, he worked in the Funds
        Clearing Department and project auditing and consulting activities in the
        Investment and Research Department of China Construction Bank. He studied
        at
        Beihang University and later at South Western University of Finance and
        Economics. Mr. Wang is considered an independent director.
  56
  *Peter
        Li* ,
        became the Chief Financial Officer of Yucheng since November, 2006, and
        from 2002 to November, 2006 he was the Chief Financial Officer of Sihitech.
        Prior to his joining Sihitech in 2002, Mr. Li held the position of Internal
        Controller in Lenovo Group, a Chinese computer equipment manufacturer publicly
        listed on the Hong Kong Stock Exchange, from September 2002 to
        March 2004. Mr. Li was the Financial Controller in Bayshore
        Capital Inc., a privately held high technology investment and incubator
        company, from February 2002 to August 2002. From April 1999 to
        November 2001, Mr. Li held the position of Financial Controller in
        Delano Technologies Corporation, a CRM software solution provider which had
        been
        a Nasdaq-listed software company. From July 1998 to April 1999,
        Mr. Li was the Accounting Manager in Keating Technologies Inc., a
        marketing and sales service provider for high technology companies. Mr. Li
        was the Assistant Controller in SoftArc Inc., a communication software
        provider, from April 1995 to July 1998. Mr. Li is a Certified
        General Accountant (C.G.A.) in Canada and holds a Master of education from
        the
        University of Toronto and a B.A. from Beijing Foreign Studies University.
  **B.**  **Compensation** **.**
  In
        2006,
        the aggregate cash compensation paid to our directors and executive officers
        as
        a group was RMB1,144,104(US $146,517). Below is a table of the 2006
        compensation paid to our three most highly compensated officers:
 Annual
                    Compensation(RMB)Name
                
                
                salary
                
                
                bonus
                
                
                TotalWeidong
                    Hong
                
                
                318,986
                
                
                
                
                
                318,986Shuo
                    Zeng
                
                
                380,370
                
                
                117,900
                
                
                498,270Peter
                    Li
                
                
                279,996
                
                
                
                
                
                279,996
  *2005
        Performance Equity Plan*
  Yucheng
        has an equity performance plan under the name Yucheng Technologies Limited
        2005
        Performance Equity Plan. To date, no awards have been granted under the
        plan.
  **Employment
        Agreements**
  Each
        of
        Mr. Weidong Hong, Mr. Shuo Zeng and Mr. Chih T. Cheung has entered into
        employment agreements with Yucheng, effective as of the effective time of
        the
        redomestication merger. Mr. Hong is employed as the chief executive officer
        at
        an annual salary of $50,000, Mr. Zeng is employed as the chief financial
        officer
        at an annual salary of $50,000 and Mr. Cheung is employed as the non-executive
        chairman of the board at an annual salary of $50,000. Each of the executives
        also is eligible for a cash bonus not to exceed 100% of the base salary,
        as
        determined by the compensation committee. Each executive is eligible to be
        awarded equity compensation as determined from time to time by the board
        of
        directors or the compensation and stock option committees. The executives
        are
        provided regular benefits as provided to other senior executives, such as
        medical, dental and life insurance, four weeks paid vacation, reimbursed
        automobile expenses and reimbursement of business related travel and moving
        expenses. Upon an early termination for no cause or upon a breach of the
        agreement by the Company, he would be paid $300,000 and benefits. The employment
        agreement also provides for the protection of confidential information and
        a
        three-year non-competition period with the business of Yucheng within the
        PRC,
        Hong Kong SAR and Taiwan. The agreements contain provisions for the protection
        of confidential information and a three-year-after employment non-competition
        period within China. In the securities purchase agreement for the acquisition
        by
        Yucheng of Sihitech and e-Channels, there is an additional non-competition
        agreement applicable to these persons for three years after consummation
        that
        includes Hong Kong and Taiwan, in addition to China.
  57
  **C.**  **Board
        Practices** **.**
  **Terms
        of directors and executive officers**
  Our
        directors are not subject to a term of office limitation and hold office
        until
        the next annual meeting of members or until such director’s earlier resignation,
        removal from office, death or incapacity. Any vacancy on the board of directors
        resulting from death, resignation, removal or other cause and any newly created
        directorship resulting from any increase in the authorized number of directors
        between meetings of members may be filled either by the affirmative vote
        of a
        majority of all the directors then in office (even if less than a quorum)
        or by
        a resolution of members.
  Our
        officers are appointed by the board of directors. The officers shall hold
        office
        until their successors are duly elected and qualified, but any officer elected
        or appointed by the directors may be removed at any time, with or without
        cause,
        by resolution of directors. Any vacancy occurring in any office may be filled
        by
        resolution of directors.
  **Independence
        of Directors**
  Yucheng
        has elected to follow the rules of Nasdaq to determine whether a director
        is
        independent. The board of directors of Yucheng also will consult with counsel
        to
        ensure that the board’s determinations are consistent with those rules and all
        relevant securities and other laws and regulations regarding the independence
        of
        directors. The Nasdaq listing standards define an “independent director”
generally as a person, other than an officer of the company, who does not
        have a
        relationship with the company that would interfere with the director’s exercise
        of independent judgment. Consistent with these considerations, the board
        of
        directors of Yucheng has affirmatively determined that, Messrs. Li Liao,
        Tao
        Huang, Chi Wei Joong and Henry Wang are independent directors of Yucheng.
  **Director
        Compensation**
  Yucheng
        pays its directors who are not employees a meeting fee of $3,000 and
        reimbursement of expenses. Directors who are committee chairman also receive
        $750 per committee meeting and other committee members receive $500 per
        committee meeting.
  58
  **Board
        Committees**
  Our
        board
        of directors has established an audit committee, a stock option committee
        and a
        nominations committee.
  *Audit
        Committee*
  The
        members of our audit committee are Tao Huang, Chi Wei Joong and Li Liao..
        Our
        board of directors has determined that all of our audit committee members
        are
        independent directors within the meaning of Nasdaq Marketplace Rule 4200(a)(15)
        and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the
        Securities and Exchange Act of 1934.
  The
        board
        of directors has determined that Messrs. Huang, Joong and Liao each has an
        understanding of generally accepted accounting principles and financial
        statements, the ability to assess the general application of such principles
        in
        connection with our financial statements, including estimates, accruals and
        reserves, experience in analyzing or evaluating financial statements of similar
        breadth and complexity as our financial statements, an understanding of internal
        controls and procedures for financial reporting and an understanding of audit
        committee functions.
  The
        board
        of directors believes that Mr. Chi Wei Joong qualifies as an “audit committee
        financial expert” within the meaning of all applicable rules. The board of
        directors believes that Mr. Joong has financial expertise from his degrees
        in
        business, his activities as a chief executive officer and chief financial
        officer of various companies, and his consulting activities in the areas of
        accounting, corporate finance, capital formation and corporate financial
        analysis.
  We
        adopted an audit committee charter under which the committee is responsible
        for
        reviewing the scope, planning and staffing of the audit and preparation of
        the
        financial statements. This includes consultation with management, the auditors
        and other consultants and professionals involved in the preparation of the
        financial statements and reports. The committee is responsible for performing
        oversight of the our relationship with our independent auditor. The committee
        also has a general compliance oversight role in assuring that our directors,
        officers and management comply with our code of ethics, review and approval
        of
        related party transactions, dealing with complaints regarding accounting,
        internal controls and auditing matters, and compliance with accounting and
        legal
        requirements applicable to us.
  Pursuant
        to the terms of its charter, the audit committee’s responsibilities include,
        among other things:
  ·
              annually
                  reviewing and reassessing the adequacy of the committee’s formal
                  charter;
  ·
              reviewing
                  our annual audited financial statements with our management and
                  our
                  independent auditors and the adequacy of our internal accounting
                  controls;
  ·
              reviewing
                  analyses prepared by management and independent auditors concerning
                  significant financial reporting issues and judgments made in connection
                  with the preparation of our financial
                  statements;
  59
  ·
              the
                  engagement of the independent
                  auditor;
  ·
              reviewing
                  the independence of the independent
                  auditors;
  ·
              reviewing
                  our auditing and accounting principles and practices with the independent
                  auditors and reviewing major changes to our auditing and accounting
                  principles and practices as suggested by the independent auditor
                  or our
                  management;
  ·
              the
                  appointment of the independent auditor to the board of directors,
                  which
                  firm is ultimately accountable to the audit committee and the board
                  of
                  directors;
  ·
              approving
                  professional services provided by the independent auditors, including
                  the
                  range of audit and non-audit fees;
                  and
  ·
              reviewing
                  all related party transactions on an ongoing basis for potential
                  conflicts
                  of interest.
  The
        audit
        committee will pre-approve the services to be provided by our independent
        auditors going forward. The audit committee also will also review and recommend
        to the board of directors whether or not to approve transactions between
        us and
        any officer or director that occurs outside the ordinary course of
        business.
  *Stock
        Option Committee*
  We
        established a stock option committee with Messrs Chi Wei Joong and Li Liao
        as
        its members. The purpose of the stock option committee is to administer our
        stock option plans, including authority to make and modify awards under such
        plans. Initially, our only plan is the 2005 Performance Equity Plan.
  *Nominating
        Committee*
  Our
        nominating committee consists of Messrs. Chi Wei Joong and Li Liao. The
        nominating committee is responsible for overseeing the selection of persons
        to
        be nominated to serve on our board of directors. The nominating committee
        will
        identify, evaluate and recommend candidates to become members of the Board
        of
        Directors with the goal of creating a balance of knowledge and experience.
  The
        committee will consider suggestions from individual stockholders, based upon
        its
        assessment of certain criteria, including the proposed person’s merits. The
        suggested nominee must provide a statement of consent to being considered
        for
        nomination.
  60
  **D.**  **Employees** **.**
  We
        had
        349, 390 and 612 employees as of December 31, 2004, 2005 and 2006, respectively.
        We plan to hire additional employees as we expand. Substantially all of our
        employees are located in China. The following table sets forth the number
        of our
        employees categorized by our areas of operations and as a percentage of our
        workforce as of December 31, 2006:
 **R&D**
                
                **Sales**
                
                **Manager**
                
                **Total**Numbers
                
                
                498
                
                
                52
                
                
                62
                
                
                **612**percentage
                
                
                81.4
                %
                
                8.5
                %
                
                10.1
                %
                
                **100**
                **%**
  From
        time
        to time, we also employ part-time employees, independent contractors to support
        our research and development and producing activities, and other temporary
        employees. During 2006, we had no temporary employees.
  We
        offer
        our employees additional annual merit-based bonuses based on the overall
        performance of our company, his or her department and the individual. We
        are
        required by applicable PRC regulations to contribute amounts equal to 28%,
        12%,
        16%, 2%, 0.8% and 0.8%, of our employees’ aggregate salary to a pension
        contribution plan, a medical insurance plan, a housing fund, an unemployment
        insurance plan, a personal injury insurance plan and a maternity insurance
        plan,
        respectively, for our employees.
  Our
        employees are not covered by any collective bargaining agreement. We believe
        that we have a good relationship with our employees.
  **E.** **Share
        ownership****.**
  The
        following table sets forth information with respect to the beneficial ownership
        of our ordinary shares as of December 31, 2006, by:
  ·
              each
                  of our directors and executive officers who beneficially own our
                  ordinary
                  shares; and
  ·
              each
                  person known to us to own beneficially more than 5.0% of our ordinary
                  shares.
 **Name**
                  
                  
                  **Shares
                      of China**
                    **Unistone**
                    **Common
                      Stock**
                  
                  
                  **Approximate**
                    **Percentage
                      of**
                    **Outstanding**
                    **Common
                      Stock(1)**Chih
                      T. Cheung(2)(3)
                    Chairman
                      of the Board
                  
                  
                  410,872
                  (4)
                  
                  4.2
                  %Weidong
                      Hong(2)(3)
                    CEO
                      and Director
                  
                  
                  2,252,090
                  (5)
                  
                  23.6
                  %Shuo
                      Zeng(2)(3)
                    COO
                      and Director
                  
                  
                  678,651
                  (6)
                  
                  7.12
                  %Li
                      Liao(2)
                    Director
                  
                  
                  0
                  
                  
                  0
                  %Tao
                      Huang(2)
                    Director
                  
                  
                  0
                  
                  
                  0
                  %Chi
                      Wei Joong(2)
                    Director
                  
                  
                  0
                  
                  
                  0
                  %Henry
                      Wang(2)
                    Director
                  
                  
                  0
                  
                  
                  0
                  %Peter
                      Li(2)
                    CFO
                  
                  
                  37,545
                  
                  
                  0.4
                  %Sihitech
                      Company Limited(7)
                  
                  
                  2,252,090
                  
                  
                  23.6
                  %Mega
                      Capital Group Services Limited(8)
                  
                  
                  652,641
                  
                  
                  6.8
                  %Profit
                      Loyal Consultants Limited(9)
                  
                  
                  849,752
                  
                  
                  8.9
                  %Elite
                      Concord International Limited(10)
                  
                  
                  816,360
                  
                  
                  8.6
                  %James
                      Z. Li(11)
                  
                  
                  510,874
                  
                  
                  5.2
                  %Jack
                      Silver(12)
                  
                  
                  1,422,500
                  
                  
                  13.2
                  %Directors
                      and officers as a group (eight persons)
                  
                  
                  3,379,158
                  (4)(5)
                  
                  34.75
                  %
 
 (1)
              Beneficial
                  ownership and percentage has been determined in accordance with
                  Rule 13d-3 under the Securities Exchange Act of 1934, based on
                  9,528,320 shares outstanding.
  61
  (2)
              Unless
                  otherwise indicated, the business address is c/o 3rdFloor, Tower B, Finance & Trust Building, No. 5 Anding Road,
                  Chaoyang District, Beijing PRC.
  (3)
              Each
                  of these persons directly or indirectly is a party to or benefits
                  from a
                  voting agreement covering 6,150,064 shares of Yucheng voting stock
                  representing 62% thereof, in respect of the nomination, election
                  and
                  removal of directors.
  (4)
              Includes
                  194,872 shares of common stock issuable upon exercise of publicly
                  traded
                  common stock purchase warrants that are exercisable upon consummation
                  of
                  the acquisition of Yucheng.
  (5)
              Includes
                  675,807 shares held by Mr. Hong’s spouse. Represents shares held
                  through Sihitech Company Limited, a BVI company, owned by Mr. Hong
                  and his spouse, of which Mr. Hong has voting and dispositive
                  authority.
  (6)
              Represents
                  shares held through Elite Concord International Limited, a BVI
                  company, of
                  which Mr. Hong has voting and dispositive authority.
  (7)
              A
                  BVI company owned by Mr. Hong and his spouse of which Mr. Hong
                  has voting and dispositive authority.
  (8)
              A
                  BVI company owned by ten persons, of which Mr. Yan Mei Wang is sole
                  director, who has voting and dispositive authority.
  (9)
              A
                  BVI company owned by nine persons, of which Mr. Hua Ge Ma is sole
                  director, who has voting and dispositive authority.
  62
  (10)
              A
                  BVI company owned by three persons, of which Mr. Shuo Zeng is the
                  sole director, who have voting and dispositive authority. Mr. Zeng
                  has 83% ownership of Elite Concord International Limited representing
                  678,651 shares.
  (11)
              Includes
                  294,870 shares of common stock issuable upon exercise of warrants
                  held by
                  Mr. Li that become exercisable upon consummation of the acquisition
                  of
                  Yucheng.
  (12)
              Jack
                  Silver beneficially owns 1,422,500 shares of Common Stock of China
                  Unistone Acquisition Corporation. Such shares of Common Stock beneficially
                  owned by Mr. Silver include (i) 10,000 shares of Common Stock
                  held by Sherleigh Associates Inc. Profit Sharing Plan (“Sherleigh
                  Profit”), a trust of which Mr. Silver is the trustee and
                  (ii) 199,000 shares of Common Stock held by Sherleigh
                  Associates Inc. Defined Benefit Pension Plan (“Sherleigh Defined”), a
                  trust of which Mr. Silver is the trustee, and includes
                  (i) warrants to purchase 275,500 shares of Common Stock held by
                  Sherleigh Profit and (ii) warrants to purchase 938,000 shares of
                  Common Stock held by Sherleigh Defined. The information is derived
                  from a
                  Schedule 13G filed by such entity with the Securities and Exchange
                  Commission on January 29, 2007.
  None
        of
        the above shareholders have voting rights that differ from the voting rights
        of
        other shareholders.
  For
        information regarding stock options granted to them and other employees,
        see
        Item 6.B above.
  **ITEM
        7.**  **MAJOR
        SHAREHOLDERS AND RELATED PARTY TRANSACTIONS** ****
  **A.**  **Major
        shareholders** **.**
  Please
        refer to Item 6.E “Directors, Senior Management and Employees — Share
        Ownership.”
  **B.**  **Related
        party transactions** **.**
  *Escrow
        of Shares*
  Pursuant
        to an escrow agreement between Yucheng, nine initial shareholders of China
        Unistone Acquisition Corporation and Continental Stock Transfer & Trust
        Company, 750,000 ordinary shares, representing all of their shares were placed
        in escrow, with Continental acting as escrow agent, pursuant to an escrow
        agreement, until the earliest of: (i) November 18, 2007; (ii) our
        liquidation; or (iii) the consummation of a liquidation, merger, stock exchange
        or other similar transaction which results in all of our stockholders having
        the
        right to exchange their shares of common stock for cash, securities or other
        property subsequent to our consummating a business combination with a target
        business.
  During
        the escrow period, these shares cannot be sold, but the share holders will
        retain all other rights as stockholders, including, without limitation, the
        right to vote their shares of common stock and the right to receive cash
        dividends, if declared. If dividends are declared and payable in shares of
        common stock, such dividends will also be placed in escrow.
  63
  *Registration
        Rights Agreement*
  Yucheng
        has a registration rights agreement with the nine initial shareholders of
        China
        Unistone Acquisition Corporation in respect of the 750,000 ordinary shares
        they
        hold pursuant to which the holders of the majority of the shares will be
        entitled to make up to two demands that Yucheng register the shares. The
        holders
        of the majority of the shares may elect to exercise these registration rights
        at
        any time after the date on which these shares of common stock are released
        from
        escrow. In addition, these shareholders have certain “piggy-back” registration
        rights on registration statements filed subsequent to the date on which these
        shares of common stock are released from escrow. Yucheng will bear the expenses
        incurred in connection with the filing of any such registration statements.
  *Loans
        and other arrangements*
  Yucheng
        had an aggregate of RMB386,867 (US $49,543) and RMB2,599,256 due from the
        company managements in fiscal years 2006 and 2005, respectively. Yucheng
        also
        owed RMB907,949 (US $116,274) and RMB5,407,949 to affiliates and
        shareholders in fiscal years 2006 and 2005, respectively .The balances were
        non-interest bearing and payable on demand. Amounts owed will be repaid when
        due
        or at such other times when repayment will not adversely impact the operating
        cash requirements. It is not intended to repay these amounts from funds
        available as a result of the merger.
  As
        a
        public company, Yucheng, neither directly nor indirectly nor through any
        subsidiary, will make loans, extend credit, maintain credit or arrange for
        the
        extension of credit or renew an extension of credit in the form of a personal
        loan to or for any director or executive officer of the Company. This
        prohibition is in compliance with the provisions of the Sarbanes-Oxley Act
        of
        2002. Moreover, Yucheng has adopted an audit committee charter that requires
        the
        audit committee to review and approve all related party transactions, assure
        compliance with the company’s code of ethics, and monitor and discuss with the
        auditors and outside counsel policies and compliance with applicable accounting
        and legal standards and requirements.
  *Voting
        Agreement*
  Sihitech
        Company Limited, Mega Capital Group Services Limited, Profit Loyal Consultants
        Limited, Elite Concord International Limited, all significant shareholders
        of
        the Company and two other corporate shareholders of the Company and Messrs.
        Chih
        T Cheung and James Z. Li entered into a voting agreement whereby they will
        agree
        to vote for a period of three years ending November 24, 2009, all of their
        respective shares held during the term of the agreement for six directors
        nominated by the Selling Stockholders and three directors nominated by Messrs.
        Cheung and Li. The parties to the voting agreement have also agreed not to
        take
        any action that would change the number of directors or the process of
        nomination, voting and removal of directors as set forth in the Articles
        of
        Association and Memorandum of Association of Yucheng, unless they agree
        unanimously on such action. The persons who are subject to the voting agreement,
        hold approximately 62% of the voting stock of Yucheng, and therefore they
        will
        have control of the board of directors and be able to influence the decisions
        of
        the board and the direction of the Company. Such agreement may also cause
        the
        current management to remain in place without opportunity for the other
        shareholders to effectuate change. Such an agreement may also be considered
        an
        anti-takeover device. Each of the parties to the agreement disclaim that
        they
        are part of a group for Section 13(d) purposes.
  64
  **C.**  **Interests
        of experts and counsel** **.**
  Not
        applicable.
  **ITEM
        8.**  **FINANCIAL
        INFORMATION** ****
  **A.**  **Consolidated
        statements and other financial information** **.**
  We
        have
        appended consolidated financial statements filed as part of this annual report.
        See Item 18 “Financial Statements.”
  *Legal
        Proceedings*
  Not
        applicable
  *Dividend
        Policy*
  We
        have
        never declared or paid any dividends, nor do we have any present plan to
        pay any
        cash dividends on our ordinary shares in the foreseeable future. We currently
        intend to retain most, if not all, of our available funds and any future
        earnings to operate and expand our business.
  Our
        board
        of directors may by resolution authorize payment of dividends if the directors
        are satisfied, on reasonable grounds, Yucheng will, immediately after the
        distribution of dividends, satisfy the solvency test as stipulated in Section
        56
        of the BVI Business Companies Act. Even if our board of directors decides
        to pay
        dividends, the form, frequency and amount will depend upon our future operations
        and earnings, capital requirements and surplus, general financial condition,
        contractual restrictions and other factors that the board of directors may
        deem
        relevant.
  **B.**  **Significant
        changes** **.**
  We
        have
        not experienced any significant changes since the date of our audited
        consolidated financial statements included in this annual report.
  **ITEM
        9.**  **THE
        OFFER AND LISTING**
  **A.**  **Offering
        and listing details** **.**
  The
        common stock, warrants and units of China Unistone Acquisition Corporation,
        our
        predecessor, were quoted on the Over the Counter Bulletin Board (“OTCBB”) under
        the symbols of CUAC.OB,CUACW.OB and CUACU.OB, respectively. China Unistone
        Units
        commenced public trading on November 18, 2004, and its common stock and warrants
        commenced public trading on November 24, 2004. On November 24, 2006, China
        Unistone merged with and into Yucheng for the purpose of redomestication
        out of
        the United States. From November 27, 2006 to March 13, 2007, Yucheng’s ordinary
        shares and warrants traded on the OTCBB, under the symbols YCHTF.OB and
        YCHWF.OB. On March 14, 2007, the ordinary shares and warrants were admitted
        for
        listing on the NASDAQ Capital Market, under the symbols YTEC and YTECW. On
        June
        13, 2007, the warrants were delisted in connection with consummation of a
        call
        for redemption.
  65
  The
        following table provides the high and low trading prices for Yucheng’s ordinary
        shares, and historical prices for the common stock, warrants and units of
        Yucheng for the periods indicated below as reported on the Over-the-Counter
        Bulletin Board. The over-the-counter market quotations reported below reflect
        inter-dealer prices, without markup, markdown or commissions and may not
        represent actual transactions.
 **The
                    OTCBB Price Per Common Stock**
                
                **The
                    OTCBB**
                  **Price
                    Per Warrant**
                
                **The
                    OTCBB**
                  **Price
                    Per Unit**
                
                **The
                    Nasdaq Capital Market**
                  **Price
                    Per Share**
                
                **The
                    Nasdaq Capital Market**
                  **Price
                    Per Warrant****High**
                
                **Low**
                
                **High**
                
                **Low**
                
                **High**
                
                **Low**
                
                **High**
                
                **Low**
                
                **High**
                
                **Low***Annual
                    Market Prices*Year
                    2004
                  (from
                    November 24, 2004)
                
                
                
                
                $
                $
                
                
                
                
                $
                $
                
                
                
                
                $
                $
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AYear
                    2005
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AYear
                    2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A*Quarterly
                    Market Prices*Fourth
                    Quarter 2004
                
                
                5.2
                
                
                4.78
                
                
                0.8
                
                
                0.6
                
                
                7
                
                
                5.95
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AFirst
                    Quarter 2005
                
                
                5.6
                
                
                5.1
                
                
                1.12
                
                
                0.8
                
                
                7.75
                
                
                6.6
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/ASecond
                    Quarter 2005
                
                
                5.52
                
                
                5.05
                
                
                0.98
                
                
                0.75
                
                
                7.15
                
                
                6.5
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AThird
                    Quarter 2005
                
                
                5.45
                
                
                5.1
                
                
                1.2
                
                
                0.83
                
                
                7.95
                
                
                6.6
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AFourth
                    Quarter 2005
                
                
                6.75
                
                
                5.15
                
                
                2.07
                
                
                0.93
                
                
                10.6
                
                
                6.65
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AFirst
                    Quarter 2006
                
                
                8.4
                
                
                6.77
                
                
                3
                
                
                1.96
                
                
                14
                
                
                10.7
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/ASecond
                    Quarter 2006
                
                
                8.85
                
                
                6.25
                
                
                3.28
                
                
                1.83
                
                
                15
                
                
                10
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AThird
                    Quarter 2006
                
                
                7
                
                
                5.4
                
                
                1.78
                
                
                1.18
                
                
                10.4
                
                
                7.85
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AFourth
                    Quarter 2006
                
                
                7.55
                
                
                5.35
                
                
                2.74
                
                
                1.1
                
                
                13.03
                
                
                7.55First
                    Quarter 2007
                  (until
                    March 13, 2007)
                
                
                8.3
                
                
                6.47
                
                
                2.95
                
                
                1.84
                
                
                14.2
                
                
                10.15First
                    Quarter 2007
                  (from
                    March 13, 2007)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                8.8
                
                
                7.52
                
                
                3.8
                
                
                2.51Second
                    Quarter 2007
                  (until
                    June 25, 2007)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                9.5
                
                
                8.06Second
                    Quarter 2007
                  (trading
                    halted on June 14, 2007)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4.45
                
                
                3.02*Monthly
                    Market Prices*January
                    2006
                
                
                8.24
                
                
                6.77
                
                
                2.72
                
                
                1.96
                
                
                13.68
                
                
                10.69February
                    2006
                
                
                8.4
                
                
                7.3
                
                
                3.00
                
                
                2.30
                
                
                14.4
                
                
                11.9March
                    2006
                
                
                8.85
                
                
                7.85
                
                
                3.28
                
                
                2.85
                
                
                15.41
                
                
                13.55April
                    2006
                
                
                8.37
                
                
                7.73
                
                
                3.08
                
                
                2.80
                
                
                14.53
                
                
                13.33May
                    2006
                
                
                7.75
                
                
                6.25
                
                
                2.85
                
                
                1.83
                
                
                13.45
                
                
                9.91June
                    2006
                
                
                6.71
                
                
                5.80
                
                
                2.03
                
                
                1.04
                
                
                10.77
                
                
                7.88July
                    2006
                
                
                7.00
                
                
                6.00
                
                
                1.78
                
                
                1.35
                
                
                10.56
                
                
                8.7August
                    2006
                
                
                6.35
                
                
                5.40
                
                
                1.43
                
                
                1.25
                
                
                9.21
                
                
                7.9September
                    2006
                
                
                5.68
                
                
                5.40
                
                
                1.33
                
                
                1.18
                
                
                8.34
                
                
                7.76October
                    2006
                
                
                5.65
                
                
                5.27
                
                
                1.3
                
                
                1.06
                
                
                8.25
                
                
                7.39November
                    2006
                
                
                7.45
                
                
                5.56
                
                
                2.52
                
                
                1.27
                
                
                12.49
                
                
                8.1December
                    2006
                
                
                7.55
                
                
                6.93
                
                
                2.74
                
                
                1.34
                
                
                13.03
                
                
                9.61January
                    2007
                
                
                7.40
                
                
                6.47
                
                
                2.61
                
                
                1.84
                
                
                12.62
                
                
                10.15
 
 **B.**  **Plan
        of distribution** **.**
  Not
        applicable
  **C.**  **Markets** **.**
  See
        Item
        9.A above.
  **D.**  **Selling
        shareholders** **.**
  Not
        applicable
  66
  **E.**  **Dilution** **.**
  Not
        applicable
  **F.**  **Expenses
        of the issue** **.**
  Not
        applicable
  **ITEM
        10.**  **ADDITIONAL
        INFORMATION**
  **A.**  **Share
        capital** **.**
  Not
        applicable.
  **B.**  **Memorandum
        and articles of association** **.**
  The
        following is a summary description of certain provisions of our Memorandum
        and
        Articles of Association:
  *Charter*
  Our
        charter documents consist of our Memorandum of Association and our Articles
        of
        Association. The Memorandum of Association loosely resembles the Articles
        of
        Incorporation of a United States corporation, and the Articles of Association
        loosely resembles the bylaws of a United States corporation. This description
        and summary does not purport to be complete and does not address all differences
        between United States and British Virgin Islands corporate laws. Copies of
        our
        Memorandum and Articles of Association have been filed as exhibits to the
        intial
        registration statement on Form S-4 of Yucheng.
  *Corporate
        Powers*
  Yucheng
        was first incorporated as a company under the International Business Companies
        Act, 1984 (as amended) on November 17, 2005. The M&A states that the Company
        can carry out any object not prohibited by the BVI Business Companies Act
        2004
        or as the same may be revised from time to time, or any other law of the
        British
        Virgin Islands.
  *Directors*
  The
        directors may fix their compensation for services rendered to us.
  By
        a
        resolution of directors, the directors may exercise all our powers to borrow
        money, mortgage our property, issue debentures, and issue stock or other
        securities for any debt, liability or obligation given by us.
  A
        director may resign or retire from our board at any time. The director must
        give
        written notice of his resignation to us. Directors hold office until the
        next
        annual meeting of members. We currently do not have a staggered election
        of
        directors.
  67
  The
        shareholding qualification for directors may be fixed and varied by a resolution
        of members and unless it is fixed no shareholding qualification is required.
        A
        director must be an individual.
  *Rights
        of Shares*
  We
        are
        authorized to issue ordinary shares and preferred shares. The ordinary shares
        have one vote each, are subject to purchase or acquisition by us for fair
        value
        and have the same rights with regard to dividends and distributions upon
        our
        liquidation. The directors are authorized to issue one or more classes and
        series of preferred shares and to fix the rights and preferences attached
        to
        each class of preferred shares.
  *Meetings*
  An
        annual
        meeting of members must be held each year at such date and time as may be
        determined by the directors, but no later than one year after the end of
        our
        fiscal year pursuant to relevant Nasdaq rules. Special meetings of members
        may
        be called by the directors pursuant to a resolution of directors to that
        effect
        or upon the written request of members holding more than 50 percent of the
        votes
        of our outstanding voting shares. No less than seven days notice of meetings
        is
        required to be given to members.
  A
        meeting
        of members may be called on short notice if members holding not less than
        90
        percent of the total number of shares entitled to vote on all matters to
        be
        considered at the meeting, or 90 percent of the votes of each class or series
        of
        shares where members are entitled to vote thereon as a class or series together
        with not less than a 90 percent majority of the remaining votes, have agreed
        to
        short notice of the meeting, or if all members holding shares entitled to
        vote
        on all or any matters to be considered at the meeting have waived notice
        of the
        meeting and for this purpose presence at the meeting shall be deemed to
        constitute waiver.
  The
        inadvertent failure of the directors to give notice of a meeting to a member,
        or
        the fact that a member has not received notice, does not invalidate the
        meeting.
  A
        member
        may be represented at a meeting of members by a proxy who may speak and vote
        on
        behalf of the member. A written instrument giving the proxy such authority
        must
        be produced at the place appointed for the meeting before the time for holding
        the meeting.
  A
        meeting
        of members is duly constituted if; at the commencement of the meeting, there
        are
        present in person or by proxy not less than 50 percent of the votes of the
        shares or class or series of shares entitled to vote on resolutions of members
        to be considered at the meeting.
  *Limitations
        on Ownership of Securities*
  There
        are
        no limitations on the right of non residents or foreign persons to own our
        securities imposed by British Virgin Islands law or by our M&A.
  68
  *Change
        in Control of Company*
  There
        are
        no provisions in our M&A that would operate only to delay, defer or prevent
        a change of control of our company. However, the board of directors has the
        power to issue preferred shares with such rights attaching to them as they
        decide and that this power could be used in a manner that would delay, defer
        of
        prevent a change of control of our company.
  *Ownership
        Threshold*
  There
        are
        no provisions governing the ownership threshold above which shareholder
        ownership must be disclosed.
  *Changes
        in Capital*
  Subject
        to the provisions of the BVI Business Companies Act, 2004, we may, by a
        resolution of directors or members, amend our M&A to increase or decrease
        the number of shares authorized to be issued. There is no definition of capital
        in the BVI Business Companies Act, 2004. The directors of a company may,
        by
        resolution, authorize a distribution (including a capital distribution) by
        their
        company at a time, of an amount, and to any members they think fit if they
        are
        satisfied, on reasonable grounds, that the company will, immediately after
        the
        distribution, satisfy the solvency test. The solvency test is satisfied if
        the
        value of the company’s assets exceeds its liabilities, and the company is able
        to pay its debts as they fall due.
  **C.**  **Material
        contracts** **.**
  We
        have
        not entered into any material contracts other than in the ordinary course
        of
        business and other than those described in Item 4, “Information on the Company”
and in Item 7, “Major Shareholders and Related Party Transactions” or elsewhere
        in this annual report on Form 20-F.
  **D.**  **Exchange
        controls** **.**
  *British
        Virgin Islands*
  There
        are
        no material exchange controls restrictions on payment of dividends, interest
        or
        other payments to the holders of our ordinary or preferred shares or on the
        conduct of its operations in the BVI, where we were incorporated. There are
        no
        material BVI laws which impose any material exchange controls on us or that
        affect the payment of dividends, interest or other payments to nonresident
        holders of its ordinary or preferred shares. BVI law and our M&A impose no
        material limitations on the right of non-residents or foreign owners to hold
        or
        vote our ordinary or preferred shares.
  *China*
  China’s
        government imposes control over the convertibility of RMB into foreign
        currencies. Under the current unified floating exchange rate system, the
        China
        Foreign Exchange Transaction Center, authorized by the People’s Bank of China
        publishes a daily exchange rate for RMB, or the PBOC Exchange Rate, based
        on the
        weighted average of quotations from all the market makers in the inter-bank
        foreign exchange market before open quotation. Financial institutions authorized
        to deal in foreign currency may enter into foreign exchange transactions
        at
        exchange rates within an authorized range above or below the PBOC Exchange
        Rate
        according to market conditions.
  69
  Pursuant
        to the Foreign Exchange Control Regulations issued by the State Council on
        January 29, 1996 and effective as of April 1, 1996 (and amended on January
        14,
        1997) and the Administration of Settlement, Sale and Payment of Foreign Exchange
        Regulations which came into effect on July 1, 1996 regarding foreign exchange
        control, or the Regulations, conversion of Renminbi into foreign exchange
        by
        foreign investment enterprises for current account items, including the
        distribution of dividends and profits to foreign investors of joint ventures,
        is
        permissible upon the proper production of qualified commercial vouchers or
        legal
        documents as required by the Regulations. Foreign investment enterprises
        are
        permitted to remit foreign exchange from their foreign exchange bank account
        in
        China upon the proper production of, inter alia, the board resolutions declaring
        the distribution of the dividend and payment of profits. Conversion of RMB
        into
        foreign currencies and remittance of foreign currencies for capital account
        items, including direct investment, loans, security investment, is still
        subject
        to the approval of the State Administration of Foreign Exchange or any
        authorized local branches, or SAFE or the Branches, in each such transaction.
        On
        January 14, 1997, the State Council amended the Foreign Exchange Control
        Regulations and added, among other things, an important provision, as Article
        5
        provides that the State shall not impose restrictions on recurring international
        payments and transfers under current accounts.
  Under
        the
        Regulations, foreign investment enterprises are required to open and maintain
        separate foreign exchange accounts for capital account items (but not for
        other
        items). In addition, foreign investment enterprises may only buy, sell and/or
        remit foreign currencies at those banks authorized to conduct foreign exchange
        business upon the production of valid commercial documents and, in the case
        of
        capital account item transactions, document approval from SAFE or the Branches.
  Currently,
        foreign investment enterprises are required to apply to SAFE for “foreign
        exchange registration certificates for foreign investment enterprises.” With
        such foreign exchange registration certificates (which are granted to foreign
        investment enterprises upon fulfilling specified conditions and which are
        subject to review and renewal by SAFE or its Branches on an annual basis)
        or
        with the foreign exchange sales notices from SAFE (which are obtained on
        a
        transaction-by-transaction basis), foreign-invested enterprises may open
        foreign
        exchange bank accounts (the advance examination and approval for the opening
        of
        foreign exchange current accounts has been cancelled according to the Notice
        of
        SAFE on Adjusting Policies Concerning the Administration of Foreign Exchange
        Current Accounts, which came into effect on May 1, 2006) and enter into foreign
        exchange transactions at banks authorized to conduct foreign exchange business
        to obtain foreign exchange for their needs.
  **E.**  **Taxation** **.**
  The
        following is a general summary of certain material British Virgin Islands
        and
        U.S. federal income tax considerations. The discussion is not intended to
        be,
        nor should it be construed as, legal or tax advice to any particular prospective
        shareholder. The discussion is based on laws and relevant interpretations
        thereof in effect as of the date hereof, all of which are subject to change
        or
        different interpretations, possibly with retroactive effect.
  70
  The
        discussion does not address United States state or local tax laws, or tax
        laws
        of jurisdictions other than the British Virgin Islands and the United
        States.
  *British
        Virgin Islands Taxation*
  The
        British Virgin Islands, or BVI, does not impose a withholding tax on dividends
        paid by us to holders of our ordinary or preferred shares. Nor does the BVI
        levy
        any capital gains or income taxes on us.
  Further,
        a holder of our ordinary or preferred shares who is not a resident of the
        BVI is
        exempt from the BVI income tax on dividends paid with respect to the ordinary
        or
        preferred shares. Holders of ordinary or preferred shares are not subject
        to the
        BVI income tax on gains realized on the sale or disposition of the ordinary
        or
        preferred shares.
  Our
        ordinary and preferred shares are not subject to transfer taxes, stamp duties
        or
        similar charges in the BVI. However, as a business company, we are required
        to
        pay the BVI government an annual license fee based on the number of shares
        we
        are authorized to issue.
  There
        is
        no income tax treaty or convention currently in effect between the United
        States
        and the BVI.
  **United
        States federal income taxation**
  This
        discussion describes the material U.S. federal income tax consequences of
        the
        purchase, ownership and disposition of our ordinary shares. This discussion
        does
        not address any aspect of U.S. federal gift or estate tax, or the state,
        local
        or foreign tax consequences of an investment in our ordinary shares. This
        discussion applies to you only if you hold and beneficially own our ordinary
        shares as capital assets for tax purposes. This discussion does not apply
        to you
        if you are a member of a class of holders subject to special rules, such
        as:
  ·
              dealers
                  in securities or currencies;
  ·
              traders
                  in securities that elect to use a mark-to-market method of accounting
                  for
                  securities holdings;
  ·
              banks
                  or other financial institutions;
  ·
              insurance
                  companies;
  ·
              tax-exempt
                  organizations;
  ·
              partnerships
                  and other entities treated as partnerships for U.S. federal income
                  tax
                  purposes or persons holding ordinary shares through any such
                  entities;
  71
  ·
              persons
                  that hold ordinary shares as part of a hedge, straddle, constructive
                  sale,
                  conversion transaction or other integrated investment;
  ·
              U.S.
                  Holders (as defined below) whose functional currency for tax purposes
                  is
                  not the U.S. dollar;
  ·
              persons
                  liable for alternative minimum tax;
                  or
  ·
              persons
                  who actually or constructively own 10% or more of the total combined
                  voting power of all classes of our shares (including ordinary shares)
                  entitled to vote.
  This
        discussion is based on the U.S. Internal Revenue Code of 1986, as amended,
        which
        we refer to in this discussion as the Code, its legislative history, existing
        and proposed regulations promulgated thereunder, published rulings and court
        decisions, all as currently in effect. These laws are subject to change,
        possibly on a retroactive basis. In addition, this discussion relies on our
        assumptions regarding the value of our shares and the nature of our business
        over time. Finally, this discussion is based in part upon the representations
        of
        the depositary and the assumption that each obligation in the deposit agreement
        and any related agreement will be performed in accordance with its terms.
  You
        should consult your own tax advisor concerning the particular U.S. federal
        income tax consequences to you of the purchase, ownership and disposition
        of our
        ordinary shares, as well as the consequences to you arising under the laws
        of
        any other taxing jurisdiction.
  For
        purposes of the U.S. federal income tax discussion below, you are a “U.S.
        Holder” if you beneficially own ordinary shares and are:
  ·
              a
                  citizen or resident of the United States for U.S. federal income
                  tax
                  purposes;
  ·
              a
                  corporation, or other entity taxable as a corporation, that was
                  created or
                  organized in or under the laws of the United States or any political
                  subdivision thereof;
  ·
              an
                  estate the income of which is subject to U.S. federal income tax
                  regardless of its source; or
  ·
              a
                  trust if (a) a court within the United States is able to exercise
                  primary supervision over its administration and one or more U.S.
                  persons
                  have the authority to control all substantial decisions of the
                  trust, or
                  (b) the trust has a valid election in effect to be treated as a U.S.
                  person.
  If
        you
        are not a U.S. person, please refer to the discussion below under “Non-U.S.
        Holders.”
  For
        U.S.
        federal income tax purposes, income earned through a foreign or domestic
        partnership or other flow-through entity is attributed to its owners.
        Accordingly, if a partnership or other flow-through entity holds ordinary
        shares, the tax treatment of the holder will generally depend on the status
        of
        the partner or other owner and the activities of the partnership or other
        flow-through entity.
  72
  **U.S.
        Holders** **
  *Dividends
        on ordinary shares*
  We
        do not
        anticipate paying dividends on our ordinary shares or indirectly on our ordinary
        shares, in the foreseeable future. See “Dividend policy.”
  Subject
        to the “Passive Foreign Investment Company” discussion below, if we do make
        distributions and you are a U.S. Holder, the gross amount of any distributions
        you receive on your ordinary shares will generally be treated as dividend
        income
        if the distributions are made from our current or accumulated earnings and
        profits, calculated according to U.S. federal income tax principles. Dividends
        will generally be subject to U.S. federal income tax as ordinary income on
        the
        day you actually or constructively receive such income. However, if you are
        an
        individual and have held your ordinary shares for a sufficient period of
        time,
        dividend distributions on our ordinary shares will generally constitute
        qualified dividend income taxed at a preferential rate (generally 15% for
        dividend distributions before January 1, 2011) as long as our ordinary shares
        continue to be readily tradable on the Nasdaq Global Market and certain other
        conditions apply. You should consult your own tax adviser as to the rate
        of tax
        that will apply to you with respect to dividend distributions, if any, you
        receive from us.
  We
        do not
        intend to calculate our earnings and profits according to U.S. tax accounting
        principles. Accordingly, distributions on our ordinary shares, if any, will
        generally be taxed to you as dividend distributions for U.S. tax purposes.
        Even
        if you are a corporation, you will not be entitled to claim a dividends-received
        deduction with respect to distributions you receive from us. Dividends generally
        will constitute foreign source passive income for U.S. foreign tax credit
        limitation purposes.
  *Sales
        and other dispositions of ordinary shares*
  Subject
        to the “Passive Foreign Investment Company” discussion below, when you sell or
        otherwise dispose of ordinary shares, you will generally recognize capital
        gain
        or loss in an amount equal to the difference between the amount realized
        on the
        sale or other disposition and your adjusted tax basis in the ordinary shares,
        both as determined in U.S. dollars. Your adjusted tax basis will generally
        equal
        the amount you paid for the ordinary shares. Any gain or loss you recognize
        will
        be long-term capital gain or loss if your holding period in our ordinary
        shares
        is more than one year at the time of disposition. If you are an individual,
        any
        such long-term capital gain will be taxed at preferential rates. Your ability
        to
        deduct capital losses will be subject to various limitations.
  *Passive
        Foreign Investment Company*
  If
        we
        were a Passive Foreign Investment Company, or PFIC, in any taxable year in
        which
        you hold our ordinary shares, as a U.S. Holder, you would generally be subject
        to adverse U.S. tax consequences, in the form of increased tax liabilities
        and
        special U.S. tax reporting requirements.
  73
  We
        will
        be classified as a PFIC in any taxable year if either: (1) the average
        percentage value of our gross assets during the taxable year that produce
        passive income or are held for the production of passive income is at least
        50%
        of the value of our total gross assets or (2) 75% or more of our gross income
        for the taxable year is passive income (such as certain dividends, interest
        or
        royalties). For purposes of the first test: (1) any cash, cash equivalents,
        and
        cash invested in short-term, interest-bearing debt instruments or bank deposits
        that is readily convertible into cash, will generally count as producing
        passive
        income or held for the production of passive income and (2) the average value
        of
        our gross assets is calculated based on our market capitalization. We will
        be
        treated as owning our proportionate share of the assets and earning our
        proportionate share of the income of any other corporation in which we own,
        directly or indirectly, 25% or more (by value) of the stock.
  We
        believe that we were not a PFIC for the taxable year 2005. However, there
        can be
        no assurance that we will not be a PFIC for the taxable year 2006 and/or
        later
        taxable years, as PFIC status is re-tested each year and depends on the facts
        in
        such year. For example, we would be a PFIC for the taxable year 2006 if the
        sum
        of our average market capitalization, which is our share price multiplied
        by the
        total number of our outstanding shares, and our liabilities over that taxable
        year was not more than twice the value of our cash, cash equivalents, and
        other
        assets producing passive income or held for the production of passive income.
        We
        could also be a PFIC for any taxable year if the gross income that we and
        our
        subsidiaries earn from passive investments is substantial in comparison with
        the
        gross income from our business operations.
  If
        we
        were a PFIC, you would generally be subject to additional taxes and interest
        charges on certain “excess distributions” we make and on any gain realized on
        the disposition or deemed disposition of your ordinary shares, regardless
        of
        whether we continue to be a PFIC in the year in which you receive an “excess
        distribution” or dispose of or are deemed to dispose of your ordinary shares.
        Distributions in respect of your ordinary shares during a taxable year would
        generally constitute “excess distributions” if, in the aggregate, they exceed
        125% of the average amount of distributions in respect of your ordinary shares
        over the three preceding taxable years or, if shorter, the portion of your
        holding period before such taxable year.
  To
        compute the tax on “excess distributions” or any gain, (1) the “excess
        distribution” or the gain would be allocated ratably to each day in your holding
        period, (2) the amount allocated to the current year and any tax year before
        we
        became a PFIC would be taxed as ordinary income in the current year, (3)
        the
        amount allocated to other taxable years would be taxable at the highest
        applicable marginal rate in effect for that year, and (4) an interest charge
        at
        the rate for underpayment of taxes for any period described under (3) above
        would be imposed with respect to any portion of the “excess distribution” or
        gain that is allocated to such period. In addition, if we were a PFIC, no
        distribution that you receive from us would qualify for taxation at the
        preferential rate discussed in the “Dividends on ordinary shares” section above.
  If
        we
        were a PFIC in any year, and if you are a U.S. Holder, you would be required
        to
        make an annual return on IRS Form 8621 regarding your ordinary shares. However,
        we do not intend to generate, or share with you, information that you might
        need
        to properly complete IRS Form 8621. You should consult with your own tax
        adviser
        regarding reporting requirements with regard to your ordinary shares.
  74
  If
        we
        were a PFIC in any year, you would generally be able to avoid the “excess
        distribution” rules described above by making a timely so-called
“mark-to-market” election with respect to your ordinary shares provided our
        ordinary shares are “marketable.” Our ordinary shares will be “marketable” as
        long as they remain regularly traded on the Nasdaq Global Market. If you
        made
        this election in a timely fashion, you would generally recognize as ordinary
        income or ordinary loss the difference between the fair market value of your
        ordinary shares on the first day of any taxable year and their value on the
        last
        day of that taxable year. Any ordinary income resulting from this election
        would
        generally be taxed at ordinary income rates and would not be eligible for
        the
        reduced rate of tax applicable to qualified dividend income. Any ordinary
        losses
        would be limited to the extent of the net amount of previously included income
        as a result of the mark-to-market election, if any. Your basis in the ordinary
        shares would be adjusted to reflect any such income or loss. You should consult
        with your own tax adviser regarding potential advantages and disadvantages
        to
        you of making a “mark-to-market” election with respect to your ordinary shares.
        Separately, if we were a PFIC in any year, you would be able to avoid the
        “excess distribution” rules by making a timely election to treat us as a
        so-called “Qualified Electing Fund”, or QEF. You would then generally be
        required to include in gross income for any taxable year (1) as ordinary
        income, your pro rata share of our ordinary earnings for the taxable year,
        and
        (2) as long-term capital gain, your pro rata share of our net capital gain
        for the taxable year. However, we do not intend to provide you with the
        information you would need to make or maintain a QEF election and you will,
        therefore, not be able to make or maintain such an election with respect
        to your
        ordinary shares.
  **Non-U.S.
        Holders** ******
  If
        you
        beneficially own ordinary shares and are not a U.S. Holder for U.S. federal
        income tax purposes, or a Non-U.S. Holder, you generally will not be subject
        to
        U.S. federal income tax or withholding on dividends received from us with
        respect to ordinary shares unless that income is considered effectively
        connected with your conduct of a U.S. trade or business and, if an applicable
        income tax treaty so requires, as a condition for you to be subject to U.S.
        federal income tax with respect to income from your ordinary shares, such
        dividends are attributable to a permanent establishment that you maintain
        in the
        United States. You generally will not be subject to U.S. federal income tax,
        including withholding tax, on any gain realized upon the sale or exchange
        of
        ordinary shares, unless:
  ·
              that
                  gain is effectively connected with the conduct of a U.S. trade
                  or business
                  and, if an applicable income tax treaty so requires as a condition
                  for you
                  to be subject to U.S. federal income tax with respect to income
                  from your
                  ordinary shares, such gain is attributable to a permanent establishment
                  that you maintain in the United States;
                  or
  ·
              you
                  are a nonresident alien individual and are present in the United
                  States
                  for at least 183 days in the taxable year of the sale or other
                  disposition
                  and either (1) your gain is attributable to an office or other fixed
                  place of business that you maintain in the United States or (2)
                  you have a
                  tax home in the United States.
  If
        you
        are engaged in a U.S. trade or business, unless an applicable tax treaty
        provides otherwise, the income from your ordinary shares, including dividends
        and the gain from the disposition of ordinary shares, that is effectively
        connected with the conduct of that trade or business will generally be subject
        to the rules applicable to U.S. Holders discussed above. In addition, if
        you are
        a corporation, you may be subject to an additional branch profits tax at
        a rate
        of 30% or any lower rate under an applicable tax treaty.
  75




**U.S.
      information reporting and backup withholding rules** **




In
      general, dividend payments with respect to the ordinary shares and the proceeds
      received on the sale or other disposition of those ordinary shares may be
      subject to information reporting to the IRS and to backup withholding (currently
      imposed at a rate of 28%). Backup withholding will not apply, however, if you
      (1) are a corporation or come within certain other exempt categories and, when
      required, can demonstrate that fact or (2) provide a taxpayer identification
      number, certify as to no loss of exemption from backup withholding and otherwise
      comply with the applicable backup withholding rules. To establish your status
      as
      an exempt person, you will generally be required to provide certification on
      IRS
      Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
      to
      you under the backup withholding rules will be allowed as a refund or a credit
      against your U.S. federal income tax liability, provide that you furnish the
      required information to the IRS.




HOLDERS
      OF OUR ORDINARY SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
      THE
      APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
      AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING
      OF THE ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS
      OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
      INHERITANCE LAWS.




**F.**
            **Dividends
                and paying agents****.**




Not
      applicable.




**G.**
            **Statement
                by experts****.**




Not
      applicable.




**H.**
            **Documents
                on display****.**




We
      have
      filed this Annual Report on Form 20-F with the Securities and Exchange
      Commission under the Securities Exchange Act of 1934, as amended. Statements
      made in this Annual Report as to the contents of any document referred to are
      not necessarily complete. With respect to each such document filed as an exhibit
      to this Annual Report, reference is made to the exhibit for a more complete
      description of the matter involved, and each such statement shall be deemed
      qualified in its entirety by such reference.




We
      are
      subject to the informational requirements of the Exchange Act and file reports
      and other information with the Securities and Exchange Commission. Reports
      and
      other information which the Company filed with the Securities and Exchange
      Commission, including this Annual Report on Form 20-F, may be inspected and
      copied at the public reference room of the Securities and Exchange Commission
      at
      100 F. Street N.E., Washington, D.C. 20549.




76




You
      can
      also obtain copies of this Annual Report on Form 20-F by mail from the Public
      Reference Section of the Securities and Exchange Commission, 100 F. Street
      N.E.,
      Washington, D.C. 20549, at prescribed rates. Additionally, copies of this
      material may be obtained from the Securities and Exchange Commission’s Internet
      site at http://www.sec.gov. The Commission’s telephone number is
      1-800-SEC-0330.




**I.**
            **Subsidiaries
                information****.**




Not
      Applicable.




**ITEM
              11.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK******




**Interest
      rate risk**




Our
      exposure to market rate risk for changes in interest rates relates primarily
      to
      the interest income generated by excess cash invested in short term money market
      accounts and certificates of deposit. We have not used derivative financial
      instruments in our investment portfolio. Interest earning instruments carry
      a
      degree of interest rate risk. We have not been exposed nor do we anticipate
      being exposed to material risks due to changes in interest rates. However,
      our
      future interest income may fall short of expectations due to changes in interest
      rates.




**Foreign
      currency risk**




Substantially
      all our revenues and expenses are denominated in Renminbi and a substantial
      portion of our cash is kept in Renminbi, but a portion of our cash is also
      kept
      in U.S. dollars. Although we believe that, in general, our exposure to foreign
      exchange risks should be limited, the value of our shares will be affected
      by
      the foreign exchange rate between U.S. dollars and Renminbi. For example, to
      the
      extent that we need to convert U.S. dollars into Renminbi for our operational
      needs and the Renminbi appreciates against the U.S. dollar at that time, our
      financial position and the price of our shares may be adversely affected.
      Conversely, if we decide to convert our Renminbi into U.S. dollars for the
      purpose of declaring dividends on our shares or otherwise and the U.S. dollar
      appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
      in
      China would be reduced.




We
      have
      recorded nil foreign exchange gains/loss in net income in year 2006, due to
      the
      recent revaluation of the Renminbi against the U.S. dollar by the PRC
      government. The PRC government may further readjust the current rate at which
      Renminbi-U.S. dollar exchanges are fixed, as well as re-evaluate its decades-old
      policy of using a fixed-rate regime to govern foreign currency transactions,
      although the PRC government has not committed itself to take any such action
      currently. Since we have not engaged in any hedging activities, we may
      experience economic loss as a result of any foreign currency exchange rate
      fluctuations.




77




**Inflation**




In
      recent
      years, China has not experienced significant inflation, and thus inflation
      has
      not had a significant effect on our business during the past three years.
      According to the China Statistical Bureau, China’s overall national inflation
      rate, as represented by the general consumer price index, was approximately
      1.2%, 3.9% and 1.8%, in 2003, 2004 and 2005 respectively. Sustained or increased
      inflation in China may have an adverse impact on China’s economy, which could
      affect demand for our products or services or increase our cost of services
      or
      operating expenses. As we have not previously operated during a period of
      significant inflation, we cannot predict with confidence the effect that such
      inflation may have on our business.




**ITEM
              12.**
            **DESCRIPTION
                OF SECURITIES OTHER THAN EQUITY SECURITIES******




Not
      Applicable.




**PART
      II**




**ITEM
              13.**
            **DEFAULTS,
                DIVIDEND ARREARAGES AND DELINQUENCIES******




Not
      Applicable.




**ITEM
              14.**
            **MATERIAL
                MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                PROCEEDS******




The
      rights of securities holders have not been materially changed.




**ITEM
              15.**
            **CONTROLS
                AND PROCEDURES******




Our
      management has evaluated the effectiveness of our disclosure controls and
      procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end
      of
      the fiscal year covered by this report. Based on such evaluation, our chief
      executive officer and chief financial officer have concluded that, as of the
      end
      of the fiscal year covered by this report, our disclosure controls and
      procedures were effective in recording, processing, summarizing and reporting,
      on a timely basis, information required to be disclosed by us in the reports
      that we file or submit under the Exchange Act.




There
      have not been any change in our internal control over financial reporting (as
      such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
      during the fiscal year covered by this report that have materially affected,
      or
      are reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
              16A.**
            **AUDIT
                COMMITTEE FINANCIAL
                EXPERT.**




The
      board
      of directors believes that Mr. Chi Wei Joong, a member of our audit committee,
      meets the criteria for an “audit committee financial expert” as established by
      the U.S. Securities and Exchange Commission.




78




Mr.
      Chi
      Wei Joong will not be deemed an “expert” for any purpose, including, without
      limitation, for purposes of Section 11 of the U.S. Securities Act of 1933,
      as
      amended, as a result of being designated or identified as an audit committee
      financial expert. The designation or identification of Mr. Chi Wei Joong as
      an
      audit committee financial expert does not impose on him any duties, obligations
      or liability that are greater than the duties, obligations and liability imposed
      on him as a member of the audit committee and board of directors in the absence
      of such designation or identification. The designation or identification of
      Mr.
      Chi Wei Joong as an audit committee financial expert does not affect the duties,
      obligations or liability of any other member of the audit committee or board
      of
      directors.




**ITEM
              16B.**
            **CODE
                OF ETHICS.**




Our
      board
      of directors adopted a code of ethics on March 20, 2006 that applies to
      Yucheng’s directors, officers and employees and to those of its subsidiaries. A
      copy of the form of the Yucheng code of ethics was filed as Annex G to our
      registration statement on Form S-4 filed with the Securities and Exchange
      Commission on March 29, 2006, and with effect as of November 3, 2006.




**ITEM
              16C.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES.**




**(a)**
            **Audit
                Fees.**




The
      aggregate fees billed for 2005 and 2006 for professional services rendered
      by
      KPMG and BDOfor the audit of the annual financial statements of Yucheng were
      $394,704 and $401,338 respectively.




**(b)**
            **Audit
                — Related Fees**




No
      fees
      were billed in each of the last two fiscal years for assurance and related
      services by our principal accountant that are reasonably related to the
      performance of the audit or review of our financial statements and are not
      reported under paragraph (a) of this Item 16C for 2005 and 2006.




**(c)**
            **Tax
                Fees**




We
      did
      not enter into any engagement in 2005 or 2006 for professional services rendered
      by our principal accountant for tax compliance, tax advice or tax
      planning.




**(d)**
            **All
                Other Fees**




No
      fees
      were billed in each of the last two fiscal years for products and services
      provided by our principal accountant, other than the services reported in
      paragraphs (a) through (b) of this Item 16C for 2005 and 2006.




**(e)**
            **Audit
                Committee Pre-Approval Policies and Procedures.**




The
      Audit
      Committee is to pre-approve all auditing services and permitted non-audit
      services to be performed for us by our independent auditor, including the fees
      and terms thereof (subject to the de minimums exceptions for non-audit services
      described in Section 10A(i)(l)(B) of the Exchange Act which are approved by
      the
      Audit Committee prior to the completion of the audit).




79




**(f)**




Not
      applicable.




**ITEM
              16D.**
            **EXEMPTIONS
                FROM THE LISTING STANDARDS FOR AUDIT
                COMMITTEES.**




We
      have
      not been granted an exemption from the applicable listing standards for the
      audit committee of our board of directors.




**ITEM
              16E.**
            **PURCHASES
                OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                PURCHASERS.**




None




80




**PART
      III**




**ITEM
              17.**
            **FINANCIAL
                STATEMENTS******




We
      have
      elected to provide financial statements pursuant to Item 18.




**ITEM
              18.**
            **FINANCIAL
                STATEMENTS******




81


**YUCHENG
      TECHNOLOGIES LIMITED**


**AND**


**SUBSIDIARIES**




Consolidated
      Financial Statements




Years
      Ended December 31, 2006, 2005 and 2004





(With
      Report of Independent Registered Public Accounting


Firm
      Thereon)




82




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors of and Stockholders of


Yucheng
      Technologies Limited:





We
      have
      audited the accompanying consolidated balance sheets of Yucheng Technologies
      Limited as of December 31, 2006 and 2005, and the related consolidated
      statements of operations, stockholders' equity and cash flows for each of the
      three years ended December 31, 2006. These financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these 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. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. 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 financial position of Yucheng Technologies Limited
      as of December 31, 2006 and 2005 and the results of its consolidated operations
      and its cash flows for each of the three years ended December 31, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America.




BDO
      McCabe Lo Limited




/s/
      BDO McCabe Lo Limited




Hong
      Kong


May
      11,
      2007




83





**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES** ******


Consolidated
      Balance Sheets


December
      31, 2006 and 2005


(Expressed
      in Chinese Renminbi)




**2006**
            
            **2006**
            
            **2005****USD**
            
            **RMB**
            
            **RMB**(note
                2 (c))**Assets**Current
                assets:Cash
            
            
            12,595,907
            
            
            98,357,657
            
            
            42,715,712Trade
                accounts receivable, net (note 3)
            
            
            14,932,874
            
            
            116,606,333
            
            
            55,209,183Costs
                and estimated earnings in excess
                of billings on uncompleted contracts
                (note 4)
            
            
            2,180,002
            
            
            17,022,985
            
            
            7,647,912Due
                from related parties (note 22)
            
            
            49,543
            
            
            386,867
            
            
            2,599,256Inventories
            
            
            724,212
            
            
            5,655,156
            
            
            10,342,872Precontract
                costs
            
            
            205,642
            
            
            1,605,795
            
            
            645,557Deposit
                for acquisition of businesses (note 5)
            
            
            5,730,787
            
            
            44,750,000
            
            
            7,000,000Other
                current assets (note 6)
            
            
            2,693,846
            
            
            21,035,434
            
            
            17,366,990Deferred
                income taxes (note 7)
            
            
            54,760
            
            
            427,601
            
            
            576,756**Total
                current assets**
            
            
            **39,167,573**
            
            
            **305,847,828**
            
            
            **144,104,238**Investments
                  in and advances toaffiliates
                  (note 2)
            
            
            404,853
            
            
            3,161,376
            
            
            4,274,875Office
                  equipment, furnitureand motor vehicles
            
            
            1,718,641
            
            
            13,420,353
            
            
            11,345,868Less:
                accumulated depreciation
            
            
            (891,169
            )
            
            (6,958,874
            )
            
            (5,548,823
            )Net
                  office equipment, furnitureand motor vehicles
            
            
            827,472
            
            
            6,461,479
            
            
            5,797,045Intangible
                assets, net (note 9)
            
            
            4,636,819
            
            
            36,207,527
            
            
            4,775,449Other
                non-current assets
            
            
            5,812
            
            
            45,383
            
            
            52,377Deferred
                income taxes (note 7)
            
            
            18,367
            
            
            143,426
            
            
            133,361Goodwill
                (note 20)
            
            
            4,773,343
            
            
            37,273,607
            
            
            -**Total
                assets**
            
            
            **49,834,239**
            
            
            **389,140,626**
            
            
            **159,137,345**





See
      accompanying notes to consolidated financial statements.




84




**YUCHENG
      TECHNOLOGIES LIMITED AND SUBSIDIARIES**


Consolidated
      Balance Sheets (continued)


December
      31, 2006 and 2005


(Expressed
      in Chinese Renminbi)





**2006**
            
            **2006**
            
            **2005****USD**
            
            **RMB**
            
            **RMB**(note
                2 (c))**Liabilities
                and owners’ equity**Current
                liabilitiesShort-term
                loan (note 11)
            
            
            4,097,993
            
            
            32,000,000
            
            
            12,000,000Current
                instalment of long-term loan (note 12)
            
            
            448,218
            
            
            3,500,000
            
            
            1,500,000Trade
                accounts payable (note 10)
            
            
            4,705,328
            
            
            36,742,492
            
            
            45,339,380Billings
                    in excess of costs and estimated earnings on uncompleted contracts
                    (note
                    4)
            
            
            125,277
            
            
            978,248
            
            
            7,253,880Employee
                and payroll accruals
            
            
            342,101
            
            
            2,671,365
            
            
            2,924,712Dividends
                payable to ex-owners
            
            
            4,866,367
            
            
            38,000,000
            
            
            5,720,291Income
                taxes payable
            
            
            543,076
            
            
            4,240,717
            
            
            3,332,128Due
                to related parties (note 22)
            
            
            116,274
            
            
            907,948
            
            
            5,407,949Other
                current liabilities (note 13)
            
            
            2,840,126
            
            
            22,177,691
            
            
            18,068,763**Total
                current liabilities**
            
            
            **18,084,760**
            
            
            **141,218,461**
            
            
            **101,547,103**Long-term
                loan (note 12)
            
            
            -
            
            
            -
            
            
            3,500,000Deferred
                income taxes (note 7)
            
            
            677,796
            
            
            5,292,707
            
            
            491,497**Total
                liabilities**
            
            
            **18,762,556**
            
            
            **146,511,168**
            
            
            **105,538,600****Minority
                interests (note 14)**
            
            
            **-**
            
            
            **-**
            
            
            **-****Commitments
              and contingencies (note 15)****Owners’
              equity**Preferred
                stock, $0.0001 par value, authorised 2,000,000 shares and none
                issued;Common
                stock, $0.0001 par value, authorised 60,000,000 shares; 9,528,320
                shares
                and none Issued and outstanding as of December 31, 2006 and both
                of
                December 31, 2005 and 2004 (note 1)
            
            
            2,561,403
            
            
            20,001,229
            
            
            20,000,000Additional
                paid-in capital
            
            
            22,596,713
            
            
            176,450,960
            
            
            13,000Reserves
                (note 16)
            
            
            2,431,281
            
            
            18,985,144
            
            
            11,575,964Retained
                earnings
            
            
            3,500,112
            
            
            27,331,325
            
            
            22,009,781Accumulated
                other comprehensive loss (note 19)
            
            
            (17,826
            )
            
            (139,200
            )
            
            -**Total
              owners’ equity**
            
            
            **31,071,683**
            
            
            **242,629,458**
            
            
            **53,598,745****Total
              liabilities and owners’ equity**
            
            
            **49,834,239**
            
            
            **389,140,626**
            
            
            **159,137,345**




*See
      accompanying notes to consolidated financial statements.*




85




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Consolidated
      Statements of Income


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





**2006**
            
            **2006**
            
            **2005**
            
            **2004****USD**
            
            **RMB**
            
            **RMB**
            
            **RMB**(note
                2 (c))Revenues:System
                integration
            
            
            24,359,348
            
            
            190,214,841
            
            
            116,219,840
            
            
            199,832,437Software
                development
            
            
            8,619,783
            
            
            67,309,300
            
            
            39,482,048
            
            
            17,489,302e-Channels
                solution
            
            
            1,687,476
            
            
            13,176,993
            
            
            -
            
            
            -IT
                consulting
            
            
            -
            
            
            -
            
            
            6,674,139
            
            
            18,751,483Maintenance
                and support
            
            
            1,870,249
            
            
            14,604,215
            
            
            12,464,029
            
            
            2,485,301Agency
                fees
            
            
            556,440
            
            
            4,345,076
            
            
            2,486,624
            
            
            6,324,038**Total
                revenues**
            
            
            **37,093,296**
            
            
            **289,650,425**
            
            
            **177,326,680**
            
            
            **244,882,561**Cost
                of revenues:System
                integration
            
            
            (22,017,235
            )
            
            (171,925,981
            )
            
            (107,327,345
            )
            
            (176,817,463
            )Software
                development
            
            
            (4,186,120
            )
            
            (32,688,159
            )
            
            (19,571,079
            )
            
            (7,494,725
            )e-Channels
                solutions
            
            
            (390,890
            )
            
            (3,052,348
            )
            
            -
            
            
            -IT
                consulting
            
            
            -
            
            
            -
            
            
            (3,762,060
            )
            
            (7,584,019
            )Maintenance
                and support
            
            
            (981,717
            )
            
            (7,665,935
            )
            
            (2,424,429
            )
            
            (364,742
            )**Total
                cost of revenues**
            
            
            (27,575,962
            )
            
            (215,332,423
            )
            
            (133,084,913
            )
            
            (192,260,949
            )**Gross
                profit**
            
            
            **9,517,334**
            
            
            **74,318,002**
            
            
            **44,241,767**
            
            
            **52,621,612**Operating
                expenses:Research
                and development
            
            
            (115,491
            )
            
            (901,833
            )
            
            (352,059
            )
            
            (694,653
            )Selling
                and marketing
            
            
            (1,791,558
            )
            
            (13,989,741
            )
            
            (11,180,831
            )
            
            (14,452,765
            )General
                and administrative
            
            
            (2,219,382
            )
            
            (17,330,492
            )
            
            (14,920,621
            )
            
            (14,731,663
            )Subsidies
                  and value-added tax refunds (note 18)
            
            
            404,723
            
            
            3,160,363
            
            
            1,008,272
            
            
            309,419**Total
                operating expenses**
            
            
            **(3,721,708**
            **)**
            
            **(29,061,703**
            **)**
            
            **(25,445,239**
            **)**
            
            **(29,569,662**
            **)**Other
                income (expenses):Interest
                income
            
            
            14,977
            
            
            116,954
            
            
            141,680
            
            
            156,850Interest
                expense
            
            
            (161,698
            )
            
            (1,262,652
            )
            
            (617,684
            )
            
            (224,483
            )Equity
                in loss of affiliates
            
            
            (17,287
            )
            
            (134,987
            )
            
            (758,609
            )
            
            (444,898
            )Other
                income (expense), net
            
            
            3,403
            
            
            26,576
            
            
            431,714
            
            
            111,624**Income
                  before minority interestsand income taxes**
            
            
            **5,635,021**
            
            
            **44,002,190**
            
            
            **17,993,629**
            
            
            **22,651,043**Minority
                interests (note 14)
            
            
            -
            
            
            -
            
            
            -
            
            
            (260,550
            )**Income
                before income taxes**
            
            
            **5,635,021**
            
            
            **44,002,190**
            
            
            **17,993,629**
            
            
            **22,390,493**Income
                tax expense (note 7)
            
            
            (418,951
            )
            
            (3,271,466
            )
            
            (3,463,029
            )
            
            (1,809,691
            )**Net
                income**
            
            
            **5,216,070**
            ****
            ****
            **40,730,724**
            ****
            ****
            **14,530,600**
            ****
            ****
            **20,580,802**Earnings
                  Per Share (note 8)- Basic
                  and Fully Diluted
            
            
            USD0.64
            
            
            RMB5.02
            
            
            RMB3.87
            
            
            RMB5.48Weighted
                  average common shares outstanding- Basic
                  and Fully Diluted
            
            
            USD0.51
            
            
            RMB3.96
            
            
            RMB3.87
            
            
            RMB5.48





See
      accompanying notes to consolidated financial statements.




86




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Consolidated
      Statements of Owners’ Equity


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





**Common
                shares**
            
            **Additional**
            
            
            
            
            
            **Accumulated
                other**
            
            **Total****Shares**
            ****
            **Amount
                RMB**
            ****
            **paid-incapitalRMB**
            ****
            **Reserves
                RMB**
            ****
            **Retainedearnings
                  RMB**
            ****
            **comprehensive
                loss RMB**
            ****
            **shareholders’
                equity RMB**
            ****
            **Comprehensive
                Income RMB****Balance
                as at January 1, 2004**
            ****
            ****
            **-**
            ****
            ****
            **20,000,000**
            ****
            ****
            **13,000**
            ****
            ****
            **3,695,304**
            ****
            ****
            **8,879,039**
            ****
            ****
            **-**
            ****
            ****
            **32,587,343**
            ****
            ****
            **-**Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            20,580,802
            
            
            -
            
            
            20,580,802
            
            
            20,580,802Transfer
                to reserves
            
            
            -
            
            
            -
            
            
            -
            
            
            4,595,066
            
            
            (4,595,066
            )
            
            -
            
            
            -
            
            
            -Dividend
                appropriation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,000,000
            )
            
            -
            
            
            (12,000,000
            )
            
            -**Balance
                as at December 31, 2004**
            ****
            ****
            **-**
            ****
            ****
            **20,000,000**
            ****
            ****
            **13,000**
            ****
            ****
            **8,290,370**
            ****
            ****
            **12,864,775**
            ****
            ****
            **-**
            ****
            ****
            **41,168,145**
            ****
            ****
            **20,580,802**Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            14,530,600
            
            
            -
            
            
            14,530,600
            
            
            14,530,600Transfer
                to reserves
            
            
            -
            
            
            -
            
            
            -
            
            
            3,285,594
            
            
            (3,285,594
            )
            
            -
            
            
            -
            
            
            -Dividend
                appropriation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,100,000
            )
            
            -
            
            
            (2,100,000
            )
            
            -**Balance
                as at December 31, 2005**
            ****
            ****
            **-**
            ****
            ****
            **20,000,000**
            ****
            ****
            **13,000**
            ****
            ****
            **11,575,964**
            ****
            ****
            **22,009,781**
            ****
            ****
            **-**
            ****
            ****
            **53,598,745**
            ****
            ****
            **14,530,600**Recapitalisation
                  in connection with the Share Exchange Transactions (note
                  1)
            
            
            7,954,484
            
            
            -
            
            
            126,221,524
            
            
            -
            
            
            -
            
            
            -
            
            
            126,221,524
            
            
            -Deemed
                distribution (note 1)
            
            
            -
            
            
            -
            
            
            (21,332,463
            )
            
            -
            
            
            -
            
            
            -
            
            
            (21,332,463
            )
            
            -Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            40,730,724
            
            
            -
            
            
            40,730,724
            
            
            40,730,724Issuance
                  on acquisition of a Subsidiary
            
            
            1,573,836
            
            
            1,229
            
            
            71,548,899
            
            
            -
            
            
            -
            
            
            -
            
            
            71,550,128
            
            
            -Transfer
                to reserves
            
            
            -
            
            
            -
            
            
            -
            
            
            7,409,180
            
            
            (7,409,180
            )
            
            -
            
            
            -
            
            
            -Dividend
                appropriation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (28,000,000
            )
            
            -
            
            
            (28,000,000
            )
            
            -Foreign
                  currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (139,200
            )
            
            (139,200
            )
            
            (139,200
            )**Balance
                as at December 31, 2006**
            ****
            ****
            **9,528,320**
            ****
            ****
            **20,001,229**
            ****
            ****
            **176,450,960**
            ****
            ****
            **18,985,144**
            ****
            ****
            **27,331,325**
            ****
            ****
            **(139,200**
            **)**
            ****
            **242,629,458**
            ****
            ****
            **40,591,524****In
                US $** (note 2 (c))
            
            
            
            
            
            **2,561,403**
            ****
            ****
            **22,596,713**
            ****
            ****
            **2,431,281**
            ****
            ****
            **3,500,112**
            ****
            ****
            **(17,826**
            **)**
            ****
            **31,071,683**
            ****
            ****
            **5,198,243**




*See
      accompanying notes to consolidated financial statements.*




87


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES** ******


Consolidated
      Statements of Cash Flows


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





**2006**
            
            **2006**
            
            **2005**
            
            **2004****USD**
            
            **RMB**
            
            **RMB**
            
            **RMB**(note
                2 (c))**Cash
                flows from operating activities:**Net
                income
            
            
            5,216,070
            
            
            40,730,724
            
            
            14,530,601
            
            
            20,580,802Adjustments
                to reconcile net income to net
                cash provided by operating activities:Depreciation
                and amortization
            
            
            466,708
            
            
            3,644,380
            
            
            3,347,961
            
            
            2,002,677Loss
                on disposal fixed assets
            
            
            7,218
            
            
            56,368
            
            
            -
            
            
            -Loss
                on disposal of subsidiary
            
            
            26,240
            
            
            204,902
            
            
            -
            
            
            -Loss
                on disposal of affiliate
            
            
            3,356
            
            
            26,208
            
            
            -
            
            
            -Minority
                interests
            
            
            -
            
            
            -
            
            
            -
            
            
            260,550Share
                of losses of affiliates
            
            
            17,287
            
            
            134,987
            
            
            758,609
            
            
            444,898Increase
                in trade accounts receivable
            
            
            (6,124,293
            )
            
            (47,822,765
            )
            
            (5,926,332
            )
            
            (30,302,827
            )Decrease(increase)
                  in costs and estimated earnings in excess of billings on uncompleted
                  contracts
            
            
            118,804
            
            
            927,703
            
            
            (5,901,616
            )
            
            1,645,769Decrease(increase)
                  in due from related parties
            
            
            283,324
            
            
            2,212,389
            
            
            (2,856,337
            )
            
            (231,282
            )Decrease(increase)
                in inventories
            
            
            739,328
            
            
            5,773,191
            
            
            (5,198,200
            )
            
            8,591,288(Increase)decrease
                in precontract costs
            
            
            (113,005
            )
            
            (882,423
            )
            
            1,208,879
            
            
            (1,351,123
            )Increase
                in other current assets
            
            
            (63,395
            )
            
            (495,033
            )
            
            (9,876,524
            )
            
            (3,015,038
            )Decrease(increase)
                  in currentdeferred tax assets
            
            
            19,101
            
            
            149,155
            
            
            53,742
            
            
            (518,690
            )Increase
                  in non-current deferredtax assets
            
            
            (1,289
            )
            
            (10,065
            )
            
            (30,195
            )
            
            (30,195
            )(Decrease)increase
                  in trade accounts payable
            
            
            (1,339,770
            )
            
            (10,461,863
            )
            
            23,182,526
            
            
            8,013,934Decrease
                  in billings in excess of costs and estimated earnings on uncompleted
                  contracts
            
            
            (803,832
            )
            
            (6,276,883
            )
            
            (439,356
            )
            
            (2,305,879
            )(Decrease)increase
                  in employee and payroll accruals
            
            
            (32,444
            )
            
            (253,347
            )
            
            (3,590,846
            )
            
            914,308Increase
                in income taxes payable
            
            
            13,803
            
            
            107,785
            
            
            1,874,169
            
            
            368,246Increase
                  (decrease) in other current liabilities
            
            
            (155,757
            )
            
            (1,216,259
            )
            
            3,449,075
            
            
            (7,556,009
            )(Decrease)increase
                  in non-current deferred tax liabilities
            
            
            (1,110
            )
            
            (8,664
            )
            
            219,748
            
            
            236,020**Net
                  cash provided by (used in) operating activities**
            ****
            ****
            **(1,723,656**
            **)**
            ****
            **(13,459,510**
            **)**
            ****
            **14,805,904**
            ****
            ****
            **(2,252,551**
            **)**




*See
      accompanying notes to consolidated financial statements.*




88




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Consolidated
      Statements of Cash Flows (continued)


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**2006**
            
            **2006**
            
            **2005**
            
            **2004****USD**
            
            **RMB**
            
            **RMB**
            
            **RMB**(note
                2 (c))**Cash
                flows from investing activities:**Capital
                expenditure
            
            
            (369,455
            )
            
            (2,884,970
            )
            
            (5,367,706
            )
            
            (3,942,748
            )Payments
                for lending to third party
            
            
            -
            
            
            -
            
            
            (1,250,000
            )
            
            -Payment
                of purchase of subsidiary
            
            
            (998,000
            )
            
            (7,793,085
            )
            
            -
            
            
            -Deposit
                  paid for acquisition of businesses
            
            
            (5,730,787
            )
            
            (44,750,000
            )
            
            (7,000,000
            )
            
            -Advances
                to affiliates
            
            
            (3,006
            )
            
            (23,464
            )
            
            (437,892
            )
            
            (730,595
            )Collection
                of advances to affiliates
            
            
            -
            
            
            -
            
            
            500,000
            
            
            32,450Proceeds
                from disposal of fixed assets
            
            
            640
            
            
            5,000
            
            
            -
            
            
            -Proceeds
                from disposal of affiliate
            
            
            164,203
            
            
            1,282,212
            
            
            -
            
            
            -Proceeds
                from disposal of subsidiary
            
            
            13,444
            
            
            104,977
            
            
            -
            
            
            -**Net
                cash used in investing activities**
            ****
            ****
            **(6,922,961**
            **)**
            ****
            **(54,059,330**
            **)**
            ****
            **(13,555,598**
            **)**
            ****
            **(4,640,893**
            **)****Cash
                flows from financing activities:**Net
                  cash flow from the Share Exchange Transaction, net of transaction
                  costs
            
            
            17,699,942
            
            
            138,213,541
            
            
            -
            
            
            -Deemed
                distribution
            
            
            (2,731,884
            )
            
            (21,332,463
            )
            
            -
            
            
            -Proceeds
                from bank borrowings
            
            
            2,561,246
            
            
            20,000,000
            
            
            25,000,000
            
            
            12,000,000(Repayment)proceeds
                  from borrowing from ex-owner
            
            
            (512,249
            )
            
            (4,000,000
            )
            
            4,000,000
            
            
            -Proceeds
                  from borrowing from affiliates
            
            
            -
            
            
            -
            
            
            -
            
            
            2,722,462Repayments
                  of borrowings from affiliates
            
            
            (64,031
            )
            
            (500,001
            )
            
            (950,000
            )
            
            (864,513
            )Repayments
                of bank borrowings
            
            
            (448,218
            )
            
            (3,500,000
            )
            
            (20,000,000
            )
            
            -Proceeds
                  from loan from a business to be acquired
            
            
            -
            
            
            -
            
            
            2,976,000
            
            
            -Dividends
                paid to ex-owners
            
            
            (732,554
            )
            
            (5,720,291
            )
            
            (8,379,710
            )
            
            -Dividends
                paid to minority interests
            
            
            -
            
            
            -
            
            
            (1,011,493
            )
            
            -**Net
                  cash provided by financing activities**
            ****
            ****
            **15,772,252**
            ****
            ****
            **123,160,786**
            ****
            ****
            **1,634,797**
            ****
            ****
            **13,857,949****Net
                increase in cash**
            ****
            ****
            **7,125,635**
            ****
            ****
            **55,641,946**
            ****
            ****
            **2,885,103**
            ****
            ****
            **6,964,505**Cash
                at beginning of year
            
            
            5,470,272
            
            
            42,715,712
            
            
            39,830,609
            
            
            32,866,104**Cash
                at end of year**
            ****
            ****
            **12,595,907**
            ****
            ****
            **98,357,658**
            ****
            ****
            **42,715,712**
            ****
            ****
            **39,830,609**Interest
                paid
            
            
            161,698
            
            
            1,262,652
            
            
            617,684
            
            
            113,682Income
                taxes paid
            
            
            358,115
            
            
            2,796,415
            
            
            1,337,313
            
            
            1,754,310





*See
      accompanying notes to consolidated financial statements.*




89


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**1**
            **Organization
                and description of
                business**




Yucheng
      Technologies Limited (“Yucheng”), incorporated on November 24, 2006 under the
      laws of the British Virgin Islands, and its subsidiaries are engaged in systems
      integration, software development, information technology (“IT”) consulting and
      training services, maintenance and support, technology development, sales of
      self-developed IT products, computer software, hardware and peripheral
      equipment, communication equipment and undertaking computer network projects.
      Its major customers are first tier state-owned commercial banks in China.





At
      December 31, 2006, 2005 and 2004, details of Yucheng’s subsidiaries
      (collectively with Yucheng referred to as the “Group”) are as
      follows:




Name
            
            Date
                of incorporation
                or
                  establishment
            
            Place
                of incorporation
                or
                  establishment
            
            Percentage
                of ownership
            
            Principal
                activity2006
            
            2005
            
            2004Port
                Wing Development Co., Ltd. (“e-Channels BVI”)
            
            November
                3, 2005
            
            British
                Virgin Islands (“BVI”)
            
            100%
            
            N/A
            
            N/A
            
            Investment
                holdingAhead
                Billion Venture Ltd(Sihitech BVI)
            
            November
                3, 2005
            
            BVI
            
            100%
            
            N/A
            
            N/A
            
            Investment
                holdingBeijing
                Yuxinyicheng Technologies Limited (“Yuxinyicheng”)
            
            October
                19, 2006
            
            People’s
                Republic of China (“PRC”)
            
            100%
            
            N/A
            
            N/A
            
            System
                integration, software development, information technology consulting,
                maintenance and support.Beijing
                e-Channels Century Technology Co., Ltd. (“e-Channels”)
            
            February
                5, 2001
            
            PRC
            
            100%
            
            N/A
            
            N/A
            
            Technology
                development, technology transfer, consulting and training services,
                sales
                of self-developed products, computer software, hardware and peripheral
                equipment, communication equipment and undertaking computer network
                projects.Beijing
                Sihitech Technology Co., Ltd (“Beijing Sihitech”)
            
            June
                16, 1999
            
            PRC
            
            100%
            
            100%
            
            100%
            
            System
                integration, software development, information technology consulting,
                maintenance and support.




90




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




Name
            
            Date
                of incorporation or establishment
            
            Place
                of incorporation or establishment
            
            Percentage
                of ownership
            
            Principal
                activity2006
            
            2005
            
            2004Beijing
                Sihitech Software Co., Ltd.
              (“Beijing
                Software”)
            
            January
                28, 2002
            
            PRC
            
            100%
            
            100%
            
            80%
            
            System
                integration, software development, information technology consulting,
                maintenance and support.Shanghai
                Sihitech Technology Co., Ltd.
              (“Shanghai
                Sihitech”)
            
            June
                20, 2001
            
            PRC
            
            100%
            
            100%
            
            80%
            
            System
                integration, software development, information technology consulting,
                maintenance and support.Shanghai
                Sihitech Software Co., Ltd.
              (“Shanghai
                Software”)
            
            May
                28, 2005
            
            PRC
            
            100%
            
            100%
            
            N/A
            
            System
                integration, software development, information technology consulting,
                maintenance and support.Beijing
                Sihitech Information Consulting Co., Ltd.
              (“Sihitech
                Consulting”)
            
            April
                12, 2001
            
            PRC
            
            -
            
            100%
            
            100%
            
            Information
                technology consulting.Guangzhou
                Sihitech Technology Co., Ltd.
              (“Guangzhou
                Sihitech”)
            
            January
                5, 2000
            
            PRC
            
            100%
            
            100%
            
            80%
            
            System
                integration, software development, information technology consulting,
                maintenance and support.





The
      IT
      industry is characterized by rapid technological change and competitive pricing
      pressures. The Group financial results are affected by a wide variety of
      factors, including general economic conditions in the local market, economic
      conditions specific to the IT industry, technological and creative skills of
      its
      personnel, the timely development of new products and the ability to safeguard
      patents and intellectual property in a rapidly evolving market. As a result,
      the
      Group may experience significant period-to-period fluctuations in future
      operating results due to the factors mentioned above or other
      factors.




91





**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





The
      majority of the revenues of the Group are from customers who are concentrated
      in
      the financial services industry in China. Any unfavourable economic conditions
      affecting the local financial services industry could have a material adverse
      effect on the Group’s future financial position and results of
      operations.





The
      trade
      accounts receivable of the Group includes amounts due from banks and IT service
      companies. The Group performs ongoing credit evaluations of its customers (see
      Note 2 (e)). Sales to the Group's largest bank customer and its subsidiaries
      were approximately 54.0%, 61.2%, and 67.8% of revenues in 2006, 2005 and 2004,
      respectively. The Group’s total revenue from its largest bank customer in 2006
      results from 140 separate and independent contracts, the largest of which
      accounts for 30.0% of revenue from the bank’s head office, as well as 12.6% and
      5.2% of revenue from the Agricultural Bank of China Head Office and the CITIC
      Bank. Accounts receivable as at December 31, 2006 and 2005 included receivables
      from the largest bank customer and its subsidiaries totalling RMB 53.6 million
      and RMB 51.1 million, respectively.





**The
      Share Exchange Transactions**





On
      December 20, 2005, China Unistone Acquisition Corporation (“CUAC”) entered into
      a Stock Purchase Agreement with Sihitech BVI and e-Channels BVI and all
      stockholders of Sihitech BVI and e-Channels BVI for CUAC’s acquisition of
      Sihitech BVI and e-Channels BVI. For the acquisition, CUAC formed its wholly
      owned subsidiary, Yucheng. On November 24, 2006, the closing date of the
      acquisition (the “Closing Date”), CUAC merged with and into Yucheng for the
      purpose of redomestication out of the United States of America. The
      redomestication merger was achieved by a one-for-one exchange of all the
      outstanding common stock of CUAC for common stock of Yucheng and the assumption
      of all the rights and obligations of CUAC by Yucheng, including assumption
      of
      the outstanding warrants of CUAC. Immediately after the redomestication merger,
      Yucheng acquired all the common stock of Sihitech BVI and e-Channels BVI by
      the
      issuance of shares and payments of cash consideration to the shareholders of
      Sihitech BVI (“Sihitech BVI Shareholders) and of e-Channels BVI (“e-Channels BVI
      Shareholders”) or their designee, making them wholly owned subsidiaries (the
“Share Exchange Transactions”).





Sihitech
      BVI Shareholders and their designee were paid an aggregate of US2,731,884 in
      cash, using the funds held in the trust account of CUAC, and were issued an
      aggregate of 3,754,484 ordinary shares of Yucheng for all the outstanding common
      stock of Sihitech BVI. This transaction was accounted for as a recapitalisation
      of Sihitech BVI. Since Yucheng is not an operating company, this transaction
      is
      treated as the issuance of shares of Sihitech BVI for the net tangible assets
      (consisting principally of cash and short-term investments) of Yucheng. The
      carrying value of the assets of Yucheng approximates their fair value,
      therefore, no "purchase accounting" fair value adjustments were required and
      no
      goodwill has been recorded in this portion of this transaction. The payment
      of
      the cash consideration is accounted for as a deemed distribution.





e-Channels
      BVI Shareholders and their designee were paid an aggregate of US1,268,116 in
      cash, using the funds held in the trust account of CUAC, and were issued an
      aggregate of 1,573,836 shares of common stock of Yucheng for all the outstanding
      common stock of e-Channels BVI. This Transaction, between the recapitalized
      Sihitech BVI and e-Channels BVI, was accounting for using the purchase method
      of
      accounting with Sihitech BVI treated as the accounting acquiror.




92





**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





As
      a
      result of the Share Exchange Transactions the historical financial statements
      of
      Yucheng for the periods prior to the Closing Date are those of Sihitech and
      its
      subsidiaries and all references to the consolidated financial statements of
      Yucheng apply to the historical consolidated financial statements of Sihitech
      and its subsidiaries prior to the Closing Date and the consolidated financial
      statements of Yucheng and its subsidiaries subsequent to the Closing Date.
      Yucheng’s equity components are stated in terms of Sihitech before the Closing
      Date, with an adjustment to reflect the effect of the recapitalisation on the
      equity components at the Closing Date.





The
      aggregate consideration paid at the Closing Date were $4,000,000 and 5,328,320
      common shares of Yucheng. Of the $4,000,000, as security for the indemnification
      obligations of Sihitech BVI Shareholders and e-Channels BVI Shareholders,
      $250,000 was held back by Yucheng for 12 months after the Closing Date and
      paid
      subject to continued retention if there is a pending claim. The holdback amount
      is not a limitation on the indemnification amounts, which are generally limited
      to the full consideration paid.





Of
      the
      total number of shares issued at the Closing Date, an aggregate of 773,045
      shares of common stock issued to Sihitech BVI Shareholders are subject to return
      and cancellation if the net profit as shown in the audited consolidated
      financial statements of Yucheng prepared in accordance with the generally
      accepted accounting principles in the United States of America (“US GAAP”) for
      the year ended December 31, 2006 plus all compliance expenses of being public
      is
      less than US $6,073,941. Pursuant to the supplemental agreement dated May
      9, 2007, this clause has been amended scuh that the 773,045 shares are subject
      for return and cancellation if the proforma table in the notes to the audited
      consolidated financial statements of Sihitech and its subsidiaries and
      e-Channels under US GAAP for the year ended December 31, 2006 is lower than
      US $6,073,941. As of December 31, 2006, Yucheng does not consider the above
      contingency to be probable and accordingly, no adjustment for the purchase
      price
      in respect to the 773,045 shares of common stock was recorded in the
      consolidated financial statements of Yucheng for the year ended December 31,
      2006.





Additional
      purchase price payment will be made to Sihitech BVI Shareholders, e-Channels
      BVI
      Shareholders and their designee up to an amount of US $10,000,000 if either
      of the following occurs during any fiscal years of Yucheng after the Closing
      Date until December 31, 2009 from funds generated in the additional financing
      or
      from appreciate of the stock price of Yucheng as described below:





(1)
            Yucheng
                will pay an additional US $5,000,000 to Sihitech BVI Shareholders,
                e-Channels BVI Shareholders and their designee if Yucheng receives
                at
                least US $34,500,000 in gross proceeds in additional financing,
                including from the exercise of outstanding public warrants, the successful
                completion of a secondary offering, or a private investment by a
                strategic
                investor; or





(2)
            Yucheng
                will pay an additional US $1,000,000 if the average closing price of
                the stock of Yucheng in any sixty consecutive trading days of 2006
                is
                above US $10.00; US $2,000,000 if the average closing price of
                the stock of Yucheng in any sixty consecutive trading days of 2007
                is
                above US $12.00; and US $3,000,000 if the average closing price
                of the stock of Yucheng in any sixty consecutive trading days of
                2008 is
                above US $14.40.





Notwithstanding
      the foregoing, the maximum paid under the above events shall not be more than
      US $10,000,000.





As
      of
      December 31, 2006, Yucheng does not consider the outcome of the above
      contingencies to be probable and accordingly, no adjustment for the contingent
      purchase price payments was recorded in the financial statements.





93


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





Additional
      common shares, on an all-or-none basis, may be issued to the management team
      of
      Yucheng, the composition of which shall be decided by the Board of Directors
      of
      Yucheng but shall include the Chairman of the Board, the Chief Executive Officer
      and the Chief Operation Officer of Yucheng, aggregating 952,832 common shares
      each year for four years beginning in 2008, if the Group achieves net profits
      for the prior year indicated in the following amounts according to the financial
      statements audited each year in accordance with accounting principles generally
      accepted in the United States of America (“US GAAP”). If the net profits of the
      Group are not achieved, the obligation of Yucheng to issue the common shares
      for
      that year is terminated, with no effect on subsequent years.





Year
                endingDecember
                31,
            
            Net
                Profit2007
            
            US $
            8.5
                million2008
            
            US $
            11.9
                million2009
            
            US $
            16.7
                million2010
            
            US $
            23.3
                million




**2**
              **Summary
                  of significant accounting policies and
                  practices**




The
      consolidated financial statements have been prepared in accordance with US
      GAAP.




**(a)**
            **Principles
                of consolidation**




The
      consolidated financial statements include the financial statements of Yucheng
      and its subsidiaries. All significant inter-company transactions and balances
      are eliminated upon consolidation. Investments in operating companies in which
      Yucheng has the ability to exercise significant influence, which is normally
      indicated by a 20% to 50% interest, are accounted for under the equity method.
      Yucheng’s share of these companies’ earnings or losses is included in the
      consolidated statement of operations as equity in earnings of associated
      company.




**(b)**
            **Use
                of estimates**




The
      preparation of the consolidated financial statements requires management of
      the
      Group to make a number of estimates and assumptions relating to the reported
      amounts of assets and liabilities and the disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the period. Significant items subject to such
      estimates and assumptions include the carrying amounts of office equipment,
      furniture and motor vehicles, intangible assets, valuation allowances for
      receivables and inventories, percentage of completion calculations relating
      to
      revenue recognition, precontract costs, capitalized software costs and valuation
      of deferred tax assets. Actual results could differ from those estimates.




**(c)**
            **Convenience
                translation into United States
                dollars**




The
      consolidated financial statements are presented in Chinese Renminbi (“RMB”). The
      translation of RMB amounts into United States dollars has been made for the
      convenience of the reader and has been made at the exchange rate quoted by
      the
      People’s Bank of China on December 31, 2006 of RMB7.8087 to US $1.00. Such
      translation amounts should not be construed as representations that the RMB
      amounts could be readily converted into United States dollars at that rate
      or
      any other rate.





94




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(d)**
            **Cash
                and cash equivalents**





Cash
      and
      cash equivalents consist of cash on hand and highly liquid investments which
      are
      unrestricted as to withdrawal or use, and which have maturities of three months
      or less when purchased.




**(e)**
            **Trade
                accounts receivable**




Trade
      accounts receivable are recorded at the invoiced amount and do not bear
      interest. The allowance for bad debt losses is estimated by management based
      on
      individual accounts receivable which show signs of uncollectibility and an
      ageing analysis. Account balances are charged off against the allowance after
      all means of collection have been exhausted and the potential for recovery
      is
      considered remote. The Group does not have any off-balance-sheet credit exposure
      related to its customers.




**(f)**
            **Inventories**




Inventories
      are stated at the lower of cost or market. Cost is determined using the
      first-in, first-out method (FIFO). Inventories consist of IT hardware equipment,
      all of which are finished goods.




**(g)**
            **Office
                equipment, furniture and motor
                vehicles**




Office
      equipment, furniture and motor vehicles are stated at cost less accumulated
      depreciation and impairment losses (refer to accounting policy (i)).
      Depreciation is calculated on the straight-line method over the estimated useful
      lives of the assets as follows:





Estimated
                useful lifeOffice
                equipment
            
            5
                yearsFurniture
            
            5
                yearsMotor
                vehicles
            
            5
                yearsLeasehold
                improvements
            
            Shorter
                of lease terms or 5 years




**(h)**
            **Intangible
                assets**




(i)
      Cost
      of intangible assets





Intangible
      assets consist primarily of capitalized costs for computer software, customer
      relationships and other technology. Intangible assets are stated at cost or
      fair
      value less accumulated amortization and any impairment write-downs. Fair value
      of identifiable intangible assets is estimated based upon discounted future
      cash
      flow projections.





The
      Group
      capitalizes development costs for marketable software incurred from the time
      of
      technological feasibility until the software is ready for use in accordance
      with
      SFAS No. 86, *Accounting
      for the Costs of Computer Software to Be Sold, Leased or Otherwise
      Marketed* .
      All
      costs to establish technological feasibility of a computer product to be sold,
      leased or otherwise marketed are charged to research and development expense
      as
      incurred. Technological feasibility is established through completeness of
      the
      working model and its consistency with the product design. Costs incurred for
      modification, components of large products, and enhancements are expensed.
      As
      the working model is normally built during the process of project implementation
      for clients, there are no high-risk development issues.





95




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




Under
      the
      provisions of SOP 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ,
      the
      Group capitalizes costs associated with software developed or obtained for
      internal use when both the preliminary project stage is completed and management
      has authorized further funding for the project which it deems probable of
      completion and use for the function intended. Technological feasibility is
      established upon completeness of the product design and planning phases
      indicating that product can be built by existing technology and tools.
      Capitalized internal-use software costs include only (1) external direct costs
      of materials and services consumed in developing or obtaining the software,
      (2)
      payroll and payroll-related costs for employees who are directly associated
      with
      and who devote time to the project, and (3) interest costs incurred, when
      material, while developing the software. Capitalization of these costs ceases
      no
      later than the point at which the project is substantially complete and ready
      for its intended purpose.





Research
      and development costs and other computer software maintenance costs related
      to
      software development are expensed as incurred.





The
      consolidated financial statements include intangibles obtained through
      acquisition of a subsidiary at RMB32,178,383 as of December 31, 2006, whose
      values have been estimated by the management in the absence of ready
      ascertainable market values. However, because of the inherent uncertainty of
      the
      valuation, it is reasonably possible that those estimated values may differ
      significantly from the values that would have been used had a ready market
      for
      these intangible assets existed, and the differences could be material to the
      consolidated financial statements.





(ii)  Amortization





The
      Group
      amortizes capitalized software development costs for marketable software on
      a
      product-by-product basis. The annual amortization is the greater of the amount
      computed using (a) the ratio that current gross revenues for a product bear
      to
      the total of current and anticipated revenues for that product or (b) the
      straight-line method over the remaining estimated economic life of the product
      including the period being reported upon.





Purchased
      computer software and capitalized computer software costs for internal use
      are
      amortized on a straight-line basis over their estimated useful lives, and are
      monitored on a regular basis to assess that the amortization method is still
      appropriate and the remaining estimated life of the asset is reasonable.





Customer
      relationships and other technology are amortized on a straight-line basis over
      their estimated economic useful lives.





The
      estimated useful lives are as follows:





Estimated
                useful lifeSoftware
                development costs·Internal-usesoftware
            
            3
                years·Marketablesoftware
            
            3
                yearsCustomer
                relationships
            
            3
                yearsOther
                technology
            
            3-5
                yearsPurchased
                software
            
            5-10
                years





The
      straight-line method of amortization reflects an appropriate allocation of
      the
      cost of the intangible assets to earnings in proportion to the amount of
      economic benefits obtained by the Group in each reporting period.





96


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(i)**
            **Impairment
                of long-lived assets**




The
      Group
      evaluates for impairment its long-lived assets to be held and used, including
      office equipment and motor vehicles, intangible assets and other non-current
      assets, when events or changes in circumstances indicate, in management’s
      judgment, that the carrying value of such assets may not be recoverable in
      accordance with FASB Statement No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      Recoverability of assets to be held and used is measured by a comparison of
      the
      carrying amount of an asset to estimate undiscounted future cash flows expected
      to be generated by the asset. If the carrying value of an asset exceeds its
      estimated future cash flows, an impairment charge is recognized by the amount
      that the carrying value exceeds the estimated fair value.





Assets
      to
      be disposed of would be separately presented in the balance sheet and reported
      at the lower of carrying amount or estimated fair value less the cost to sell,
      and are no longer depreciated.





Judgments
      and assumptions are inherent in management’s estimate of undiscounted future
      cash flows used to determine recoverability of an asset and the estimate of
      an
      asset’s fair value used to calculate the amount of impairment to recognize. The
      use of alternate judgments and/or assumptions could result in the recognition
      of
      different levels of impairment charges in the consolidated financial
      statements.




**(j)**
            **Goodwill**




Goodwill
      represents the excess of the purchase price and related costs over the valued
      assigned to net tangible and identifiable intangible assets of business acquired
      and accounted for under the purchase method.





The
      Group
      accounted for the acquisition of e-Channels BVI as described in Note 1 in
      accordance with SFAS No. 141 Business Combinations, which resulted in the
      recognition of goodwill. Goodwill represents the excess of acquisition cost
      over
      the estimated fair value of the net assets acquired as of November 24, 2006.
      The
      portion of the purchase price allocated to goodwill was
      RMB37,273,607.





In
      accordance with SFAS No. 142 *Goodwill
      and Other Tangible Assets* ,
      the
      impairment evaluation of goodwill is conducted annually, or more frequently,
      if
      events or changes in circumstances indicate that an asset might be impaired.
      The
      evaluation is performed by using a two-step process. In the first step, the
      fair
      value of each reporting unit is compared with the carrying amount of the
      reporting unit, including goodwill. The estimated fair of the reporting unit
      is
      generally determined on the basis of discounted future cash flows. If the
      estimated fair value of the reporting unit is less than the carrying amount
      of
      the reporting unit, then a second step must be completed in order to determine
      the amount of the goodwill impairment that should be recorded. In the step,
      the
      implied fair value of the reporting unit’s goodwill is determined by allocating
      the reporting unit’s fair value to all of its assets and liabilities other than
      goodwill (including any unrecognized intangible assets) in a manner similar
      to a
      purchase price allocation. The resulting implied fair value of the goodwill
      that
      results from the application of the second step is then compared to the carrying
      amount of the goodwill and an impairment charge is recorded for the difference.





The
      assumptions used in the estimate of fair value are generally consistent with
      the
      past performance of each reporting unit and are consistent with the projections
      and assumptions that are used in current operating plans. Such assumptions
      are
      subject to change as a result of changing economic and competitive
      conditions.


**(k)**
              **Trade
                  accounts payable and other
                  payables**
  Trade
        accounts payable and other payables are stated at cost, which approximates
        their
        fair value.
  97




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(l)**
            **Revenue
                recognition**





The
      Group
      generates revenues primarily from system integration, software development,
      IT
      consulting, maintenance and support and agency services. Revenue is recognized
      as follows:





*i)*
            *System
                integration services*-
                System integration services mainly consist of value added services
                of
                planning, designing, installing, integrating and testing of hardware
                sold
                to customers. Revenue from system integration services is recognized
                in
                accordance with SAB Topic 13,*Revenue
                Recognition*,
                when the following conditions are all met: persuasive evidence of
                an
                arrangement exists, system integration services have been rendered
                and
                products have been delivered and accepted, the price is fixed or
                determinable and, collectibility is reasonably assured. Customers’
                sign-off on a Testing and Acceptance Form evidences their acceptance
                of
                the system integration work being completed at which time revenue
                is
                recognized. The contract revenue and related costs are deferred if
                the
                Testing and Acceptance Form is not duly signed by both parties. The
                Group
                does not recognize system integration services revenue on a percentage
                of
                completion basis. The Group’s system integration services revenue
                recognition policy does not differ between its integration services
                involving servers, network equipment or
                storage.





ii)
            *Software
                development services*-
                Software development services mainly consist of significant production,
                modification, or customization of software according to customers’
                request. In accordance with SOP 97-2,*Software
                Revenue Recognition*,
                the entire arrangement is accounted for in conformity with SOP 81-1,*Accounting
                for Performance of Construction-Type and Certain Production-Type
                Contracts*,
                using contract accounting on the percentage of completion method
                based on
                the relationship of actual costs incurred to total costs estimated
                to be
                incurred over the duration of the contract. Normally, the receipt
                of the
                signed customer contract does not occur at the inception of the
                arrangement, but rather during the time in which the Group is providing
                its software development services. Consequently, costs incurred on
                the
                arrangement prior to the receipt of the signed customer contract
                are
                capitalized on the balance sheet as precontract costs to the extent
                permitted by SOP 81-1, as modified by SOP 98-5, “*Reporting
                on the Costs of Start-Up Activities*”.
                Allowances for estimated losses on uncompleted contracts are made
                in the
                period in which such losses are first determined in the amount of
                the
                estimated loss on the entire
                contract.





Costs
      and
      estimated earnings in excess of billings on uncompleted contracts consist of
      recognized recoverable costs and accrued profits on contracts for which billings
      had not been presented to customers as of the balance sheet date. Billings
      in
      excess of revenue recognized for which payments have been received are deferred
      until the applicable revenue recognition criteria have been met.




iii)
            *Revenue
                from e-Channels solutions services*-
                In accordance with SOP 97-2,*Software
                Revenue Recognition,*the entire arrangement is accounted for in conformity with SOP 81-1,*Accounting
                for Performance of Construction-Type and Certain Production-Type
                Contracts*,
                using contract accounting on the percentage of completion method
                based on
                the relationship of actual costs incurred to total costs estimated
                to be
                incurred over the duration of the contract. The Group commences revenue
                recognition when all of the following conditions have been met: pervasive
                evidence of an arrangement exists, services have been rendered or
                products
                have been delivered, the price is fixed or determinable, collectibility
                is
                reasonably assured, and sufficient information has been obtained
                to
                reasonably estimate the outcome of the projects. Normally, the receipt
                of
                the signed customer contract does not occur at the inception of the
                arrangement, but rather during the time in which the Group is providing
                its software development services.




98


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




Consequently,
      costs incurred on the arrangement prior to the receipt of the signed customer
      contract are capitalized on the balance sheet as precontract costs to the extent
      permitted by SOP 81-1, as modified by SOP 98-5, “ *Reporting
      on the Costs of Start-Up Activities* ”.
      Allowances for estimated losses on uncompleted contracts are made in the period
      in which such losses are first determined in the amount of the estimated loss
      on
      the entire contract.





iv)
            *IT
                consulting services*-
                In terms of the nature of deliverables, contract terms, and the rights
                and
                obligations of the company and the customer, there are no differences
                between IT consulting services and software development services.
                IT
                consulting services are those software development projects with
                a
                pre-designed and pre-determined architecture and blue-print provided
                by
                the banking clients, in which the Group’s consultants conduct coding,
                testing, and implementing work. Revenue from IT consulting services
                are
                also recognized based on SOP 97-2, using contract accounting on the
                percentage of completion method based on the relationship of actual
                costs
                incurred to total costs estimated to be incurred over the duration
                of the
                contract. The Group commences revenue recognition when all the following
                conditions are met:persuasive
                evidence of an arrangement exists, services have been rendered or
                products
                have been delivered, the price is fixed or determinable, collectibility
                is
                reasonably assuredand the Group has sufficient information to reasonably estimate the
                outcome of the projects. Normally, the receipt of the signed customer
                contract does not occur at the inception of the arrangement, but
                rather
                during the time in which the Group is providing its IT consulting
                services. Consequently, costs incurred on the arrangement prior to
                the
                receipt of the signed customer contract are capitalized on the balance
                sheet as precontract costs to the extent permitted by SOP 81-1, as
                modified by SOP 98-5. Allowances for estimated losses on uncompleted
                contracts are made in the period in which such losses are first determined
                in the amount of the estimated loss on the entire
                contract.





v)
            *Maintenance
                and support services -*Fees
                for these services, which are normally one year contracts, are recognised
                under the straight-line method over the life of the contract, provided
                that all other revenue recognition criteria have been
                met.





vi)
            *Agency
                services -*Other
                than system integration services the Group provides to its banking
                clients, the Group also sells IT equipment to banks through other
                system
                integrators because of its capability of obtaining better pricing
                with
                original IT manufacturers. Under this kind of commercial arrangement,
                the
                customers are these system integrators as stipulated in the contracts.
                As
                its services to the end users are limited to passing the IT equipment
                to
                other system integrators, the Group treats this kind of sales as
                agency
                sales and records the net difference between the amount it bills
                to system
                integrators and the fees charged by third party IT manufacturers
                as
                revenue. The Group considered the criteria set out in EITF 99-19
                in
                determining whether it should recognise such revenues at gross or
                net of
                revenue. The Group believes that based on its arrangement with the
                system
                integrators, end users (banks) and the third party IT manufacturers,
                the
                net approach is appropriate as the Group is not the primary obligor
                to the
                end users, does not take general inventory risk, does not have latitude
                in
                establishing price and does not have discretion in supplier selection
                with
                respect to the IT equipment or software delivered to end users.





The
      Group
      generally does not grant right-of-return to its customers.




99




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(m)**
            **Precontract
                costs**




Due
      to
      the business environment in which the Group operates, it is common practice
      that
      the Group commences the software development or IT consulting project for its
      banking clients without commercial contracts being signed. If the contracts
      are
      not obtained during the reporting period where implementation costs have been
      incurred, the Group defers revenue recognition for the related contracts until
      contracts are obtained. In accordance with SOP 81-1, as modified by SOP 98-5,
      costs that are incurred for a specific anticipated contract and that will result
      in no future benefits unless the contract is obtained, including cost of
      equipment, direct labour costs, and other ancillary costs, are deferred until
      receipt of the signed contract, and are then included in contract costs or
      inventory. Such deferred costs, subject to their not being related to costs
      of
      start-up activities, are evaluated periodically for probability of
      recoverability. If
      deemed unrecoverable, deferred costs are expensed to operating
      expenses.





Costs
      of
      start-up activities, including organization costs, are expensed as
      incurred.





Costs
      incurred for assets, such as costs for the purchase of materials, production
      equipment, or supplies that are expected to be used in connection with
      anticipated contracts are deferred outside the contract cost or inventory
      classification if their recovery from future contract revenue or from other
      dispositions of the assets is considered probable.





**(n)**
            **Research
                and development costs**





Research
      and development costs include payroll, employee benefits, and other
      headcount-related costs associated with product development. The Group records
      expenditure incurred before technological feasibility is established into
      research and development cost and capitalizes expenditures incurred after that
      point into the cost of intangible assets. Research and development costs were
      RMB 2,205,598, RMB 2,460,630 and RMB 2,268,120 in 2006, 2005 and 2004,
      respectively, among which RMB 1,366,547 , RMB
      2,108,571 and RMB 1,573,467 were capitalized in 2006, 2005 and
      2004.




**(o)**
            **Retirement
                benefits**




Pursuant
      to the relevant laws and regulations in the PRC, the Group participates in
      a
      defined contribution retirement plan for its employees arranged by a
      governmental organization. The Group makes contributions to the retirement
      scheme at the applicable rate based on the employees’ salaries. The required
      contributions under the retirement plans are charged to the consolidated income
      statement on an accrual basis when they are due. The Group’s contributions
      totaled RMB 2,487,449, RMB 2,045,686 and RMB 1,492,076 in 2006, 2005 and 2004,
      respectively.





**(p)**
            **Interest**





Interest
      costs are expensed as incurred, except for those capitalized that are directly
      attributable to the acquisition, construction or production of qualifying
      assets. No interest costs were capitalized for each of the years in the
      three-year period ended December 31, 2006.




100




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(q)**
            **Income
                taxes**




Income
      taxes are accounted for under the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases and operating
      losses and tax credit carry forwards. Deferred tax assets and liabilities are
      measured using enacted tax rates expected to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment
      date.




**(r)**
            **Government
                subsidies**




Government
      subsidies are recognized when received and when all the conditions for their
      receipt have been met. Such amounts are included as a credit in the operating
      expense section of the consolidated statement of income.




**(s)**
            **Tax
                refunds**




Pursuant
      to the laws and regulations of the PRC, the Group is entitled to a refund of
      the
      14.0% value-added tax (“VAT”) for certain self-developed software products. The
      Group recognizes the VAT refunds at the same time as the revenues from sales
      of
      the related enterprise software products. VAT refunds are included as a credit
      in the operating expense section of the consolidated statement of income.




**(t)**
            **Operating
                leases**




Where
      the
      Group has the use of assets under operating leases, payments made under the
      leases are recognised in the consolidated statement of income on a straight-line
      basis over the terms of the leases. Lease incentives received are recognised
      in
      the consolidated statement of income as an integral part of the total lease
      payments made.




**(u)**
            **Financial
                instruments**




Exposure
      to credit and interest rates arises in the normal course of the Group’s
      business. Financial assets of the Group include cash and trade accounts
      receivable, other receivables and amounts due from related parties. Financial
      liabilities of the Group include trade accounts payable and other payables,
      short-term loans, employee and payroll accruals and amounts due to related
      parties. Adjustments are made for financial assets if their carrying amount
      exceeds the value realizable in the foreseeable future. Financial liabilities
      are stated at their carrying amounts.





Financial
      instruments that potentially subject the Group to concentrations of credit
      risk
      consist principally of cash and trade accounts receivable. The Group’s cash is
      maintained with high quality financial institutions and the composition and
      maturities are regularly monitored by management. Generally, any cash
      equivalents may be redeemed upon demand and bear minimal risk.





The
      fair
      values of the above noted financial assets and financial liabilities are not
      materially different from their carrying amounts.




101


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





The
      trade
      accounts receivable of the Group includes amounts due from banks and IT service
      companies. The Group generally does not require collateral. An allowance for
      doubtful accounts is determined with respect to those amounts that the Group
      has
      determined to be doubtful of collection. The Group performs ongoing credit
      evaluations of its customers (refer to accounting policy (e)).





The
      Group
      has no off-balance sheet concentration of credit risk such as foreign exchange
      contracts, option contracts or other foreign hedging arrangements.




**(v)**
            **Investments
                in and advances to affiliated
                companies**




The
      equity method of accounting is used for investments in affiliated companies
      for
      which the Group has the ability to exercise significant influence, but does
      not
      have a controlling financial interest. Investments in affiliated companies
      accounted for under the equity method consist of a 50% equity interest in
      Beijing Hengli Plastic Machinery Co., Ltd. (“Hengli”), a plastic mould
      manufacturing company, a 50% equity interest in Shanghai Sihitech Sanjian
      Technology Co., Ltd. (“Sanjian”), a software and hardware technology company,
      and a 35% equity interest in Beijing Sihitech Shuyi Technology Co., Ltd.
      (“Shuyi”), a software and hardware technology company. Prior to April 2003,
      Beijing Sihitech also accounted for its 50% equity interest in Guangzhou
      Sihitech under the equity method.





As
      at
      December 31, 2005 and 2004, there was no amount of excess of cost over the
      Group’s share of net assets of affiliated companies.





None
      of
      the affiliated companies provided products or services to the Group in 2006,
      2005 and 2004.





On
      December 12, 2005, all of the owners of Shuyi have agreed to transfer their
      ownership interests in Shuyi to other individuals.





The
      carrying amounts of the investments in and advances to affiliates at December
      31, 2006 and 2005 are as follows:


**Affiliates**
  **2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Hengli
              
              
              279,915
              
              
              2,185,770
              
              
              2,241,771Sanjian
              
              
              124,938
              
              
              975,606
              
              
              1,031,127Shuyi
              
              
              -
              
              
              -
              
              
              1,001,977Total
              
              
              404,853
              
              
              3,161,376
              
              
              4,274,875
 102


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





Summary
      combined financial information for the affiliates as of and for the years ended
      December 31, 2006, 2005 and 2004 is as follows:


**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB****Financial
                  position**Current
                  assets
              
              
              446,401
              
              
              3,485,813
              
              
              5,170,012
              
              
              5,758,031Property,
                  plantand
                  equipment, net
              
              
              395,939
              
              
              3,091,770
              
              
              3,819,195
              
              
              4,502,185Other
                  non-current assets
              
              
              1,297
              
              
              10,130
              
              
              88,880
              
              
              25,330**Total
                  assets**
              
              
              **843,637**
              
              
              **6,587,713**
              
              
              **9,078,087**
              
              
              **10,285,546**Current
                  liabilities
              
              
              110,787
              
              
              865,105
              
              
              1,037,995
              
              
              1,196,300**Total
                  liabilities**
              
              
              **110,787**
              
              
              **865,105**
              
              
              **1,037,995**
              
              
              **1,196,300**Owners’
                  equity
              
              
              732,850
              
              
              5,722,608
              
              
              8,040,092
              
              
              9,089,246**Total
                  liabilities and equity**
              
              
              **843,637**
              
              
              **6,587,713**
              
              
              **9,078,087**
              
              
              **10,285,546****Results
                  of operations**Sales
              
              
              -
              
              
              -
              
              
              1,079,698
              
              
              165,226Operating
                  loss
              
              
              (34,573
              )
              
              (269,973
              )
              
              (1,089,799
              )
              
              (1,006,627
              )Net
                  loss
              
              
              (34,573
              )
              
              (269,973
              )
              
              (1,120,304
              )
              
              (983,050
              )




**(w)**
            **Share-based
                compensation**




Yucheng
      has adopted Statement of financial Accounting Standard (“SFAS”) No. 123 (revised
      2004) (“SFAS No. 123(R)”), “ *Share-Based
      Payments* ”,
      which
      requires that share-based payment transactions with employees, such as share
      options, be measured based on the grant-date fair value of the equity instrument
      issued and recognized as compensation expense over the requisite service period,
      with a corresponding addition to equity. Under this method, compensation cost
      related to employee share options or similar equity instruments is measured
      at
      the grant date based on the fair value of the award and is recognized over
      the
      period during which an employee is required to provide service in exchange
      for
      the award, which generally is the vesting period.




**(x)**
            **Segment
                Information**




The
      Group
      believes that it operates in one business segment.  Management does
      view the business as consisting of six revenues streams (System integration,
      software development, e-Channels solution, IT consulting, maintenance and
      support and agency fees ); however it is not possible to attribute assets or
      indirect costs to the individual streams other than certain direct
      expenses.




103




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**(y)**
            **Net
                earnings per common share**




The
      Group
      computes net earnings per common share in accordance with SFAS No. 128 *Earnings
      per Share* .
      Under
      the provisions of SFAS No. 128, basic earnings per common share is computed
      by
      dividing the net earnings available to common shareholders for the period by
      the
      weighted average number of shares of common stock outstanding during the period.
      The calculation of diluted net earnings per share gives effect to common stock
      equivalents, however; potential common stock in the diluted net earning per
      common share computation is excluded in net loss periods if their effect is
      anti-dilutive.




**(z)**
            **Recently
                Issued Accounting
                Standards**




In
      March
      2006, EITF 06-03 *How
      Taxes Collected from Customers and Remitted to Governmental Authorities Should
      be Presented in the Income Statement (That Is, Gross versus Net
      Presentation)* was
      issued. EITF 06-03 provides guidance on how to account for any tax assessed
      by a
      governmental authority that is imposed concurrent with a revenue producing
      transaction between a seller and a customer. EITF 06-03 is effective for the
      first interim reporting period beginning after December 15, 2006. EITF 06-03
      is
      expected to have no impact on the Group’s financial position, results of
      operations or cash flows.




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48 *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty recognized in income taxes
      in an enterprise’s financial statements in accordance with SFAS 109. FIN 48
      provides a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. The interpretation also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Group has not yet determined the impact
      of FIN 48 on its consolidated financial position, results of operations, cash
      flows or financial statement disclosures.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosure requirements regarding fair value measurement.
      This statement simplifies and codifies fair value related guidance previously
      issued and is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. The Group is still considering that impact of SFAS 157 to its financial
      statements.




In
      February 2007, the FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities Including
      an
      Amendment of SFAS No. 115* ,
      which
      permits companies to measure many financial instruments and certain other assets
      and liabilities at fair value on an instrument-by-instrument basis (the fair
      value option). Adoption of FASB 159 is optional and it may be adopted beginning
      in the first quarter of 2007. The Group is currently evaluating the possible
      impact of adopting FASB No. 159 on its consolidated financial
      statements.




104




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**3**
            **Trade
                accounts receivable, net**





Trade
      accounts receivable at December 31, 2006 and 2005 consist of the
      following:


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Primary
                  bank customer and its subsidiaries
              
              
              6,865,036
              
              
              53,607,006
              
              
              51,119,491Other
                  banks
              
              
              5,446,619
              
              
              42,531,017
              
              
              147,425General
                  contractors
              
              
              2,621,219
              
              
              20,468,310
              
              
              3,942,267Total
              
              
              14,932,874
              
              
              116,606,333
              
              
              55,209,183


The
      Group
      has not recognized any provision for doubtful accounts at December 31, 2006
      and
      2005 as all amounts are considered collectible.




**4**
            **Costs
                and estimated earnings on uncompleted
                contracts**


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Costs
                  incurred on uncompleted contracts
              
              
              1,521,774
              
              
              11,883,076
              
              
              12,931,198Estimated
                  earnings
              
              
              2,897,103
              
              
              22,622,611
              
              
              13,631,4774,418,877
              
              
              34,505,687
              
              
              26,562,675Less:
                  Billings to date
              
              
              (2,364,152
              )
              
              (18,460,950
              )
              
              (26,168,643
              )2,054,725
              
              
              16,044,737
              
              
              394,032


Included
        in the accompanying consolidated balance sheets under the following
        captions:
  Costs
                  and estimated earnings in excessof
                  billings on uncompleted contracts
              
              
              2,180,002
              
              
              17,022,985
              
              
              7,647,912Billings
                  in excess of costs and estimatedearnings
                  on uncompleted contracts
              
              
              (125,277
              )
              
              (978,248
              )
              
              (7,253,880
              )2,054,725
              
              
              16,044,737
              
              
              394,032




105




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**5**
            **Deposit
                for acquisition of
                businesses**


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Jianyin
                  Computer Co., Limited
              
              
              -
              
              
              -
              
              
              7,000,000Beijing
                  Yuxinyicheng Information Technology Limited
              
              
              2,561,245
              
              
              20,000,000
              
              
              -Beijing
                  Sunrisk Information Technology Limited
              
              
              3,169,542
              
              
              24,750,000
              
              
              -Total
              
              
              5,730,787
              
              
              44,750,000
              
              
              7,000,000




In
      2005,
      Beijing Sihitech had entered into a sales and purchase agreement to acquire
      a
      PRC enterprise. A consideration of RMB 7,000,000 was paid as of December 31,
      2005 as an investment deposit and the acquisition was completed on April 2006.
      Beijing Sihiech disposed this subsidiary on September 14, 2006 at consideration
      of RMB 7,000,000.





On
      January 15, 2007, Yuxinyicheng established a wholly owned subsidiary named
      Beijing Yuxinyicheng Information Technology Limited. The registered capital
      is
      RMB 20,000,000. It is mainly engaged in the business of provide Chinese banks
      with a total outsourced solution for merchants in China, including
      Point-of-Sales machines and maintenance, merchant acquisition, authorization
      and
      capture of transactions, clearing and settlement of transactions, information
      reporting services related to transactions, merchant billing services and
      merchant training. As of December 31, 2006, Yuxinyicheng has paid RMB 20,000,000
      as an investment deposit.





Pursuant
      to a purchase agreement dated on January 18, 2007, Yuxinyicheng will purchase
      100% interest of Beijing Sunrisk Information Technology Limited from a third
      party company for an aggregate consideration of RMB45,000,000. As of December
      31, 2006, Yuxinyicheng has paid RMB24,750,000 as an investment deposit. The
      acquisition was completed on February 7, 2007.




**6**
            **Other
                current assets**


**December
                    31****2006**
                
                **2006**
                
                **2005****USD**
                
                **RMB**
                
                **RMB**Payment
                    in advance
                
                
                1,007,184
                
                
                7,864,800
                
                
                11,496,974Other
                    receivables
                
                
                1,640,583
                
                
                12,810,818
                
                
                5,415,422Prepaid
                    expenses
                
                
                46,079
                
                
                359,816
                
                
                454,594Total
                
                
                2,693,846
                
                
                21,035,434
                
                
                17,366,990




Other
      receivables represented the deposits, staff advances and advances to new
      subsidiaries as of December 31, 2006.




106





**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**7**
            **Income
                taxes**





A
      reconciliation of the expected tax with the actual tax expense for the years
      ended December 31, 2006, 2005 and 2004 are as follows:


**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB**Income
                  before minority interestsand
                  income taxes
              
              
              5,635,021
              
              
              44,002,190
              
              
              17,993,629
              
              
              22,651,043Expected
                  PRC income tax expense(note
                  (i))
              
              
              845,253
              
              
              6,600,329
              
              
              2,699,045
              
              
              3,397,656Tax
                  holiday benefits
              
              
              (505,923
              )
              
              (3,950,604
              )
              
              -
              
              
              (1,698,828
              )Increase
                  in valuation allowance
              
              
              -
              
              
              -
              
              
              26,059
              
              
              9,411Differential
                  tax rate on subsidiaries’income
              
              
              -
              
              
              -
              
              
              (411,159
              )
              
              (453,984
              )Non-taxable
                  income
              
              
              (15,309
              )
              
              (119,540
              )
              
              (151,241
              )
              
              -Additional
                  deductible research andDevelopment
                  expense
              
              
              (22,618
              )
              
              (176,621
              )
              
              -
              
              
              -Non-deductible
                  expenses-Non-deductible
                  salaries and welfare
              
              
              60,406
              
              
              471,696
              
              
              714,253
              
              
              591,648-Non-deductible
                  entertainment expenses
              
              
              27,440
              
              
              214,271
              
              
              243,201
              
              
              187,091-Others
              
              
              32,295
              
              
              252,183
              
              
              11,845
              
              
              56,482Equity
                  in loss of affiliates
              
              
              (2,593
              )
              
              (20,248
              )
              
              113,791
              
              
              33,367Tax
                  rate difference (note (ii))
              
              
              -
              
              
              -
              
              
              217,235
              
              
              (313,152
              )Actual
                  income tax expense
              
              
              418,951
              
              
              3,271,466
              
              
              3,463,029
              
              
              1,809,691*Representing:*Current
                  tax expense
              
              
              391,382
              
              
              3,056,181
              
              
              3,219,734
              
              
              2,122,556Deferred
                  tax (benefit) expense
              
              
              27,569
              
              
              215,285
              
              
              243,294
              
              
              (312,865
              )Total
                  income tax expense
              
              
              418,951
              
              
              3,271,466
              
              
              3,463,028
              
              
              1,809,691




107




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





Notes:





(i)
            The
                provision for PRC income tax is based on a statutory rate of 15%
                for 2006,
                2005 and 2004 since the registered office of the Sihitech and e-Channels
                was relocated to a lower tax jurisdiction during 2003. Pursuant to
                the
                approval issued by the Local Tax Bureau in Beijing Changping District
                in
                2003, Sihitech was entitled to an additional 50% tax exemption of
                the
                standard tax rate of 15% to 7.5% for 2003 and 2004.





Pursuant
      to the approval issued by the Beijing Haidian District Local Tax Bureau,
      e-Channels is entitled to a 50% reduction in tax rate to 7.5% for 2004, 2005
      and
      2006.




Rates
      applicable for subsidiaries are as follows:


**2006**
              
              **2005**
              
              **2004**Yuxinyicheng
              
              
              33
              %
              
              N/A
              
              
              N/APort
                  Wing
              
              
              0
              %
              
              N/A
              
              
              N/AAhead
                  Billion
              
              
              0
              %
              
              N/A
              
              
              N/ABeijing
                  Sihitech
              
              
              15
              %
              
              15
              %
              
              7.5
              %Beijing
                  Software
              
              
              7.5
              %
              
              7.5
              %
              
              0
              %Shanghai
                  Sihitech
              
              
              15
              %
              
              15
              %
              
              15
              %Beijing
                  Sihitech Information Consulting Co., Ltd.
              
              
              N/A
              
              
              33
              %
              
              33
              %Guangzhou
                  Sihitech
              
              
              15
              %
              
              15
              %
              
              15
              %Shanghai
                  Software
              
              
              0
              %
              
              15
              %
              
              N/Ae-Channels
              
              
              7.5
              %
              
              7.5
              %
              
              7.5
              %





The
      statutory tax rate of Beijing Software is 15% since it is qualified as a
      high-tech company. Pursuant to the approval issued by the Local Tax Bureau
      in
      Beijing Haidian District in 2003, Beijing Software was entitled to a tax holiday
      from 2002 to 2004. Pursuant to the filing with Local Tax Bureau in Beijing
      Haidian District in 2005, Beijing Software was entitled to an additional 50%
      tax
      exemption of the standard tax rate of 15% to 7.5% from 2005 to
      2007.





The
      statutory tax rate of Shanghai Sihitech is 15% since it is registered in the
      Pudong district of Shanghai.




The
      statutory tax rate of Guangzhou Sihitech was 33% for 2003, and 15% for 2004
      and
      2005, since Guangzhou Sihitech was qualified as a high-tech company at the
      end
      of 2003. Pursuant to the notice issued by Guangzhou local tax bureau, Guangzhou
      Sihitech was entitled to a 15% tax rate for two years once it was qualified
      as a
      high-tech company.





The
      PRC
      tax system is subject to substantial uncertainties and has been subject to
      recently enacted changes, the interpretation and enforcement of which are also
      uncertain. There can be no assurance that changes in PRC tax laws or their
      interpretation or their application will not subject the Group’s PRC entities to
      substantial PRC taxes in the future.




(ii)
            Tax
                rate difference represents temporary differences which will reverse
                outside of the preferential exemption
                period.




(iii)
            Pre-tax
                income and income tax expenses are both
                domestic.




108





**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





The
      tax
      effects of temporary differences that give rise to significant portions of
      the
      deferred tax assets and liabilities at December 31, 2006 and 2005 are presented
      below.


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Deferred
                  tax assets:Accrued
                  liabilities, deductible when paid
              
              
              81,764
              
              
              638,470
              
              
              457,979Accrued
                  revenue on unsigned contractsfor
                  tax purposes
              
              
              3,842
              
              
              30,000
              
              
              215,611Intangible
                  assets
              
              
              18,367
              
              
              143,426
              
              
              133,361Net
                  operating loss carryforwards
              
              
              -
              
              
              -
              
              
              113,472Total
                  gross deferred tax assets
              
              
              103,973
              
              
              811,896
              
              
              920,423Less:
                  valuation allowance
              
              
              -
              
              
              -
              
              
              (113,472
              )Net
                  deferred tax assets
              
              
              103,973
              
              
              811,896
              
              
              806,951Deferred
                  tax liabilities:Deferred
                  costs on unsigned contractsfor
                  tax purposes
              
              
              (30,846
              )
              
              (240,869
              )
              
              (96,834
              )Capitalized
                  internal-useand
                  marketable software
              
              
              (104,796
              )
              
              (818,322
              )
              
              (491,497
              )Additional
                  intangible assets throughacquisition
              
              
              (573,000
              )
              
              (4,474,385
              )
              
              -Total
                  gross deferred tax liabilities
              
              
              (708,642
              )
              
              (5,533,576
              )
              
              (588,331
              )




**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB**Valuation
                  allowance on deferred tax assetsat
                  the beginning of the year
              
              
              14,531
              
              
              113,472
              
              
              87,413
              
              
              78,002Increase
                  (decrease) in valuation allowance
              
              
              (14,531
              )
              
              (113,472
              )
              
              26,059
              
              
              9,411Total
              
              
              -
              
              
              -
              
              
              113,472
              
              
              87,413


Subsequently
      recognized tax benefits relating to the valuation allowance for deferred tax
      assets as of December 31, 2005, will be allocated to the income tax benefit
      that
      would be reported in the consolidated statements of income.





At
      December 31, 2005, one of Beijing Sihitech’s subsidiaries had net operating loss
      carryforwards for income tax purposes of RMB343,855. On November 16, 2006,
      Beijing Sihitech disposed of the subsidiary and accordingly the corresponding
      valuation allowance and the deferred tax assets were reversed during the year
      ended December 31, 2006.




109


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**8**
            **Earnings
                per share**





The
      following table sets forth the computation of basic and diluted net earnings
      per
      share for the years indicated:


**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB**Net
                  income (numerator)-
                  basic and diluted
              
              
              5,216,070
              
              
              40,730,724
              
              
              14,530,601
              
              
              20,580,802Shares
                  (denominator):Weighted
                  average ordinary sharesoutstanding
                  used in computingbasic
                  net earnings per share
              
              
              8,118,335
              
              
              8,118,335
              
              
              3,754,484
              
              
              3,754,484Incremental
                  weighted averagecommon
                  shares from assumedexercise
                  of Warrants (note 17)
              
              
              2,173,973
              
              
              2,173,973
              
              
              -
              
              
              -Weighted
                  average common shareoutstanding
                  used in computingdiluted
                  net earnings per share
              
              
              10,292,308
              
              
              10,292,308
              
              
              3,754,484
              
              
              3,754,484Net
                  earnings per share - basic
              
              
              USD0.64
              
              
              RMB5.02
              
              
              RMB3.87
              
              
              RMB5.48Net
                  earnings per share - diluted
              
              
              USD0.51
              
              
              RMB3.96
              
              
              RMB3.87
              
              
              RMB5.48


For
      the
      years prior to the date of the Share Exchange Transactions, the number of shares
      included in the net earnings per common share above has been retrospectively
      restated to reflect the number of shares to which Sihitech BVI Shareholders
      and
      their designee are entitled at the date of the Share Exchange
      Transaction.





As
      disclosed in note 1, the Share Exchange Transactions during 2006 provides for
      potential purchase price reduction by return and cancellation of an aggregate
      of
      773,045 common shares of Yucheng, the return and cancellation of which is
      contingent upon failure of the attainment of certain amounts of earnings and
      such contingency has not been met at December 31, 2006. As Yucheng does not
      consider the above contingency is probable and accordingly, no adjustment for
      the purchase price in respect to the 773,045 shares of common stock was recorded
      in the consolidated financial statements of Yucheng for the year ended December
      31, 2006. Accordingly, no adjustment to the number of shares to which Sihitech
      BVI Shareholders and their designee are entitled at the date of the Share
      Exchange Transaction is made in calculating the earnings per share for the
      years
      ended 31 December 2004, 2005 and 2006.





As
      disclosed in note 17, there are 300,000 unit purchase options outstanding as
      of
      December 31, 2006, the effect of potential common stock issuable from these
      options is excluded in the calculation of diluted net earnings per share as
      their effect is anti-dilutive.




110




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**9**
            **Intangible
                assets**


**Purchased**
                
                **Capitalized****marketable**
                
                **Capitalized****internal-use**
                
                **Customer****relation-**
                
                **Other****software**
                
                **software**
                
                **software**
                
                **ships**
                
                **technology**
                
                **Total****Balance
                    as at****December
                    31, 2004**
                
                
                **RMB**
                
                
                **1,268,418**
                
                
                **1,592,717**
                
                
                **218,950**
                
                
                **-**
                
                
                **-**
                
                
                **3,080,085**Additions
                
                
                
                
                
                867,143
                
                
                2,108,571
                
                
                -
                
                
                -
                
                
                -
                
                
                2,975,714Amortization
                
                
                
                
                
                (636,761
                )
                
                (570,606
                )
                
                (72,983
                )
                
                -
                
                
                -
                
                
                (1,280,350
                )**Balance
                    as at****December
                    31, 2005**
                
                
                **RMB**
                
                
                **1,498,800**
                
                
                **3,130,682**
                
                
                **145,967**
                
                
                **-**
                
                
                **-**
                
                
                **4,775,449**Additions
                
                
                
                
                
                -
                
                
                1,366,549
                
                
                -
                
                
                -
                
                
                -
                
                
                1,366,549Additions
                    through acquisitionof
                    a subsidiary (note 20)
                
                
                
                
                
                185,243
                
                
                2,029,692
                
                
                134,214
                
                
                9,682,788
                
                
                20,146,446
                
                
                32,178,383Elimination
                    from disposalof
                    subsidiary
                
                
                
                
                
                (282,211
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (282,211
                )Amortization
                
                
                
                
                
                (377,096
                )
                
                (1,369,569
                )
                
                (83,978
                )
                
                -
                
                
                -
                
                
                (1,830,643
                )**Balance
                    as at****December
                    31, 2006**
                
                
                **RMB**
                
                
                **1,024,736**
                
                
                **5,157,354**
                
                
                **196,203**
                
                
                **9,682,788**
                
                
                **20,146,446**
                
                
                **36,207,527****Balance
                    as at****December
                    31, 2006****(note
                    2)**
                
                
                **USD**
                
                
                **131,230**
                
                
                **660,463**
                
                
                **25,126**
                
                
                **1,240,000**
                
                
                **2,580,000**
                
                
                **4,636,819**




Amortization
      expense was RMB1,830,643, RMB1,280,350 and RMB584,515 for the years ended
      December 31, 2006, 2005 and 2004, respectively. Estimated annual amortization
      expense for each of the next five years is as follows


**Year
                  ending**
                **31
                  December**
              
              **RMB**2007
              
              
              11,991,7412008
              
              
              11,216,3642009
              
              
              10,172,3792010
              
              
              1,274,8622011
              
              
              1,261,160




**10**
            **Trade
                accounts payable**


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Jianyin
                  Technology Development Co., Ltd.
              
              
              168,211
              
              
              1,313,513
              
              
              2,648,333Jianyin
                  Computer Co., Ltd.
              
              
              92,380
              
              
              721,368
              
              
              1,657,960Other
                  suppliers
              
              
              4,444,736
              
              
              34,707,611
              
              
              41,033,087Total
              
              
              4,705,327
              
              
              36,742,492
              
              
              45,339,380




Jianyin
      Technology Development Co., Ltd. and Jianyin Computer Co., Ltd. are related
      parties of the Group’s largest bank customer.




111




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**11**
            **Short-term
                loan**


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Short-term
                  borrowing from bank
              
              
              4,097,993
              
              
              32,000,000
              
              
              12,000,000




The
      short-term borrowing of RMB 12,000,000 as of December 31, 2005 was effective
      from October 17, 2005 to April 17, 2006, with an annual interest rate of 5.74%
      which is renewable after it matures. Interest was to be paid on a quarterly
      basis and the entire principal amount was payable at the end of the loan period.
      The loan was secured by a guarantee agreement with a third party. The Group
      was
      required to pay an annual guarantee fee of 1.5% on the secured
      borrowing.





The
      short-term borrowing of RMB32,000,000 as of December 31, 2006 represents the
      sum
      of three borrowings, including





(i)
            the
                borrowing of RMB 15,000,000 is effective from July 14, 2006 to January
                13,
                2007 with an annual interest rate of 5.94% and such borrowing was
                fully
                settled on January 13, 2007;




(ii)
            the
                borrowing of RMB 2,000,000 is effective from August 3, 2006 to August
                3,
                2007 with an annual interest rate of 5.85%;
                and




(iii)
            the
                borrowing of RMB 15,000,000 is effective from September 4, 2006 to
                September 4, 2007 with an annual interest rate of 6.12%.





All
      the
      above three borrowings are secured by guarantee agreements with third parties
      and are subject to an annual guarantee fee of 1.782% on these secured
      borrowing.




**12**
            **Long-term
                loan**




Long-term
      loan at December 31, 2006 and 2005 consists of the following:


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Long-term
                  loan from bank
              
              
              448,218
              
              
              3,500,000
              
              
              5,000,000Less:
                  current instalment
              
              
              (448,218
              )
              
              (3,500,000
              )
              
              (1,500,000
              )Long-term
                  loan, excluding current installment
              
              
              -
              
              
              -
              
              
              3,500,000





The
      long-term loan is effective from January 18, 2005 to December 28, 2007, with
      an
      annual interest rate of 5.76%. Interest is to be paid on December 27, 2005
      and
      2006. Principal payments of RMB1,500,000 and RMB3,500,000 are due on December
      28, 2006 and December 28, 2007, respectively. Borrowed amounts are secured
      by a
      guarantee agreement with a third party. The Group must pay an annual guarantee
      fee of 1.5% on the secured borrowing.




112


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**13**
            **Other
                current liabilities**


**December
                  31****2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Advances
                  from customers
              
              
              388,146
              
              
              3,030,915
              
              
              1,668,349Taxes
                  payable, excluding income tax
              
              
              1,318,661
              
              
              10,297,029
              
              
              7,145,249Accrued
                  expenses
              
              
              610,939
              
              
              4,770,642
              
              
              1,124,456Education
                  surcharge payable
              
              
              37,168
              
              
              290,231
              
              
              187,568Amount
                  due to Jianyin Computer Co., Ltd.
              
              
              -
              
              
              -
              
              
              2,976,000Amount
                  due to ex-minority shareholder
              
              
              -
              
              
              -
              
              
              3,001,004Others
              
              
              485,212
              
              
              3,788,874
              
              
              1,966,137Total
              
              
              2,840,126
              
              
              22,177,691
              
              
              18,068,763




**14**
            **Minority
                interests**





Minority
      interests pertain to the minority shareholders’ equity interests in Beijing
      Software, Shanghai Sihitech, Beijing Sihitech Information Consulting Co., Ltd.,
      and Guangzhou Sihitech.





The
      minority interests on the Group’s consolidated balance sheets related to Beijing
      Software, and Beijing Sihitech Information Consulting Co., Ltd. represent only
      the original obligation Beijing Sihitech has to the minority shareholders of
      these two subsidiaries based on their initial investments. This is due to these
      minority shareholders having waived their rights to their respective share
      of
      any dividends or equity in any subsequent income or losses and any gains or
      losses upon liquidation of the net assets of these subsidiaries. The related
      agreements remain effective throughout the life of the respective companies.
      Consequently, the Group recognizes 100% of the net earnings and losses in these
      subsidiaries in its consolidated statements of income.





The
      minority owners of Shanghai Sihitech and Guangzhou Sihitech agreed to transfer
      their ownership interest in each of these subsidiaries to Mr. Weidong Hong,
      the
      CEO and a shareholder of the Group, in exchange for a portion of his ownership
      interest in Beijing Sihitech. Mr. Weidong Hong agreed to waive his rights to
      his
      respective share of any dividends or equity in any subsequent income or losses
      and any gains or losses upon liquidation of the net assets of these
      subsidiaries. The effective date of such transfer and waiver of rights is
      January 1, 2005 and the agreement to waive rights remains effective throughout
      the life of the respective companies. Consequently, the Group recognizes 100%
      of
      the net earnings and losses in these subsidiaries in its consolidated statement
      of income from January 1, 2005.





The
      share
      of minority interest of RMB3,001,004 as of January 1, 2005 of RMB3,001,004
      was
      repaid to those ex-minority shareholders during the year ended December 31,
      2006.


**15**
              **Commitments
                  and contingencies**
 
 The
        Group
        leases office space under operating leases. The leases typically run for
        one to
        three years with an option to renew the lease annually thereafter. Lease
        payments are increased annually to reflect market rentals. None of these
        leases
        includes contingent rentals.


113




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


*(Expressed
      in Chinese Renminbi)*





Non-cancellable
      operating lease rentals at December 31, 2006 are payable as
      follows:


**USD**
              
              **RMB**Payable:Within
                  1 year
              
              
              356,316
              
              
              2,782,369Within
                  1-2 years
              
              
              173,317
              
              
              1,353,377Within
                  2-3 years
              
              
              26,962
              
              
              210,537556,595
              
              
              4,346,283


The
      Group
      recognized RMB3,776,761, RMB3,120,831 and RMB2,866,481 of rent expense for
      the
      years ended December 31, 2006, 2005, and 2004, respectively.





Yucheng
      assesses the contingent tax liabilities that may arise from the Share Exchange
      Transactions and consider such contingent tax liabilities are remote. As of
      December 31, 2006, such contingent tax liabilities are reasonably possible
      to be
      approximately US $175,000 based on the information currently available. If
      these contingent tax liabilities were undertaken, an amount of US $175,000
      would be recorded as income tax payable and be charged to equity because the
      assumption of such liabilities by Yucheng is part of the recapitalisation in
      connection with the Stock Exchange Transactions. However, Yucheng does not
      expect to incur tax liabilities in this connection.





On
      March
      21, 2007, a suit was filed in United States District Court for the Southern
      District of California against the Company, Beijing Sihitech and its Chief
      Executive Officer. The plaintiff alleged the Company breached an oral contract
      regarding a finder’s fee and seeks general damages, $109,275 cash, the issuance
      of 150,179 shares of the Company and the payment of 4% of any future
      compensation which Beijing Sihitech and its original shareholders are entitled
      to receive as a result of the Company’s acquisition of Beijing Sihitech. The
      lawsuit is in its initial stage and it is not possible to reliably predict
      the
      outcome of this litigation with certainty. However, Yucheng believes that these
      allegations are meritless and Yucheng is aggressively defending the action
      and
      will seek to have it dismissed. As of December 31, 2006, no loss amount has
      been
      accrued because a loss is not considered probable.





The
      Group
      provides indemnifications of varying scope and size to certain customers against
      claims of intellectual property infringement made by third parties arising
      from
      the use of the products. Due to the nature of the indemnification provided,
      the
      Group cannot estimate the fair value, nor determine the total nominal amount
      of
      the indemnification. The Group evaluates estimated losses for such
      indemnifications under SFAS No. 5, Accounting for Contingencies, as interpreted
      by FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others. The Group considers
      such factors as the degree of probability of an unfavourable outcome and the
      ability to make a reasonable estimate of the amount of loss. To date, the Group
      has not encountered material costs as a result of such obligations and have
      not
      accrued any liabilities related to such indemnifications in the financial
      statements.





The
      product warranty accrual reflects management’s best estimate of probable
      liability under its product warranties. Management determines the warranty
      accrual based on known product failures (if any), historical experience, and
      other currently available evidence. As at December 31, 2006 and 2005, the
      warranty accrual was nil. There has been no significant activity impacting
      the
      results of operations for any period presented.




114




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**16**
            **Reserves**





*Statutory
      surplus reserve*





In
      accordance with PRC Company Law, the Group is required to appropriate at least
      10% of the profit arrived at for each year to the statutory surplus reserve.
      Appropriation to the statutory surplus reserve by the Group is based on profit
      arrived at under PRC accounting standards for business enterprises for each
      year.





The
      profit arrived at must be set off against any accumulated losses sustained
      by
      the Group in prior years, before allocation is made to the statutory surplus
      reserve. Appropriation to the statutory surplus reserve must be made before
      distribution of dividends to owners. The appropriation is required until the
      statutory surplus reserve reaches 50% of the registered capital. This statutory
      surplus reserve is not distributable in the form of cash dividends but only
      on
      liquidation. It can be used to make good of previous losses, if any, and may
      be
      utilised for business expansion or converted into capital by increasing
      registered capital to existing equity owners in proportion to their equity
      holding, provided that remaining reserve balance after such conversion is not
      less than 25% of the registered capital.





*Statutory
      public welfare reserve*





In
      accordance with PRC Company Law, the Group appropriates 5% of the profit arrived
      at for each year to the statutory public welfare reserve. Appropriation to
      the
      statutory public welfare reserve by the Group is based on profit arrived at
      under PRC accounting standards for business enterprises for each year.





The
      fund
      can only be utilized for capital items for the collective benefit of the Group’s
      employees such as construction of dormitories, canteens and other staff welfare
      facilities. This fund is non-distributable other than on liquidation. The
      transfer to this fund must be made before distribution of any
      dividends.




**17**
            **Warrants
                and unit purchase options**





As
      part
      of the Share Exchange Transaction, Yucheng assumed 4,200,000 shares of common
      stock, 6,900,000 redeemable common stock purchase warrants (“Warrants”) and
      300,000 unit purchase options (“UPOs”) issued by CUAC. There was no
      remeasurement required for these assumed Warrants and UPOs because such
      assumption is part of the recapitalisation in connection with the Stock Exchange
      Transactions set forth in note 1.





Each
      Warrant will entitle the holder to purchase from Yucheng one share of common
      stock at an exercise price of $5.00 commencing on the date of the Stock Exchange
      Transactions and expiring on November 17, 2009 (being five year after the date
      of the prospectus of CUAC). The Warrants will be redeemable at a price of $0.01
      per Warrant upon 30 days’ notice after the Warrants become exercisable, only in
      the event that the last sale price of the common stock is at least $8.50 per
      share for any 20 trading days within 30 trading day period ending on the third
      day prior to the date on which notice of redemption is given. None of the
      6,900,000 Warrants was exercised on or before December 31, 2006.




115




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





UPOs
      were
      granted and recorded in connection with the initial public offering of CUAC
      in
      2004 to the underwriters for nominal consideration. UPOs may be exercised for
      cash or on a cashless basis at the holders’ option, such that the holders may
      use the appreciated value of the UPOs to exercise the option with the payment
      of
      any cash. UPOs are convertible into shares and Warrants at the discretion of
      Yucheng and the UPOs holders. None of the 300,000 UPOs were converted on or
      before December 31, 2006.





As
      of
      December 31, 2006, there were 6,900,000 Warrants and 300,000 UPOs
      outstanding.




**18**
            **Subsidies
                and value-added tax
                refunds**


**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB**Value-added
                  taxrefund
                  for software products sold
              
              
              164,098
              
              
              1,281,395
              
              
              179,486
              
              
              203,419Technology
                  subsidy
              
              
              133,313
              
              
              1,041,000
              
              
              372,000
              
              
              -Business
                  tax and surcharges refund
              
              
              -
              
              
              -
              
              
              75,900
              
              
              -Other
              
              
              107,312
              
              
              837,968
              
              
              380,886
              
              
              106,000**Total**
              
              
              **404,723**
              
              
              **3,160,363**
              
              
              **1,008,272**
              
              
              **309,419**




Some
      of
      the subsidiaries of the Group were granted subsidies by the local government,
      since they were located in certain jurisdictions. There were no performance
      obligations related with such subsidies.




**19**
            **Accumulated
                other comprehensive income**





As
      of
      December 31, 2006, the only component of accumulated other comprehensive income
      was translation reserve.




**20**
            **Acquisition
                of a subsidiary**





On
      December 20, 2005, Yucheng acquired all of the outstanding shares of e-Channels
      BVI in exchange for an aggregate consideration of approximately RMB81.4 million,
      which is satisfied by cash consideration of RMB9.9 million and 1,573,836 shares
      of common stock of Yucheng with a fair value of approximately RMB71.5 million.
      The fair value of Yucheng’s shares was based upon the actual number of shares
      issued to the e-Channels BVI shareholders using the average closing trading
      price of Yucheng’s common stock on the Over-the-Counter Bulletin Board for the
      period from 2 days before and after the announcement date of the acquisition.




116


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





*Additional
      cash purchase consideration*





This
      acquisition was recorded by allocating the cost of the assets acquired,
      including intangible assets and liabilities assumed, based on their estimated
      fair values at the acquisition date. The excess of the cost of the acquisition
      over the net of amounts assigned to the fair value of the assets acquired and
      the liabilities assumed is recorded as goodwill. The valuation of assets and
      liabilities has been determined and the purchase price has been allocated as
      follows:







**2006****RMB**Plant
                and equipment
            
            
            1,153,323Intangible
                assets
            
            
            32,178,383Goodwill
            
            
            37,273,607Inventories
            
            
            1,085,475Trade
                receivables
            
            
            13,574,386Cost
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            10,302,776Pre-contract
                costs
            
            
            77,815Other
                current assets
            
            
            4,033,438Cash
                and bank balances
            
            
            2,109,202Short
                term loan
            
            
            (2,000,000
            )Trade
                payables
            
            
            (1,864,975
            )Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            (1,250
            )Other
                current liabilities
            
            
            (859,087
            )Income
                taxes payables
            
            
            (800,804
            )Dividend
                payables to subsidiary ex-owners
            
            
            (10,000,000
            )Deferred
                income taxes
            
            
            (4,809,874
            )Total
                purchase price
            
            
            81,452,415Satisfied
                by:Cash
            
            
            9,902,287Common
                stock
            
            
            71,550,12881,452,415




*Analysis
      of net outflow of cash and cash equivalents in respect of the purchase of the
      subsidiary:*




**RMB**Cash
                consideration
            
            
            (9,902,287
            )Cash
                and bank balances acquired in the acquisition
            
            
            2,109,202Net
                cash paid in the acquisition
            
            
            (7,793,085
            )




117




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)





Included
      in the intangible assets listed in the above table as of the acquisition date,
      the components of intangible assets based on management best estimate and are
      as
      follows.





**Amount**
            
            **Estimated
                useful life****RMB**Customer
                relationships
            
            
            9,682,788
            
            
            3
                yearsOther
                technology
            
            
            20,146,446
            
            
            3-5
                years29,829,234





*Pro
      Forma Results*




The
      following unaudited pro forma financial information presents the combined
      results of the operations of Sihitech and e-Channels as if the acquisition
      had
      occurred as of January 1, 2004. The unaudited pro forma information is not
      intended to represent or be indicative of the Group’s consolidated results of
      operations or financial condition that would have been reported had the
      acquisition been completed as of the beginning of the periods presented and
      should not be taken as indicative of the Group’s future consolidated results of
      operations or financial condition.


**2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**(note
                  2 (c))Revenues:System
                  integration
              
              
              24,359,348
              
              
              190,214,840
              
              
              116,219,840Software
                  development
              
              
              8,619,783
              
              
              67,309,300
              
              
              39,321,048e-Channels
                  solution
              
              
              4,574,029
              
              
              35,717,216
              
              
              24,216,047IT
                  consulting
              
              
              -
              
              
              -
              
              
              6,674,139Maintenance
                  and support
              
              
              1,870,249
              
              
              14,604,215
              
              
              12,464,029Agency
                  fees
              
              
              556,440
              
              
              4,345,076
              
              
              2,486,624**Total
                  revenues**
              
              
              **39,979,849**
              
              
              **312,190,647**
              
              
              **201,381,727**Cost
                  of revenues:System
                  integration
              
              
              (22,017,235
              )
              
              (171,925,980
              )
              
              (107,327,345
              )Software
                  development
              
              
              (4,186,120
              )
              
              (32,688,159
              )
              
              (19,410,079
              )e-Channels
                  solutions
              
              
              (1,414,332
              )
              
              (11,044,089
              )
              
              (8,115,908
              )IT
                  consulting
              
              
              -
              
              
              -
              
              
              (3,762,060
              )Maintenance
                  and support
              
              
              (981,717
              )
              
              (7,665,935
              )
              
              (2,424,429
              )**Total
                  cost of revenues**
              
              
              **(28,599,404**
              **)**
              ****
              **(223,324,163**
              **)**
              ****
              **(141,039,821**
              **)****Gross
                  profit**
              
              
              **11,380,445**
              
              
              **88,866,484**
              
              
              **60,341,906**Operating
                  expenses:Research
                  and development
              
              
              (482,146
              )
              
              (3,764,931
              )
              
              (2,349,536
              )Selling
                  and marketing
              
              
              (2,015,399
              )
              
              (15,737,643
              )
              
              (13,363,294
              )General
                  and administrative
              
              
              (2,599,996
              )
              
              (20,302,592
              )
              
              (16,838,352
              )Subsidies
                  and value-added taxrefunds
                  (note 19)
              
              
              468,485
              
              
              3,658,256
              
              
              2,627,557**Total
                  operating expenses**
              
              
              **(4,629,056**
              **)**
              ****
              **(36,146,910**
              **)**
              ****
              **(29,923,625**
              **)**
 **2006**
                  
                  **2006**
                  
                  **2005****USD**
                  
                  **RMB**
                  
                  **RMB**(note
                      2 (c))Other
                      income (expenses):Interest
                      income
                  
                  
                  17,111
                  
                  
                  133,618
                  
                  
                  164,063Interest
                      expense
                  
                  
                  (163,646
                  )
                  
                  (1,277,861
                  )
                  
                  (630,520
                  )Equity
                      in loss of affiliates
                  
                  
                  (17,287
                  )
                  
                  (134,986
                  )
                  
                  (758,609
                  )Other
                      income (expense), net
                  
                  
                  5,036
                  
                  
                  39,322
                  
                  
                  472,360**Income
                      before income taxes**
                  
                  
                  **6,592,603**
                  
                  
                  **51,479,667**
                  
                  
                  **29,665,575**Income
                      tax expense (note 8)
                  
                  
                  (482,495
                  )
                  
                  (3,767,659
                  )
                  
                  (4,326,053
                  )**Net
                      income**
                  
                  
                  **6,110,108**
                  
                  
                  **47,712,008**
                  
                  
                  **25,339,522**Earnings
                      Per Share-
                      Basic
                  
                  
                  USD0.75
                  
                  
                  RMB5.88
                  
                  
                  RMB6.75-
                      Diluted
                  
                  
                  USD0.59
                  
                  
                  RMB4.64
                  
                  
                  RMB6.75
  118


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


*(Expressed
      in Chinese Renminbi)*


**21**
            **Disposal
                of a subsidiary**





On
      May 8,
      2006, Beijing Sihitech disposed it entire interest in Beijing Sihitech
      Information Consulting Co., Ltd. The entire results, assets and liabilities
      of
      Beijing Sihitech Information Consulting Co., Ltd. have been excluded from the
      consolidated financial statements since the effective date of the disposal.
      The
      purchase price and preliminary fair value of the acquired assets are not
      material to our consolidated financial statements.




**22**
            **Significant
                related party transactions**




**(a)**
            **Identity
                of related parties**


Related
        parties identified for the years ended December 31, 2006, 2005 and 2004 are
        summarized as follows:
  *Relationship
                  with*
              
              *Shareholding*
              
              *Shareholding**the
                  Company*
              
              *for
                  2006*
              
              *for
                  2005 and 2004*Mr.
                  Weidong Hong
              
              
              Shareholder
                  and CEO
              
              
              23.64
              %
              
              Note
                  1Mr.
                  Shuo Zeng
              
              
              Shareholder
                  andCOO
              
              
              7.12
              %
              
              Note
                  2Beijing
                  Hengli Plastic Machine Co., Ltd.
              
              
              Affiliate
              
              
              50
              %
              
              50
              %Shanghai
                  Sihitech Sanjian Technology Co., Ltd.
              
              
              Affiliate
              
              
              50
              %
              
              50
              %Beijing
                  Sihitech Shuyi Technology Co., Ltd.
              
              
              Affiliate
              
              
              0
              %
              
              35
              %




*Note
                1:*
            *Before
                the Share Exchange Transaction was completed on November 24, 2006,
                Mr.
                Weidong Hong held 42% of Sihitech.*


*Note
                2:*
            *Before
                the Share Exchange Transaction was completed on November 24, 2006,
                Mr.
                Shuo Zeng held 43% of
                e-Channels.*




119




**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)








(b)
            Related
                party transactions





The significant
      related party transactions of the Group are summarised as follows:


**2006**
              
              **2006**
              
              **2005**
              
              **2004****USD**
              
              **RMB**
              
              **RMB**
              
              **RMB**Advances
                  to affiliates-Hengli
              
              
              3,005
              
              
              23,464
              
              
              437,892
              
              
              730,595Repayment
                  of advances to affiliates-Sanjian
              
              
              -
              
              
              -
              
              
              -
              
              
              (32,450
              )-Hengli
              
              
              -
              
              
              -
              
              
              (500,000
              )
              
              -Borrowings
                  from affiliates-Sanjian
              
              
              -
              
              
              -
              
              
              (1,260,262
              )-Shuyi
              
              
              -
              
              
              -
              
              
              (1,462,200
              )Repayment
                  of borrowing from affiliates-Sanjian
              
              
              -
              
              
              -
              
              
              -
              
              
              852,313-Shuyi
              
              
              64,031
              
              
              500,000
              
              
              950,000
              
              
              12,200Borrowing
                  from shareholder
              
              
              -
              
              
              -
              
              
              (5,000,000
              )
              
              -Repayment
                  of borrowingfrom
                  shareholder
              
              
              512,249
              
              
              4,000,000
              
              
              1,000,000
              
              
              -Advances
                  to shareholders
              
              
              462,197
              
              
              3,609,155
              
              
              3,452,962
              
              
              858,102Collection
                  of advances to shareholders
              
              
              (135,264
              )
              
              (1,056,234
              )
              
              (569,524
              )
              
              (626,820
              )


The
      transactions do not have fixed terms. Balances relating to the above
      transactions are non-interest bearing and payable on demand. Other than this
      matter, the Board of Directors of the Group is of the opinion that the above
      transactions were in the normal course of business and on normal commercial
      terms.




**(c)**
            **Related
                party balances**





The
      balances of related party receivables and payables at the year-end are
      summarised as follows:


**2006**
              
              **2006**
              
              **2005****USD**
              
              **RMB**
              
              **RMB**Due
                  from Mr. Weidong Hong and Mr. Shuo Zeng
              
              
              49,543
              
              
              386,867
              
              
              2,599,256Due
                  to affiliates
              
              
              (116,274
              )
              
              (907,949
              )
              
              (1,407,949
              )Borrowing
                  from shareholders
              
              
              -
              
              
              -
              
              
              (4,000,000
              )




During
      2005, Sihitech has borrowed RMB 5 million from a minority owner of Sihitech,
      Mr.
      Jianqiang Wang, which is non-interest bearing and does not have fixed terms
      of
      repayment.





Of
      the
      balance due from owners as of December 31, 2005, RMB 2.39 million due from
      Mr.
      Weidong Hong to finance his purchase of minority owners’ interest of Beijing
      Sihitech and its subsidiaries.




120


**YUCHENG
      TECHNOLOGIES LIMITED** ** **AND
      SUBSIDIARIES**


Notes
      to
      Consolidated Financial Statements


Years
      ended December 31, 2006, 2005 and 2004


(Expressed
      in Chinese Renminbi)




**23**
            **Share
                option plan**





On
      November 24, 2006, Yucheng adopted the 2006 performance equity plan (the “Plan”)
      which allows Yucheng to offer a variety of incentive awards to employees.
      Options to purchase 1,500,000 share of common stock of Yucheng are authorised
      under the Plan.





As
      of
      December 31, 2006, no options under the Plans have been
      granted.




**24**
            **Subsequent
                events**





On
      January 15, 2007 Yuxinyicheng established a wholly owned subsidiary named
      Beijing Yuxinyicheng Information Technology Limited. The registered capital
      is
      RMB20,000,000. It is mainly engaged in the business to provide Chinese banks
      with a total outsourced solution for merchants in China, including
      Point-Of-Sales machines and maintenance, merchant acquisition, authorization
      and
      capture of transactions, clearing and settlement of transactions, information
      reporting services related to transactions, merchant billing services and
      merchant training. As of December 31, 2006, Yuxinyicheng has paid RMB20,000,000
      as an investment deposit which was recorded in deposit for acquisition of
      businesses.





According
      to a purchase agreement dated on January 18, 2007, Yuxinyicheng will purchase
      100% interest of Beijing Sunrisk Information Technology Limited from a third
      company. Total consideration is RMB45,000,000. As of December 31, 2006,
      Yuxinyicheng has paid RMB24,750,000 as an investment deposit which was recorded
      in deposit for acquisition of businesses. The acquisition was completed on
      February 7, 2007.




121




**ITEM
      19.**  **EXHIBITS** ****


**Index
        to Exhibits**
  **Exhibit****Number**
              
              **Description******1.1
              
              Memorandum
                  of Association of Registrant (Incorporated by reference from Registration
                  Statement No. 333-132814 - Annex B)1.2
              
              Articles
                  of Association of Registrant (Incorporated by reference from Registration
                  Statement No. 333-132814 - Annex C)2.1
              
              Specimen
                  Common Stock Certificate of Registrant (Incorporated by reference
                  from
                  Registration Statement No. 333-132814 - Exhibit 4.1)2.2
              
              Specimen
                  Warrant Certificate of Registrant (Incorporated by reference from
                  Registration Statement No. 333-132814 - Exhibit 4.2)2.3
              
              Form
                  of Unit Purchase Option (Incorporated by reference from Current
                  Report
                  dated October 20, 2006, Exhibit 4.2)2.4
              
              Form
                  of Warrant Agreement between American Stock Transfer & Trust Company
                  and China Unistone Acquisition Corporation (Incorporated by reference
                  from
                  Registration Statement 333-117639, dated November 10, 2004, Exhibit
                  4.5)2.5
              
              Warrant
                  Clarification Agreement, dated October 20, 2006 (Incorporated by
                  reference
                  from Current Report dated October 20, 2006, Exhibit
                  4.1)4.1
              
              Securities
                  Purchase Agreement among Registrant, Yucheng Technologies Limited,
                  Sihitech Company Limited, Mega Capital Group Services Limited,
                  Profit
                  Loyal Consultants Limited, Elite Concord International Limited,
                  China
                  Century Holdings Group Limited, Shinning Growth Investment Group
                  Limited,
                  Chih Cheung, James Li, James Preissler, for the acquisition of
                  Ahead
                  Billion Venture Limited, and Port Wing Development Company Limited,
                  dated
                  December 20, 2005 (Incorporated by reference from Registration
                  Statement
                  No. 333-132814 - Annex A)4.2
              
              Amendment
                  to Securities Purchase Agreement dated June 29, 2006 (Incorporated
                  by
                  reference from Registration Statement No. 333-132814 - Annex
                  A)4.3
              
              Amendment
                  to Securities Purchase Agreement dated October 27, 2006 (Incorporated
                  by
                  reference from Registration Statement No. 333-132814 - Annex
                  A)4.4
              
              China
                  Unistone/Yucheng 2006 Performance Equity Plan (Incorporated by
                  reference
                  from Registration Statement No. 333-132814 -Annex
                  D)
  122
  4.5
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Chih Cheung (Incorporated by reference from Registration
                  Statement 333-117639, dated July 23, 2004, Exhibit
                  10.1)4.6
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and James Li (Incorporated by reference from Registration
                  Statement
                  333-117639, dated July 23, 2004, Exhibit 10.2)4.7
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Gian Gao (Incorporated by reference from Registration
                  Statement
                  333-117639, dated July 23, 2004, Exhibit 10.3)4.8
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and James T. Mauck (Incorporated by reference from Registration
                  Statement 333-117639, dated July 23 2004, Exhibit 10.4)4.9
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and James Preissler (Incorporated by reference from Registration
                  Statement 333-117639, dated July 23, 2004, Exhibit
                  10.5)4.10
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Peter F. Tufo (Incorporated by reference from Registration
                  Statement 333-11739, dated July 23, 2004, Exhibit 10.6)4.11
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Vincent Lin (Incorporated by reference from Registration
                  Statement 333-117639, dated July 23, 2004, Exhibit
                  10.7)4.12
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Raymond Chang (Incorporated by reference from Registration
                  Statement 333-117639, dated July 23, 2004, Exhibit
                  10.8)4.13
              
              Letter
                  Agreement among China Unistone Acquisition Corporation, EarlyBirdCapital,
                  Inc. and Perfect Blazon Co., Ltd. (Incorporated by reference from
                  Registration Statement 333-117639, dated July 23, 2004, Exhibit
                  10.9)4.14
              
              Form
                  of Stock Escrow Agreement between China Unistone Acquisition Corporation,
                  Continental Stock Transfer & Trust Company and the Initial
                  Stockholders (Incorporated by reference from Registration Statement
                  333-117639, dated July 23, 2004, Exhibit 10.11)4.15
              
              Form
                  of Registration Rights Agreement among China Unistone Acquisition
                  Corporation and the Initial Stockholders (Incorporated by reference
                  from
                  Registration Statement 333-117639, dated July 23, 2004, Exhibit
                  10.14)4.16
              
              Amended
                  and Restated Agreement between China Unistone Acquisition Corporation
                  and
                  E.J. McKay & Co. (Incorporated by reference from Registration
                  Statement No. 333-132814 - Exhibit
                  10.15)
  123
  4.17
              
              Form
                  of Employment Agreement between Yucheng Technologies Limited and
                  Hong
                  Weidong (Incorporated by reference from Registration Statement
                  No.
                  333-132814 - Exhibit 10.18)4.18
              
              Form
                  of Employment Agreement between Yucheng Technologies Limited and
                  Zeng Shuo
                  (Incorporated by reference from Registration Statement No. 333-132814
                  -
                  Exhibit 10.19)4.19
              
              Form
                  of Employment Agreement between Yucheng Technologies Limited and
                  Chih T.
                  Cheung (Incorporated by reference from Registration Statement No.
                  333-132814 - Exhibit 10.20)4.20
              
              Form
                  of Voting Agreement among Sihitech Company Limited, Mega Capital
                  Group
                  Services Limited, Profit Loyal Consultants Limited, Elite Concord
                  International Limited, China Century Holdings Group Limited, Shinning
                  Growth Investment Group Limited, Chih Cheung, and James Li (Incorporated
                  by reference from Registration Statement No. 333-132814 - Exhibit
                  10.21)4.21
              
              Engagement
                  letter between China Unistone Acquisition Corporation and WR Hambrecht
                  +
                  Co regarding the rendering of a fairness opinion (Incorporated
                  by
                  reference from Registration Statement No. 333-132814 - Exhibit
                  10.22)4.22
              
              Form
                  Sihitech Software Development Agreement (Incorporated by reference
                  from
                  Registration Statement No. 333-132814 - Exhibit 10.23)4.23
              
              Form
                  e-Channels Software License Agreement (Incorporated by reference
                  from
                  Registration Statement No. 333-132814 - Exhibit 10.24)4.24
              
              Form
                  Sihitech Service Agreement (Incorporated by reference from Registration
                  Statement No. 333-132814 - Exhibit 10.25)4.25
              
              Form
                  e-Channels Technology Service Contract (Incorporated by reference
                  from
                  Registration Statement No. 333-132814 - Exhibit 10.26)4.26
              
              Form
                  e-Channels Software Sales Agreement (Incorporated by reference
                  from
                  Registration Statement No. 333-132814 - Exhibit 10.27)4.27
              
              Equity
                Interest Transfer Agreement re Beijing
                Sunrisk Information Technology Company Limited (Incorporated by reference
                from Exhibit 4.1 to Form 6-K filed February 13, 2007)8.1
              
              List
                  of subsidiaries11.1
              
              Code
                  of Ethics (Incorporated by reference from Registration Statement
                  No.
                  333-132814 - Annex G)12.1
              
              CEO
                  Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
                  (17 CFR
                  240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a))12.2
              
              CFO
                  Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
                  or Rule
                  15d-1(a) (17 CFR 240.15d-14(a))13.1
              
              CEO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 200213.2
              
              CFO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002





124


**SIGNATURE**




The
      registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.


Date:June
              25, 2007
            
            
            YUCHENG
                TECHNOLOGIES LIMITED/s/
                Hong WeidongName:Hong
                WeidongTitle:Chief
                Executive Officer




125