**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-KSB/A**
 
 (Mark
        One)
 x
              Annual
                  report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
                  for the fiscal year ended December 31,
                  2004
 
 
 Transition
        report under Section 13 or 15(d) of the Securities Exchange Act of
        1934
 
 For
        the
        transition period from ____ to______.
 
 Commission
        file number: 000-30516
 
 **CHINA
                  GRANITE CORPORATION**(Exact
                  name of small business issuer as specified in its
                  charter)
 
  Nevada
              
              880448920(State
                  of Other Jurisdiction incorporation or organization)
              
              (I.R.S.
                  Employer I.D. No.)
 
 2642
                  Collins Avenue, Suite 305, Miami, FL
              
              33140(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 Issuer's
                  telephone number
              (305)
                  534-1684
  
 N/A(Former
                  name, former address and former fiscal year, if changed since last
                  report)
   Securities
        Registered under Section 12(b) of the Exchange Act: None
 
 Securities
        Registered pursuant to Section 12(g) of the Act:
 Common
          Stock, par value $0.001 per share
 (Title
          of
          class)
  
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the Registrant was required to file such reports) and (2) has been subject
        to such filing requirements for the past 90 days.    Yes x No o
  
 
  Check
        if
        there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
        S-K (229.405 of this chapter) contained herein, and no disclosure will be
        contained, to the best of the registrant's knowledge, in definitive proxy
        or
        information statements incorporated by reference in Part III of this Form
        10-KSB
        or any amendment to this Form 10-KSB.    Yes x No o
  State
        Registrant's revenues for its most recent fiscal year: $2,387,582
 
 State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        sold, or the average bid and asked prices of such common equity, as of a
        specified date within the past 60 days: 12,091,812 shares held by non-affiliates
        had an aggregate market value of $10,882,630 as at March 30, 2005.
  (APPLICABLE
        ONLY TO CORPORATE REGISTRANTS)
 
 State
        the
        number of shares outstanding of each of the Registrant's classes of common
        stock, as of the latest practicable date.
 
 14,498,000
        common shares issued and outstanding as of March 30, 2005.
  DOCUMENTS
        INCORPORATED BY REFERENCE
 
 None.
 
 Transitional
        Small Business Disclosure Format (Check one):
 
 Yes o No x
  
 
 TABLE
        OF
        CONTENTS
 
 PART
                  I
              PageItem
                  1.
              Description
                  of Business
              1Item
                  2.
              Description
                  of Property
              15Item
                  3.
              Legal
                  Proceedings
              15Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              15PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder
                  Matters
              16Item
                  6.
              Management
                  Discussion and Analysis or Plan of
                  Operation
              18Item
                  7.
              Financial
                  Statements
              F-1Item
                  8.
              Changes
                  in and Disagreements with Accountants on
                  Accounting and Financial Disclosure
              22Item
                  8A.
              Controls
                  and Procedures
              23PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16 (a) of the Exchange
                  Act
              23Item
                  10.
              Executive
                  Compensation
              27Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters
              29Item
                  12.
              Certain
                  Relationships and Related
                  Transactions
              30Item
                  13.
              Exhibits
                  and Reports on Form 8-K
              31Item
                  14.
              Principal
                  Accountant Fees and
                  Services
              32SIGNATURESFINANCIAL
                  STATEMENTS
              F-1EXHIBITS
  *Table
            of Contents*
 
 PART
        I
 Item
                  1.
              Description
                  of Business.
  Overview
 
 China
        Granite Corporation conducts granite mining and processing operations in
        the
        People's Republic of China (the "PRC") through the wholly-owned subsidiary
        of
        its subsidiary, China Laizhou Bay Mining International Corporation, a
        corporation organized under the laws of the British Virgin Islands ("Laizhou").
        This operating company, Laizhou Jia Sheng Stone Company ("Laizhou China"),
        is a
        limited liability company organized under the laws of the People's Republic
        of
        China.
 
 Unless
        otherwise specified or the context OTHERWISE requires, in this Form 10-KSB/A
        (the “Form 10-KSB”) the terms the "Company", "China Granite", "we", and "our"
        shall mean the operations or business of China Granite Corporation, a Nevada
        corporation, and its subsidiaries. Unless otherwise specified or the context
        otherwise requires, in this Form 10-KSB the term "Arbor" shall refer to our
        operations prior to the reorganization with Laizhou.
 
 Introduction
 
 We
        were
        incorporated in the State of Nevada as E Investments, Inc., on February 25,
        1999, and subsequently changed our name to Arbor, Inc. on December 16, 1999.
        We
        originally intended to engage in the business of manufacturing, selling and
        distributing fence posts to be used by government parks, highway departments,
        ranchers and farmers throughout North America. Due to a lack of capital,
        we were
        forced to abandon our original business and examine other business
        options.
 
 In
        October 2002, we appointed a new director, Mr. Costas Takkas, to assist us
        with
        our strategic planning and in forming a new direction for our business. Mr.
        Takkas was responsible for the management of our new business direction in
        2003
        and helped to focus our efforts on real estate development projects in
        Brazil.
 
 The
        Brazil Project
 
 In
        October and November 2003 (the "November Placement"), we received $500,000
        ($250,000 of which came from Mr. Takkas) through a private placement of 600,000
        shares of our restricted common stock to fund a real estate development project
        between CPL Construcoes e Comercio, Inc. ("CPL") and China Granite in Brazil.
        To
        this end a Brazilian corporation was formed to carry on the venture, namely
        CPL
        Arbor do Brasil Construtora Limitada ("CPL Arbor"), which is owned in equal
        parts by CPL and us. An aggregate of $425,000 of the funds raised in the
        November Placement have been committed to CPL Arbor. Of this aggregate amount,
        $325,000 is a loan to CPL Arbor and was repayable on October 31, 2004, with
        an
        interest rate of 4% above LIBOR. The remaining $100,000 is held in trust
        and
        will be released to CPL Arbor upon the completion of the infrastructure work
        for
        the project. As a result of the acquisition of Laizhou, we determined in
        February 2004 that we would no longer pursue the Brazil Project and we sought
        to
        sell our interest in CPL Arbor. In the interest of continuing the project
        until
        such time a buyer could be found, two of our directors, Messrs. Chen and
        Takkas,
        lent us further funds during the fourth quarter of 2004, totaling $170,000,
        specifically for use on this real estate development project. On December
        31,
        2004, we entered into an agreement with a consortium, that included the two
        directors, to sell our interest in CPL Arbor. Under the agreement the buyer
        has
        accepted the interest in CPL Arbor and the responsibility to repay the notes
        totaling $595,000 set off against notes payable by us to our two directors,
        Messrs. Chen and Takkas, totaling $170,000 requiring a net payment to us
        of
        $425,000. $25,000 was paid on execution of the agreement and $200,000 was
        paid
        on March 31 st ,
        2005,
        with the balance of $200,000 due on June 30 th ,
        2005.
        The two directors have personally guaranteed these payments.
  1
 *Table
            of Contents*
  The
        Laizhou China Project
 
 On
        February 5, 2004, we completed a reorganization with Laizhou pursuant to
        a Stock
        Exchange Agreement and Plan of Reorganization (the "Agreement"). We intend
        on
        continuing the business operations of Laizhou, which conducts granite mining
        and
        processing operations in the PRC through its wholly owned subsidiary, Laizhou
        China. Laizhou China's operations consist of extracting granite blocks, measured
        in cubic meters, from quarries and processing granite blocks into finished
        pieces measured in square meters: granite slabs, used in (i) construction,
        (ii)
        cladding, (iii) tile, and (iv) carved, decorative features such as statues,
        pedestals and ornaments.
  The
        Chinese Granite Industry
 
 According
        to the China Stone Materials Industry Association (the "CSMIA"), the past
        20
        years have seen the Chinese stone market grow at an average annual rate of
        20%.
        As data in the China Home Decoration Materials Market Report (published in
        June
        2001) indicates, in the past decade the Chinese decorative stone market has
        expanded rapidly. In 1990, a total of 25.13 million square meters of stone
        was
        produced. By 2000, a total of 120 million square meters was produced,
        representing a 477% increase over the decade. Breakdown into various groups
        indicates that some stones have become more popular than others: whereas
        in 1990
        only 7.05 million square meters of marble were produced, this number went
        up to
        20.8 million square meters by 2000, an annual growth rate of 11%. The most
        remarkable growth came from granite, 5.73 million square meters of which
        were
        produced in 1990 and 87 million square meters in 2000 - an annual growth
        rate
        exceeding 31%.
 
 The
        Hong
        Kong-based online trade marketplace Alibaba.com estimates raw material output
        of
        Chinese stone in 2000 at 15 million tons, which does not include numerous
        small
        rural production bases. The same report estimates total output value of Chinese
        stone in 2001 at 100 billion RMB ($12 billion). The Italian Institute gives
        the
        same figure for Foreign Trade. The Italian report estimates block production
        at
        6 million cubic meters, which equals roughly 16.8 million tons. Slab production
        is gauged in the report at 140 million square meters, of which granite makes
        up
        80 million square meters and marble makes up 40 million square
        meters.
  2
 *Table
            of Contents*
 
 On
        the
        other hand, consumption of stone in China was reported to be 60 million square
        meters of slabs in 2000, which rose to 100 million square meters in 2001,
        according to Alibaba.com. A 2002 report by the Shenzhen-based online B2B
        trade
        marketplace China Building Material Commercial Net put Chinese consumption
        at
        61.30 million square meters, making the country the largest consumer of natural
        stone on the planet. Other large consumers and their levels of consumption
        in
        2002 of decorative stone include Italy (56 million square meters), Germany
        (44
        million), the United States (42 million), and Spain (40 million). The China
        Stone Materials Industry Association puts the total value of consumed stone
        products in 2001 at 45-50 billion RMB ($5.4-6 billion).
 
 The
        growth in Chinese consumption of stone is expected to continue this growth.
        Compared to many players on the global stage, per capita consumption of stone
        in
        China is extremely low at 0.05 square meters. Greece leads the world in per
        capita stone consumption with 1.5 square meters, followed by Saudi Arabia
        and
        Switzerland (1.32 square meters), Italy (1.01 square meters), and Germany
        (0.55
        square meters). This indicates that there may be much more room for growth,
        provided that Chinese consumers' taste develops the same partiality to marble
        and granite pillars and bathrooms and other decorative features that are
        typical
        of European countries.
 
 In
        addition, China is currently engaged in a significant expansion of new
        construction. The China Academy of Building Research, has forecast for the
        time
        span of 2001-2010, construction of new houses in rural areas covering 5 billion
        square meters, public construction covering 1 billion square meters, and
        urban
        housing covering 3.35 billion square meters. Given the low per capita
        consumption and the ongoing construction boom in China, the China Stone Material
        Industry Association expects decorative stone consumption to rise to 200
        billion
        RMB ($24 billion) by 2010, translating into a compound annual growth rate
        of
        nearly 17%. Per capita consumption will be raised from the current 0.05 square
        meters to 0.15 square meters in 2010.
 
 Laizhou
        and Laizhou China
 
 Laizhou
        was incorporated on January 6, 2004, in the territory of the British Virgin
        Islands. On January 20, 2004, Laizhou acquired 100% of Laizhou China. Laizhou
        has no other assets or operations other than its ownership of Laizhou China.
        Laizhou China was organized on January 9, 2003 when it acquired a business
        license issued by the Laizhou Administration for Industry and
        Commerce.
 
 Laizhou
        China is located in the Shandong Province on the East Coast of the PRC. Laizhou
        China owns and operates two granite quarries, Shangjiashan Granite No. 1
        Quarry
        ("No. 1 Quarry") and Laizhou Zuocun Town West Jiangjia Village Granite Quarry
        Group 14 ("Group 14 Quarry"). Laizhou China purchased all of the land-use
        rights, buildings and stone product processing equipment for the Group 14
        Quarry
        on February 15, 2003, and purchased mining equipment used at the No. 1 Quarry
        on
        July 7, 2003.
  3
 *Table
            of Contents*
 
 No.
        1
        Quarry is an open-pit quarry located in Zuocon Town Laizhou City in the Shandong
        Province of the PRC. No. 1 Quarry is located on the northern side of a valley
        that runs East-West. It is accessed via 25 kilometers of road running east
        of
        Laizhou. No. 1 Quarry currently has three main operative fronts from which
        granite is extracted. Power for the property is obtained from the nearby
        village
        and generators. The following is a list of equipment currently located and
        used
        at No. 1 Quarry:
  Category
              QuantitiesBeijing
                  Forton truck
              1Excavator
              1Loader
              1Fork
                  lift
              1Press
                  modifier assembly
              1Vertical
                  linear driller
              2Special
                  horizontal linear driller
              2Portable
                  stone driller
              24Pneumatic
                  driven miller
              2Hydraulic
                  lifting device
              2Fork
                  lift
              1
 
 
 Group
        14
        Quarry is an open-pit quarry located several hundred meters from No. 1 Quarry
        on
        the opposite side of the valley. The rock mineralization found at Group 14
        Quarry is a medium grained granite. The rock appears to be mainly composed
        by
        whitish feldspar (approximately 60% of the total) and a light grey quartz
        (approximately 25-30%), with limited amount of smaller dark minerals (Fe/Mg
        silicates, 5% or even less of the total). The average hue of granite is light
        grey. The morphology is favorable for quarrying operations, because of the
        slope
        gradient which, is not too steep for access, but inclined enough to gradually
        open, in a prospective program of development. The rock mineralization found
        at
        No. 1 Quarry is a medium to coarse grained granite. The rock appears mainly
        composed by whitish to pale grey feldspars (approximately 55-65 %) and grey
        quartz (approximately 30%), with a limited amount of dark minerals (Fe/Mg
        silicates, 5% or slightly more) scattered in the groundmass. The morphology
        of
        the deposit is favorable for quarrying operations because of the dome shaped
        outcrops, both at the present quarry site and behind the site.
 
 We
        are
        conducting no geologic exploration at any of our mines. Both Group 14 Quarry
        and
        No. 1 Quarry had previous production before we acquired the property, and
        our
        decision to acquire the property was on an evaluation of the opened mining
        fronts from previous mining.
 
 Power
        for
        the property is obtained from the nearby village and generators. We use diesel
        generators at each mining site. We have a total of three large and twelve
        small
        generators for all of our operations.
 
 The
        following is a list of equipment currently located and used at Group 14
        Quarry:
 
 Category
              QuantitiesSubmerged
                  driller
              1Air
                  compressor
              3Truck
              1Excavator
              1Vertical
                  linear driller
              2Special
                  horizontal linear driller
              3Portable
                  stone driller
              36Pneumatic
                  driven miler
              2Hydraulic
                  lifting device
              2Wind
                  pipes
              1000Excavator
              150
                  loader
              1Crane
              1Air
                  reservoir
              1
  4
 *Table
            of Contents*
  The
        mines
        are located on two parcels of land that are leased by Laizhou China from
        the
        local PRC government body. The mines consist of approximately 0.27 square
        kilometers containing granite reserves in two marketable varieties or distinct
        colors. The approximate locations of our mines are set forth below:
 
  
 
 Laizhou
        China has two stone processing factories: the yet-to-be completed 20,000
        square
        meter facility (the "New Yard") and the old 18,000 square meter factory (the
        "Old Yard"). The New Yard is located in the Laizhou City Economic Development
        Zone and its products developed for export are exempt from the domestic value
        added tax ("VAT"). The majority of our blocks that are processed at the stone
        processing factory are first cut into slabs and checked for quality. These
        slabs
        are then polished and cut into tiles or cladding.
 
 For
        the
        year ended December 31, 2004, Laizhou China processed approximately 63,527
        square meters of granite slab and cladding. 21,243 square meters of these
        granite slabs, cladding and processed granite was produced in house and 42,284
        square meters was produced for us.
 
 Mining
        Rights
 
 Pursuant
        to the Mineral Resources Law of the People's Republic of China (1996), mineral
        resources are owned by the national government. Shandong Province, where
        Laizhou
        China's operations are located, has autonomy in mining concessions from the
        national government. The mining concessions are negotiated and signed with
        the
        city government in Laizhou and filed with the Shandong Province governmental
        authority.
 
 Pursuant
        to the Shandong Province Contract for Selling Mining Rights between Laizhou
        China and the Laizhou Administration of State Land and Resources (the "ASLR")
        and the PRC Mining Rights License issued by the ASLR, Laizhou China owns
        the
        mining rights of the No. 1 Quarry from November 2003 to November 2008 with
        options to extend its mining rights through 2033. On November 8, 2002, one
        of
        the stockholders of Laizhou China purchased the mining rights to No. 1 Quarry
        for approximately $725,000 (6,000,000 Yuan). On March 10, 2003 that stockholder
        assigned the No. 1 Quarry mining rights to Laizhou China for a payment of
        approximately $725,000 (6,000,000 Yuan), the same amount that the stockholder
        originally paid for those rights.
 
 Laizhou
        China also operates the Group 14 Quarry. Laizhou China is currently in the
        application process with the ASLR for the mining rights to the Group 14 Quarry.
        The ASLR issued the PRC Mining Rights License for the Group 14 Quarry (the
        "Group 14 Mining Rights") on August 29, 1998 to West Jiangjia Village (a
        legal
        collective organization). On January 10, 2003, one of the stockholders of
        Laizhou China signed a mining rights lease contract with the Villager Committee
        of West Jiangjia Village and purchased the Group 14 Mining Rights for $845,000
        (7,000,000 Yuan). On March 3, 2003, that stockholder assigned the Group 14
        Mining Rights to Laizhou China for a payment of $845,000 (7,000,000 Yuan),
        the
        same amount that the stockholder originally paid for the rights. The Group
        14
        Quarry was in full operation on April 1, 2004.
  5
 *Table
            of Contents*
 
 Mining
        Equipment
 
 Laizhou
        China has two thirty three ton excavators, one twenty ton excavator, one
        front
        end loader, 60 mining drills, three large generators and six air compressors,
        vehicles, tools and 11 buildings for processing, selling and managing the
        operations. During 2003 and 2004, Laizhou China contracted with outside vendors
        for all other trucking services.
 
 During
        the first quarter of 2004, Laizhou China completed both a geological site
        survey
        and a development plan to determine what modern extraction equipment is needed
        at Laizhou China's two mines. The survey and development plan is intended
        to
        increase the rate of extraction of blocks for the manufacture of slabs, tiles
        and sheets for cladding and to improve both the regularity of the stone and
        the
        sizes of stone Laizhou China is able to produce and distribute. Laizhou China's
        facilities are not equipped to process cladding in large sheets.
 
 Customers
 
 In
        2004,
        approximately 23% of Laizhou China's revenue came from Chinese government
        projects, approximately 10% came from commercial pavers, approximately 14%
        came
        from commercial cladding, and the remainder came from other projects. In
        2004,
        the granite products of Laizhou China were sold in the following markets:
        (i)
        the local Chinese region (Beijing) 5.2%; (ii) exports to Korea 30%; and (iii)
        62.8% to other regions in China.
 
 Competition
 
 Competition
        in the Chinese granite market is extremely fragmented. The Laizhou area contains
        approximately 300 quarries and 2,000 stone processing factories. In the Fujian
        Province of southern China, there are several larger scale granite mining
        and
        processing operations.
 
 Major
        stone quarrying and production bases are numerous throughout China. According
        to
        the China Home Decoration Materials Market Report, Fujian Province is the
        largest geographic producer of granite, with a 46% share of the Chinese market.
        Other granite producing provinces include Guangdong (19% share of the Chinese
        market) and Shandong (12%).
 
 The
        four
        most notable quality stone processing (as opposed to quarrying) bases in
        China
        are: Nan'an in Fujian province, Yunfu in Guangdong province, Ya'an in Sichuan
        province, and Laizhou in Shandong province.
  6
 *Table
            of Contents*
 
 According
        to the Italian Institute for Foreign Trade (as reported in "Building Sector
        Series 05: Chinese Decorative Stone Market," March 2003), there are
        approximately 30,000 companies in China engaged in the stone business, employing
        a total workforce of about 6 million workers. Quarries employ roughly 1.5
        million workers, processing facilities 4 million, and machinery manufacturing
        about 500,000.
 
 With
        economic reforms rippling through the Chinese market, a large number of private
        companies have formed, and are competing for, market share. Due to early
        economic reforms in Guangdong province, a number of well known processing
        companies were formed and are currently operating, including Yongguang Xiongdi,
        Ronghuafu, and Jinshan Stone Material Company.
 
 There
        are
        two major foreign-funded stone block and slab companies in the Chinese market,
        both of which are larger than Laizhou China. One is the Hong Kong-funded
        Universal Marble & Granite Group Ltd., which produces approximately 50,000
        square meters of marble and granite slabs. The other is Spanish-funded Jinan
        Blue Star. According to the Chinese Markets Yearbook 2003, Jinan Blue Star
        had
        revenue of more than 86 million RMB (approximately US$10.4m) in 2001, with
        a
        profit of 6.7 million RMB (approximately US$900,000). The company produces
        only
        rough granite material, whereas Universal Marble & Granite produces
        high-quality finished products. There are approximately 400 foreign funded
        firms
        active on the Chinese decorative stone market.
 
 Granite
        Production and Prices
 
 In
        2004,
        Group 14 Quarry yielded approximately 9,410 cubic meters of granite blocks.
        The
        average size of the granite blocks was approximately three to four cubic
        meters.
        The average price for mined blocks is $78 per cubic meter based on a price
        range
        of $57 to $100, depending on the quality and demand for a particular stone
        color.
 
 In
        2004,
        No. 1 Quarry yielded approximately 6,993 cubic meters of granite blocks.
        The
        average size of the granite blocks was approximately three to four cubic
        meters.
        The average price for mined blocks is $154 per cubic meter based on a price
        range of $126 to $183, depending on the quality and demand for a particular
        stone color.
 
 Reserves
 
 According
        to Industry Guide 7 ("Industry Guide 7") promulgated by the SEC pursuant
        to the
        Securities Act of 1933, as amended, a "reserve" is defined as "[t]hat part
        of a
        mineral deposit which could be economically and legally extracted or produced
        at
        the time of the reserve determination." Further, Industry Guide 7 defines
        two
        types of reserves, "proven (measured) reserves" and "probable (indicated)
        reserves." Our determination of our reserves, proven and probable, is based
        solely upon a report from an Italian consulting geologist hired by us to
        evaluate our quarrying operations. This geologist based his report solely
        upon
        visual inspection and rough measurements. We have not engaged in any topographic
        mapping, site surveys or sample analysis in order to determine our reserves.
        Based solely upon this geologist's visual determinations that Group 14 Quarry
        is
        approximately 12 hectares and that the upper outcrops of granite extend at
        least
        150 meters above the base of the valley, we believe that Group 14 Quarry's
        probable reserves are in excess of 1,000,000 cubic meters of recoverable
        granite. Based solely upon this geologist's visual determinations that No.
        1
        Quarry is approximately 15 hectares and that the upper outcrops of granite
        extend at least 130 meters above the base of the valley, we believe that
        Group 1
        Quarry's probable reserves are in excess of 1,000,000 cubic meters of
        recoverable granite. The recoverable granite of 1,000,000 cubic meters at
        Group
        14 Quarry and No.1 Group Quarry respectively are used as a basis for
        amortization. The annual production at Group 14 Quarry is estimated to be
        about
        7,000 cubic meters, whereas the annual production at No.1 Group Quarry is
        estimated to be about 10,000 cubic meters. The stripping ratio used as a
        basis
        for amortization is about 3-4%. Currently, we are assessing whether we will
        refine the estimate of our reserves with any surveys, geologic mapping,
        professional consultants, sampling, geologic mapping or topographic
        reconciliations.
 
 Employees
 
 As
        of
        December 31, 2004, our parent company, China Granite, had no employees other
        than officers. As of December 31, 2004, Laizhou China has 110 employees.
        Of
        those, 60 are in mining, 30 are in the processing yard, and 20 are in sales
        and
        administration. Laizhou China expects to hire approximately 20 additional
        mining
        employees in 2005. We also retain consultants on a contract basis to meet
        internal corporate needs and develop business. We believe that relations
        with
        employees are good. None of our employees belong to any unions or organized
        labor groups.
  7
 *Table
            of Contents*
 
 CAUTIONARY
        STATEMENTS REGARDING FUTURE RESULTS OF OPERATIONS
 
 You
        should read the following cautionary statements in conjunction with the factors
        discussed elsewhere in this Annual Report and other of our filings with the
        Securities and Exchange Commission. These cautionary statements are intended
        to
        highlight certain factors that may affect our financial condition and results
        of
        operations and are not meant to be an exhaustive discussion of risks that
        apply
        to companies such as us. Like other businesses, we are susceptible to
        macroeconomic downturns in the PRC and other economies that may affect the
        general economic climate and performance of our customers or us. Similarly,
        the
        price of our securities is subject to volatility due to fluctuations in general
        market conditions, differences in results of operations from estimates and
        projections generated by the investment community and other factors beyond
        our
        control.
 
 RISKS
        RELATING TO OUR OPERATIONS:
 
 WE
        MAY
        NEED FURTHER CAPITAL.
 
 Based
        on
        current reserves and anticipated cash flow from operations, we currently
        anticipate that the available funds will be sufficient to meet our anticipated
        needs for working capital, capital expenditures and business expansion for
        six
        months. Thereafter, we will need to raise additional funds. If any of our
        assumptions are incorrect, we may need to raise capital before the end of
        six
        months. If additional funds are raised through the issuance of equity or
        convertible debt securities, the percentage ownership of our stockholders
        will
        be reduced, stockholders may experience additional dilution and such securities
        may have rights, preferences and privileges senior to those of our common
        stock.
        There can be no assurance that additional financing will be available on
        terms
        favorable to us or at all. If adequate funds are not available or are not
        available on acceptable terms, we may not be able to fund expansion, take
        advantage of unanticipated acquisition opportunities, develop or enhance
        services or products or respond to competitive pressures. Such inability
        could
        have a material adverse effect on our business, results of operations and
        financial condition.
 
 WE
        ARE
        THE PRODUCT OF A RECENT MERGER, AND HAVE A LIMITED OPERATING HISTORY ON WHICH
        TO
        EVALUATE OUR POTENTIAL FOR FUTURE SUCCESS.
 
 On
        February 5, 2004, we completed a reorganization with Laizhou pursuant to
        the
        Agreement. We intend on continuing the business operations of Laizhou, which
        conducts granite mining and processing operations in the PRC through its
        wholly-owned subsidiary, Laizhou China. We have only a limited operating
        history
        as a combined company upon which you can evaluate our business and prospects,
        and we have yet to develop sufficient experience regarding actual revenues
        to be
        received from our combined operations.
  8
 *Table
            of Contents*
 
 You
        must
        consider the risks and uncertainties frequently encountered by companies
        in
        situations such as ours, including but not limited to the ability to grow
        and
        prosper and finance such growth. If we are unsuccessful in addressing these
        risks and uncertainties, our business, results of operations and financial
        condition will be materially and adversely affected.
 
 OUR
        RESERVES ESTIMATES ARE BASED ON VISUAL OBSERVATIONS ONLY AND MAY BE
        INCORRECT.
 
 In
        March
        2004 we hired an Italian consulting geologist, Giacomo Porro, to survey our
        quarries. The purpose of Mr. Porro's work was to assist us with our operations
        and provide advice on increasing productivity and efficiency. Mr. Porro did
        not
        perform any topographic mapping, sample analysis or test work on our quarries
        in
        order to make his recommendations and his estimations of our reserves. The
        imprecise nature of Mr. Porro's work and the lack of detailed studies performed
        on our quarries may diminish the quality of any volumetric
        estimates.
 
 WE
        MAY
        FACE STRONG COMPETITION FROM OTHER MINING COMPANIES FOR THE ACQUISITION OF
        NEW
        PROPERTIES.
 
 Mines
        have limited lives and as a result, we may seek to replace and expand our
        reserves through the acquisition of new properties. In addition, there is
        a
        limited supply of desirable mineral lands available in the PRC and other
        areas
        where we would consider conducting exploration and/or production activities.
        Because we may face strong competition for new properties from other mining
        companies, some of whom may have greater financial resources than we do,
        we may
        be unable to acquire attractive new mining properties on terms that we consider
        acceptable.
 
 RISKS
        RELATED TO DOING BUSINESS IN THE PRC:
 
 Laizhou
        operates from facilities that are located in the People's Republic of China.
        Accordingly, its operations must conform to the governmental regulations
        and
        rules of China.
 
 THE
        PRC
        LEGAL SYSTEM HAS INHERENT UNCERTAINTIES THAT COULD LIMIT THE LEGAL PROTECTIONS
        AVAILABLE TO YOU.
 
 The
        practical effect of the PRC's legal system on our business operations in
        China
        can be viewed from two separate but intertwined considerations. First, as
        a
        matter of substantive law, the Foreign Invested Enterprise laws provide
        significant protection from government interference. In addition, these laws
        guarantee the full enjoyment of the benefits of corporate Articles and contracts
        to Foreign Invested Enterprise participants. These laws, however, do impose
        standards concerning corporate formation and governance, which are not
        qualitatively different from the corporation laws found in the United States.
        Similarly, PRC accounting laws mandate accounting practices, which may not
        be
        consistent with US Generally Accepted Accounting Principles. The China
        accounting laws require that an annual "statutory audit" be performed in
        accordance with People's Republic of China accounting standards and that
        the
        books of account of Foreign Invested Enterprises are maintained in accordance
        with Chinese accounting laws. Article 14 of the PRC Wholly Foreign-Owned
        Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain
        periodic fiscal reports and statements to designate financial and tax
        authorities, at the risk of business license revocation.
  9
 *Table
            of Contents*
 
 Second,
        while the enforcement of substantive rights may appear less clear than United
        States procedures, Foreign Invested Enterprises and Wholly Foreign- Owned
        Enterprises are Chinese registered companies that enjoy the same status as
        other
        Chinese registered companies in business-to-business dispute resolution.
        The
        Chinese legal infrastructure is significantly different in operation from
        its
        United States counterpart, and may present a significant impediment to the
        operation of Foreign Invested Enterprises.
 
 Laizhou
        China is organized under the laws of the PRC and is governed by its articles
        of
        association. The Chinese 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 Chinese 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.
 
 NEGATIVE
        IMPACT UPON ECONOMIC REFORM POLICIES OR NATIONALIZATION COULD RESULT IN A
        TOTAL
        INVESTMENT LOSS IN OUR COMMON STOCK.
 
 Since
        1979, the Chinese government has reformed its economic systems. Because many
        reforms are unprecedented or experimental, they are expected to be refined
        and
        improved. Other political, economic and social factors, such as political
        changes, changes in the rates of economic growth, unemployment or inflation,
        or
        in the disparities in per capita wealth between regions within China, could
        lead
        to further readjustment of the reform measures. This refining and readjustment
        process may negatively affect our operations.
 
 Although
        the Chinese government owns the majority of productive assets in China,
        including mines and quarrying sites, in the past several years the government
        has implemented economic reform measures that emphasize decentralization
        and
        encourage private economic activity. Because these economic reform measures
        may
        be inconsistent or ineffectual, there are no assurances that:
  ·
              We
                  will be able to capitalize on economic
                  reforms;
 
 ·
              The
                  Chinese government will continue its pursuit of economic reform
                  policies;
 
 ·
              The
                  economic policies, even if pursued, will be
                  successful;
 
 ·
              Economic
                  policies will not be significantly altered from time to time;
                  and
 
 ·
              Business
                  operations in China will not become subject to the risk of
                  nationalization.
  Over
        the
        last few years, China's economy has registered a high growth rate. Recently,
        there have been indications that rates of inflation have increased. In response,
        the Chinese government recently has taken measures to curb this excessively
        expansive economy. These measures have included restrictions on the availability
        of domestic credit, reducing the purchasing capability of certain of its
        customers, and limited re-centralization of the approval process for purchases
        of some foreign products. These austerity measures alone may not succeed
        in
        slowing down the economy's excessive expansion or control inflation, and
        may
        result in severe dislocations in the Chinese economy. The Chinese government
        may
        adopt additional measures to further combat inflation, including the
        establishment of freezes or restraints on certain projects or markets. These
        measures may adversely affect our operations.
  10
 *Table
            of Contents*
  To
        date
        reforms to China's economic system have not adversely impacted our operations
        and are not expected to adversely impact operations in the foreseeable future;
        however, there can be no assurance that the reforms to China's economic system
        will continue or that we will not be adversely affected by changes in China's
        political, economic, and social conditions and by changes in policies of
        the
        Chinese government, such as changes in laws and regulations, measures which
        may
        be introduced to control inflation, changes in the rate or method of taxation,
        imposition of additional restrictions on currency conversion and remittance
        abroad, and reduction in tariff protection and other import
        restrictions.
 
 OUR
        MINING RIGHTS ARE SUBJECT TO GOVERNMENTAL CONTROL AND RENEWAL.
 
 Our
        mining rights are subject to renewals by the relevant governmental authority.
        We
        are awaiting final approval of its mining rights to the Group 14 Quarry.
        Despite
        our having received written confirmation from the governmental authority,
        there
        is no guarantee that we will be granted the renewals.
 
 YOU
        MAY
        EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING
        FOREIGN
        JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN THE PRC BASED ON U.S. OR OTHER
        FOREIGN
        LAW AGAINST OUR MANAGEMENT AND US.
 
 Laizhou
        China, our operating company, is incorporated under the laws of the PRC,
        and
        substantially all of our assets are located in the PRC. In addition, many
        of our
        directors, managers, and executive officers reside within the PRC, and
        substantially all of the assets of these persons are located within the PRC.
        As
        a result, it may not be possible to effect service of process within the
        United
        States or elsewhere outside the PRC upon certain directors, supervisors or
        executive officers, including with respect to matters arising under U.S.
        federal
        securities laws or applicable state securities laws. Moreover, the PRC does
        not
        have treaties providing for the reciprocal recognition and enforcement of
        judgments of courts with the United States, the United Kingdom, Japan or
        many
        other countries. As a result, recognition and enforcement in the PRC of
        judgments of a court in the United States and any of the other jurisdictions
        mentioned above in relation to any matter may be difficult or impossible.
        Furthermore, an original action may be brought in the PRC against us, our
        directors, managers, or executive officers only if the actions are not required
        to be arbitrated by PRC law and Laizhou China's articles of association,
        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.
  11
 *Table
            of Contents*
 
 GOVERNMENT
        CONTROL OF CURRENCY CONVERSION AND THE FLUCTUATION OF THE RENMINBI MAY
        MATERIALLY AND ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL
        RESULTS.
 
 We
        receive substantially all of our revenues in Renminbi, which currently is
        not a
        freely convertible currency. The Chinese government may, at its discretion,
        restrict access in the future to foreign currencies for current account
        transactions. If this were to occur, we may not be able to pay dividends
        in
        foreign currencies to our shareholders.
 
 The
        value
        of the Renminbi against the U.S. dollar and other currencies fluctuates and
        is
        affected by, among other things, changes in the PRC's political and economic
        conditions. Since 1994, the conversion of Renminbi into foreign currencies,
        including Hong Kong and U.S. dollars, has been based on rates set by the
        People's Bank of China, which are set daily based on the previous day's
        interbank foreign exchange market rates and current exchange rates on the
        world
        financial markets. Since 1994, the official exchange rate for the conversion
        of
        Renminbi to U.S. dollars generally has been stable. Any devaluation of the
        Renminbi, however, may materially and adversely affect the value of, and
        any
        dividends payable on, our shares in foreign currency terms, since we will
        receive substantially all of our revenues, and express our profits, in Renminbi.
        Our financial condition and results of operations also may be affected by
        changes in the value of certain currencies other than the Renminbi. Our results
        may be adversely affected by changes in the political and social conditions
        in
        the PRC, and changes in governmental policies with respect to laws and
        regulations, anti-inflationary measures, currency conversion and remittance
        abroad, and rates and methods of taxation, among other things.
 
 RISKS
        RELATED TO THE GRANITE MINING INDUSTRY:
 
 WE
        OPERATE IN A SPECIALIZED INDUSTRY THAT REQUIRES MODERN FACILITIES AND
        EQUIPMENT.
 
 We
        operate in business segments that require the use of specialized facilities
        and
        technology. We currently rely on older equipment, such as drills, excavators
        and
        loaders, and facilities to process the raw granite blocks to maintain our
        production level. There is no guarantee that we will be able to upgrade our
        equipment, facilities and technology to increase production and make operations
        more efficient.
  12
 *Table
            of Contents*
 
 OUR
        CASH
        FLOW DEPENDS HEAVILY ON THE MARKET PRICE FOR GRANITE.
 
 The
        cash
        flow and profitability of our current operations are significantly affected
        by
        the market price of granite that is affected by numerous factors beyond our
        control. Specifically, the prices for granite slabs and cladding depend heavily
        on the type and amount of commercial and residential construction in the
        PRC.
 
 Factors
        that could cause such volatility may include, among other things:
 
 ·
              actual
                  or anticipated fluctuations in our quarterly operating
                  results;
 
 ·
              conditions
                  or trends in the mining industries and governmental regulations
                  that
                  affect such industries;
 
 ·
              changes
                  in the market valuations of other mining companies, especially
                  our
                  partners and competitors;
 
 ·
              general
                  market conditions; and political events, including actions by the PRC
                  government.
 
  OUR
        COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
 
 Our
        common stock price is likely to be highly volatile. The market price of our
        common stock has been, and is likely to continue to be, highly volatile as
        the
        stock market in general, and the market for mining companies in particular,
        has
        been highly volatile. Investors may not be able to resell their shares of
        our
        common stock following periods of volatility because of the market's adverse
        reaction to volatility. The trading prices of many mining companies' stocks
        have
        been highly volatile, and we cannot assure you that our stock will trade
        at the
        same levels of other mining stocks or that mining stocks in general will
        sustain
        their current market prices.
 
 ENVIRONMENTAL
        AND GOVERNMENTAL REGULATIONS.
 
 Our
        operations are subject to and affected by national, provincial and local
        laws
        and regulations relating to the environment, health and safety, and other
        regulatory matters. Certain of our operations may from time to time involve
        the
        use of substances that are classified as toxic or hazardous substances within
        the meaning of these laws and regulations. Environmental operating permits
        are,
        or may be, required for certain of our operations and such permits are subject
        to modification, renewal, and revocation. We regularly monitor and review
        our
        operations, procedures, and policies for compliance with these laws and
        regulations. Despite these compliance efforts, risk of environmental liability
        is inherent in the operation of our businesses, as it is with other companies
        engaged in similar businesses, and there can be no assurance that environmental
        liabilities will not have a material adverse effect on us in the
        future.
 
 We
        believe that our operations and facilities are in substantial compliance
        with
        applicable laws and regulations and that any noncompliance is not likely
        to have
        a material adverse effect on our operations or financial condition. See "Legal
        Proceedings" on page 14 of this Form 10-KSB. However, future events, such
        as
        changes in or modified interpretations of existing laws and regulations or
        enforcement policies, or further investigation or evaluation of the potential
        health hazards of certain products or business activities, may give rise
        to
        additional compliance and other costs that could have a material adverse
        effect
        on our operations and business. We, through safety information sheets and
        other
        means, communicate what we believe to be appropriate warnings and cautions
        to
        employees about the risks associated with granite mining and
        processing.
  13
 *Table
            of Contents*
 
 ENVIRONMENTAL
        LIABILITY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS; POTENTIAL
        LITIGATION ARISING FROM OUR OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT
        ON
        OUR FINANCIAL CONDITION
 
 From
        time
        to time claims of various types may be asserted against us arising out of
        our
        operations in the normal course of business, including claims relating to
        land
        use and permits, safety, health and environmental matters. Such matters are
        subject to many uncertainties and it is not possible to determine the probable
        outcome of, or the amount of liability, if any, from these matters. In the
        opinion of our management (which opinion is based in part upon consideration
        of
        the opinion of counsel), it is unlikely that the outcome of these claims
        will
        have a material adverse effect on our operations or financial condition.
        However, there can be no assurance that an adverse outcome in any of such
        litigation would not have a material adverse effect on us or our operating
        segments.
 
 SOME
        OF
        THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING
        STATEMENTS.
 
 Some
        of
        the information in this Annual Report on Form 10-KSB contains forward-looking
        statements that involve risks and uncertainties. You can identify these
        statements by forward-looking words such as "may," "will," "expect,"
        "anticipate," "believe," "estimate" and "continue" or similar words. You
        should
        read statements that contain these words carefully because they:
 
 ·
              discuss
                  our expectations about our future
                  performance;
 
 ·
              contain
                  projections of our future operating results or of our future financial
                  condition; or
 
 ·
              state
                  other "forward-looking"
                  information.
  We
        believe it is important to communicate our expectations to our stockholders.
        There may be events in the future, however, that we are not able to predict
        accurately or over which we have no control. The risk factors listed in this
        section, as well as any cautionary language in this Annual Report, provide
        examples of risks, uncertainties and events that may cause our actual results
        to
        differ materially from the expectations we describe in our forward-looking
        statements. You should be aware that the occurrence of any of the events
        described in these risk factors and elsewhere in this Annual Report could
        have a
        material and adverse effect on our business, results of operations and financial
        condition.
 
 14
 *Table
            of Contents*
 
 Item
                  2.
              Description
                  ofProperty
 
 Principal
        Offices
 
 Laizhou
        China is located in the Shandong Province of China, and our mining properties
        are described above. Our principal executive offices are located at 2642
        Collins
        Avenue, Suite 305, Miami, Florida 33140. We currently utilize this space
        from
        one of our directors for no charge. This space is suitable for our current
        uses
        and it is easily replaceable in the event that we decide to
        relocate.
 
 Item
                  3.
              Legal
                  Proceedings
 
 We
        have
        no pending legal proceedings. From time to time, we may be involved in various
        claims, lawsuits, disputes with third parties, actions involving allegations
        of
        discrimination or breach of contract actions incidental to the normal operations
        of the business. We are currently not involved in any such
        litigation.
 
 Granite
        mining and processing entails an inherent risk of workers' compensation and
        environmental liability. We may be named as a defendant in such lawsuits
        and
        thus become subject to the attendant risk of substantial damage awards. We
        believe that we have adequate insurance coverage. There can be no assurance,
        however, we will not be sued, that any such lawsuit will not exceed our
        insurance coverage, or that we will be able to maintain such coverage at
        acceptable costs and on favorable terms.
 
 Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
 
 An
        information statement on Schedule 14C was filed with the SEC and mailed to
        shareholders on March 11, 2004. The information statement informed shareholders
        that, pursuant to majority written consent of our shareholders, we (i) amended
        and restated our articles of incorporation to, among other things, change
        our
        name to China Granite Corporation, (ii) amended and restated our bylaws,
        (iii)
        adopted a stock option plan, and (iv) appointed three new members to our
        Board
        of Directors.
 
 15
 *Table
            of Contents*
 
 PART
        II
  Item
                  5.
              Market
                  for Common Equity and Related Stockholder
                  Matters
 
 General
 
 We
        trade
        on the Over The Counter Bulletin Board ("OTCBB") under the symbol "CGNT".
        The
        following quotations reflect the high and low bids for our common stock based
        on
        inter-dealer prices, without retail mark-up, mark-down or commission and
        may not
        represent actual transactions. The high and low bid prices for our common
        shares
        for each full financial quarter for the two most recent full fiscal years
        were
        as follows:
  Quarter
                  Ended
              High
              Low20044th
                  Quarter
              $2.40
              $1.253rd
                  Quarter
              $3.85
              $1.502nd
                  Quarter
              $6.25
              $3.501st
                  Quarter
              $5.35
              $3.3020034th
                  Quarter
              $3.30
              $0.703rd
                  Quarter
              $1.01
              $0.752nd
                  Quarter
              $1.03
              $0.301st
                  Quarter
              $1.05
              $0.40
 
 
 As
        of
        December 31, 2004, the shareholders' list for our common stock showed 49
        registered shareholders of record and 14,498,000 common shares issued and
        outstanding. We believe that there are approximately 500 beneficial holders
        of
        our common stock. On December 31, 2004, the closing price of our common stock
        on
        the OTCBB was $1.38.
 
 Dividend
        Policy
 
 We
        have
        never declared a dividend on our common stock. We have not paid, nor declared,
        any dividends since our inception and we do not intend to declare any such
        dividends in the foreseeable future. Our ability to pay dividends is subject
        to
        limitations imposed by Nevada law. Under Nevada law, dividends may be paid
        to
        the extent that a corporation's assets exceed its liabilities and it is able
        to
        pay its debts as they become due in the usual course of business.
 
 On
        February 4, 2004, we adopted the 2004 Stock Option Plan (the "Plan"). Under
        the
        Plan, One Million Four Hundred Thousand (1,400,000) shares of our common
        stock
        are reserved for issuance to selected officers and key employees. The purpose
        of
        the Plan is to encourage selected officers and key employees to accept or
        continue employment with us or our Affiliates; and increase the interest
        of
        selected officers, directors, key employees and consultants in our welfare
        through participation in the growth in value of our common stock. As of December
        31, 2004, there are no outstanding options.
  16
 *Table
            of Contents*
 
 Recent
        Sales of Unregistered Securities
 
 In
        October and November 2003, we completed the November Placement. We sold 600,000
        shares of our restricted common stock for $500,000. A Director and the then
        President, Costas Takkas, purchased 300,000 of these shares. The November
        Placement was made only to accredited investors without general solicitation
        in
        compliance with Regulation D of the Securities Act of 1933, as amended. There
        were no finders' fees or brokerage commissions paid for the November
        Placement.
 
 In
        December 2003, we completed the December Placement, selling an aggregate
        of
        550,000 shares of our restricted common stock for $1.00 per share. Mr. Takkas
        purchased 50,000 of these shares and Stephen Spoonamore, at the time our
        director and Secretary, purchased 30,000 of these shares. The December Placement
        was made only to accredited investors without general solicitation in compliance
        with Regulation D of the Securities Act of 1933, as amended. There were no
        finders' fees or brokerage commissions paid for the December
        Placement.
 
 In
        April
        2004, we completed an additional private placement of 500,000 shares of
        restricted common stock priced at $3.00 per share (the "April Placement").
        Mr.
        Takkas purchased 2,000 of these shares and Mr. Spoonamore purchased 10,000
        of
        theses shares. The April Placement was made only to accredited investors
        without
        general solicitation in compliance with Regulation D of the Securities Act
        of
        1933, as amended. There were no finders' fees or brokerage commissions paid
        for
        the April Placement.
  On
        October 6, 2004, we completed the sale of a $650,000 8% Senior Secured
        Promissory Note to institutional and accredited investors pursuant to a Secured
        Promissory Note Purchase Agreement (the "Senior Purchase Agreement") (the
        “October Placement”). Under the Senior Purchase Agreement, we issued a Secured
        Convertible Promissory Note (the "Senior Convertible Note") in the aggregate
        principal amount of $650,000, convertible into our Common Stock at the option
        of
        the investors at $1.60 per share. The Senior Convertible Note accrues interest
        at 8% per year and all outstanding principal and unpaid interest is due on
        September 30, 2007. We must make quarterly interest-only payments of $13,000
        to
        the investors until the Senior Convertible Note is either paid in full or
        is
        converted into our common stock. Under the Senior Purchase Agreement, we
        also
        issued warrants (the "Warrants") to purchase an aggregate of 406,250 shares
        of
        our Common Stock at a per share exercise price of $2.00. The Warrants are
        exercisable, in whole or in part, until September 30, 2009. Our obligations
        under the Senior Purchase Agreement, the Senior Convertible Note and the
        Warrants are secured by a security interest in all of our assets pursuant
        to a
        general security agreement between us and the investors. In addition, pursuant
        to a registration rights agreement between us and the investors, we have
        agreed
        to file a registration statement with the Securities and Exchange Commission
        ("SEC")covering the resale of the subject shares of our common stock underlying
        the Senior Convertible Note and the Warrant. We are currently in default of
        the Senior Purchase Agreement, Secured Convertible Note and Warrant, for
        among
        other things, not making payments on the note and not having registered the
        underlying securities.  The Senior Convertible Note and the Warrant
        were issued to accredited investors in a private placement transaction exempt
        from registration under the Securities Act of 1933, as amended, pursuant
        to Rule
        506 of Regulation D promulgated thereunder. Duncan Capital LLC served as
        placement agent for the transaction. The purchasers had access to all relevant
        information necessary to evaluate the investment, and represented to us that
        the
        securities were being acquired for investment purposes.
 
 The
        Securities and Exchange Commission is still in the process of reviewing our
        Form
        10-KSB for year ended December 31, 2003 and the financial statements we filed
        on
        Form 8-K on April 19, 2004. We anticipate there will be further amendments
        to
        our 2003 Form 10-KSB and financial statements we filed on Form 8-K on April
        19,
        2004.
  17
 *Table
            of Contents*
  Item
                  6.
              Management
                  Discussion and Analysis or Plan of
                  Operation
  THIS
        ANNUAL REPORT ON FORM 10-KSB 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 "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR
        SIMILAR LANGUAGE. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES
        AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS
        ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF AND SPEAK ONLY
        AS OF
        THE DATE HEREOF. THE FACTORS DISCUSSED ABOVE UNDER "RISK FACTORS" AND ELSEWHERE
        IN THIS ANNUAL REPORT ARE AMONG THOSE FACTORS THAT IN SOME CASES HAVE AFFECTED
        OUR RESULTS AND COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
        THOSE
        PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
 
 We
        were
        incorporated in the State of Nevada as E Investments, Inc., on February 25,
        1999, and subsequently changed our name to Arbor, Inc. on December 16, 1999.
        We
        originally intended to engage in the business of manufacturing, selling and
        distributing fence posts to be used by government parks, highway departments,
        ranchers and farmers throughout North America. Due to a lack of capital,
        we were
        forced to abandon our original business and examine other business
        options.
 
 On
        February 5, 2004, we completed a reorganization with Laizhou pursuant to
        the
        Agreement. We intend on continuing the business operations of Laizhou, which
        conducts granite mining and processing operations in the PRC through its
        wholly
        owned subsidiary, Laizhou China.
 
 In
        2004,
        we focused on the business operations of Laizhou China and making inquiries
        regarding the acquisition of other granite mining properties in the PRC.
        As a
        result of the acquisition of Laizhou, we no longer pursued the Brazil Project
        and sold our interest in CPL Arbor on December 31, 2004. In the interest
        of
        continuing the project until such time a buyer could be found, two of our
        directors, Messrs. Chen and Takkas, lent us further funds during the fourth
        quarter of 2004, totaling $170,000, specifically for use on this real estate
        development project. On December 31, 2004, we entered into an agreement with
        a
        consortium, that included the two directors, to sell our interest in CPL
        Arbor.
        Under the agreement the buyer has accepted the interest in CPL Arbor and
        the
        responsibility to repay the notes totaling $595,000 set off against notes
        payable by us to our two directors, Messrs. Chen and Takkas, totaling $170,000
        requiring a net payment to us of $425,000. $25,000 was paid on execution
        of the
        agreement and $200,000 was paid on March 31 st ,
        2005,
        with the balance of $200,000 due on June 30 th ,
        2005.
        The two directors have personally guaranteed these payments.
  18
 *Table
            of Contents*
 
 In
        2004,
        we completed the site surveys needed to install modern extraction equipment
        at
        our two quarries, No. 1 Quarry and Group 14 Quarry. While the newer equipment
        (i) increased the rate of extraction of granite blocks for slabs and tiles,
        (ii)
        improved both the regularity of the stone and the sizes of stone that we
        are
        able to process and sell, it did not improve productivity to the extent we
        believed that it would.
 
 During
        2004, we added equipment to each mine in addition to reconfiguring how the
        property is mined. Examples of equipment we purchased at the Group 14 Quarry
        include: a 30-ton loader, a 33-ton excavator, a 30-ton off road dump truck,
        16
        manual rock drills and a horizontal rock drill. Examples of the type of
        equipment planned for purchase at No. 1 Quarry includes: a 30-ton loader,
        a
        33-ton excavator, 16 manual rock drills, a horizontal rock drill, and a diamond
        wire cutting system.
 
 Our
        operations prior to February 5, 2004, were the operations of Arbor, Inc.
        which
        had no active business. Since Laizhou China has been treated as the accounting
        acquirer, the following financial information for the year ended December
        31,
        2003 is the historical financial information of Laizhou China since it was
        formed in January 9, 2003. Financial information for the year ended December
        31,
        2004 is the historical financial information of Arbor and Laizhou China
        combined.
  As
        discussed in Note 17, the financial statements for the year ended December
        31,
        2003 have been restated to give effect to a change in accounting for deferred
        stripping costs and amortization of mineral interests.
  Results
        of Operation for the year ended December 31, 2004 and the period ended December
        31, 2003.
 
 Revenues:
 
 Total
        revenues for the year ended December 31, 2004, were $2,387,582 compared to
        $3,050,183 for the period ended December 31, 2003.
 
 Revenues
        from granite mining operations for the year ended December 31, 2004, were
        approximately $1,700,000 compared to approximately $2,443,000 for the year
        ended
        December 31, 2003 year. The decrease of approximately $740,000 was primarily
        due
        to the lack and delay of orders during the year. This was to a great extent
        caused by the conditions imposed by the PRC on the banking community in China,
        to slow down the economic growth rate, which in turn effected the funding
        available to our prospective clients. Our clients therefore delayed orders
        until
        such time as funding was assured. There was also a general slowdown for a
        period
        due in part to the restructuring and design of our quarry operations in an
        attempt to be more productive in the future. The arrival of our new drilling
        equipment in September 2004 has also not improved productivity to the extent
        that we would have liked due to the fuel and efficiency costs
        involved.
 
 Revenues
        from processing operations increased to approximately $688,000 for the year
        ended December 31, 2004, from approximately $607,000 for the period ended
        December 31, 2003. This increase is due to the increase in orders for processed
        granite. While the large majority of orders processed to date have been for
        the
        PRC domestic market we currently are reviewing a plan of constructing a new
        processing plant to target the processing of granite for export.
 
 There
        was
        no other income for the year ended December 31, 2004 compared to income of
        $483
        for the period in 2003. Interest originally accrued on the loan to CPL Arbor
        in
        Brazil was written off on the sale of the project.
 
 Stripping
        costs:
 
 The
        table
        below shows the stripping costs incurred during the year split into the major
        components and attributable to the respective reserves that benefited from
        the
        stripping activities:
 
 Stripping
                  Costs Total
              
              Road
                  Maintenance
              
              Removal
                  of overburden$
              
              $
              
              $2004
              
              
              No.
                  1
                Quarry
              
              
              157,005
              
              
              48,309
              
              
              108,696Group
                  14
                Quarry
              
              
              118,357
              
              
              13,285
              
              
              105,072275,362
              
              
              61,594
              
              
              213,7682003
              
              
              No.
                  1
                Quarry
              
              
              559,179
              
              
              148,551
              
              
              410,628Group
                  14
                Quarry
              
              
              407,005
              
              
              96,618
              
              
              310,387966,184
              
              
              245,169
              
              
              721,015
 
 Costs
        of
        sales includes attributable stripping costs of $39,031 (2003 - $38,990)
        allocated to the years production.
  19
 *Table
            of Contents*
 
 Mining
        Plan:
 
 The
        table
        below outlines our present mining plans for year 2005 the respective
        quarries:
 
 Mine
                  Plans for the reserves
              Group
                  14 Quarry
              No.
                  1 Quarryplanned
                  annual mine production rate
              7,000
                  cubic meters
              10,000
                  cubic metersplanned
                  mine life
              20
                  years
              30
                  yearsplanned
                  mine operating costs
              $66.425
                  per cu.m.
              $48.309
                  per cu.m.Total
                  costs
              $464,975
              $483,090planned
                  processing & finishing costs
              -
              -planned
                  administrative & sales costs
              $95,062
              $92,593planned
                  sales volume and price
              $132.85
                  per cu.m.
              $90.58
                  per cu.m.Total
                  sales
              $929,950
              $905,800future
                  planned capital expenditures
              $74,074
              $111,111
 
 
 General
        and Administrative Expenses:
 
 General
        and administrative expenses for the year ended December 31, 2004 were $1,135,188
        compared to approximately $161,780 for the period ended December 31, 2003.
        The
        majority of the increase is due to professional fees in connection with the
        audit, reporting and completion of the reorganization between Laizhou and
        Arbor
        in February 2004, the introduction of international professional staff and
        consulting and advisory services which alone cost approximately $202,000
        and
        funding costs of approximately $100,000 for the debenture raised in October
        2004. A large number of the reorganization expenses are not considered to
        be of
        a reoccurring nature, but we do expect our professional fees for legal and
        accounting services to continue to be higher than Laizhou China's were for
        fiscal year 2003 due to the costs of being a publicly traded company. For
        the
        year ended December 31, 2004 we spent $0 on obtaining permits for our mines
        compared to $30,193 for the year ended December 31, 2003.
 
 Net
        Profit:
 
 As
        a
        result of the foregoing factors, our net profit for the year ended December
        31, 2004, totaled $343,376 compared to a profit of $1,452,342 for the period
        ended December 31, 2003. Our earnings per share for the year ended December
        31,
        2004 is $0.03 compared to earnings of $0.29 for the period ended December
        31,
        2003. Such reduction was primarily due to an increase in expenses in
        2004.
 
 Liquidity
        and Capital Resources
 
 In
        October and November 2003, we completed the November Placement. We sold 600,000
        shares of our restricted common stock for $500,000. A director and the then
        President, Costas Takkas, purchased 300,000 of these shares. The November
        Placement was made only to accredited investors without general solicitation
        in
        compliance with Regulation D of the Securities Act of 1933, as amended. There
        were no finders' fees or brokerage commissions paid for the November
        Placement.
 
 In
        December 2003, we completed the December Placement, selling an aggregate
        of
        550,000 shares of our restricted common stock for $1.00 per share. The December
        Placement was made only to accredited investors without general solicitation
        in
        compliance with Regulation D of the Securities Act of 1933, as amended. There
        were no finders' fees or brokerage commissions paid for the December
        Placement.
 
 In
        April
        2004, we completed an additional private placement of 500,000 shares of
        restricted common stock priced at $3.00 per share (the "April Placement").
        The
        April Placement was made only to accredited investors without general
        solicitation in compliance with Regulation D of the Securities Act of 1933,
        as
        amended. There were no finders' fees or brokerage commissions paid for the
        April
        Placement.
 
 On
        October 6, 2004, we completed the sale of a $650,000 8% Senior Secured
        Promissory Note to institutional and accredited investors pursuant to a Secured
        Promissory Note Purchase Agreement (the "Senior Purchase Agreement") (the
        “October Placement”). Under the Senior Purchase Agreement, we issued a Secured
        Convertible Promissory Note (the "Senior Convertible Note") in the aggregate
        principal amount of $650,000, convertible into our Common Stock at the option
        of
        the investors at $1.60 per share. The Senior Convertible Note accrues interest
        at 8% per year and all outstanding principal and unpaid interest is due on
        September 30, 2007. We must make quarterly interest-only payments of $13,000
        to
        the investors until the Senior Convertible Note is either paid in full or
        is
        converted into our common stock. Under the Senior Purchase Agreement, we
        also
        issued warrants (the "Warrants") to purchase an aggregate of 406,250 shares
        of
        our Common Stock at a per share exercise price of $2.00. The Warrants are
        exercisable, in whole or in part, until September 30, 2009. Our obligations
        under the Senior Purchase Agreement, the Senior Convertible Note and the
        Warrants are secured by a security interest in all of our assets pursuant
        to a
        general security agreement between us and the investors. In addition, pursuant
        to a registration rights agreement between us and the investors, we have
        agreed
        to file a registration statement with the Securities and Exchange Commission
        ("SEC") covering the resale of the subject shares of our common stock underlying
        the Senior Convertible Note and the Warrant. We are currently in default
        of the
        Senior Purchase Agreement, Secured Convertible Note and Warrant, for among
        other
        things, not making payments on the note and not having registered the underlying
        securities. The Senior Convertible Note and the Warrant were issued to
        accredited investors in a private placement transaction exempt from registration
        under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation
        D promulgated thereunder. Duncan Capital LLC served as placement agent for
        the
        transaction. The purchasers had access to all relevant information necessary
        to
        evaluate the investment, and represented to us that the securities were being
        acquired for investment purposes.
 
 20
 *Table
            of Contents*
  Changes
        in cash from operations, investing and financing activities:
 
 Operations:
 
 The
        net
        cash provided from operations for the year ended December 31, 2004, is a
        negative of $307,043 compared to income of $1,702,577 for the period since
        inception to December 31, 2003, a negative effect from one period to the
        other
        of approximately $2, 000,000. The primary cause of the decrease has been
        caused
        by the smaller profit from operations of $343,476 for the fiscal year period
        ended December 31, 2004 compared to a profit of $1,452,342 for the period
        since
        inception to December 31, 2003. Other \significant activities include an
        increase in the provision for depreciation of plant and equipment of $122,789
        (to $240,607) due to new purchases during the year to December 31, 2004;
        a
        reduced amount of stripping costs capitalized during the fiscal period ended
        December 31, 2004 of $275,362 compared to $966,184 for the period since
        inception to December 31, 2003; and the tax holiday from Chinese income taxes
        of
        0 for the fiscal period ended December 31, 2004 compared to $715,233 for
        the
        period since inception to December 31, 2004. On the negative side there have
        been increases in Deposits, prepayments and other receivables $571,696 and
        Inventory on hand of $59,008.
 
 Investing:
 
 For
        the
        fiscal period ended December 31, 2004, $1,326,715 was used in investing
        activities compared to $2,476,060 for the period since inception to December
        31,
        2003. Plant and equipment of $1,973,368 was purchased in 2004 compared to
        $1,630,650 for 2003 and assets were effectively acquired on recapitalization
        of
        $646,653 upon the merger of the Company with the Chinese operations during
        the
        year. In the period from inception to December 31, 2003, $845,410 was also
        spent
        on the acquisition of mineral interests.
 
 Financing:
 
 The
        effect of the merger in February 2004 effectively provided $1,495,000 to
        cash
        flow and a further $250,000 was provided through notes payable over receivable.
        $650,000 was received by the Company through a Senior Secured Promissory
        note
        discussed previously and $400,000 is due from the sale of the Brazilian project
        as at December 31, 2004. These factors were set off by repayment of $120,773
        of
        an advance from a director and an apparent advance from a shareholder of
        $87,562 (this
        was caused by the loan for an equipment purchase having to be in a name of
        a
        individual rather than the company in China).
 
 Overall:
 
 Given
        the
        above together with a currency translation adjustment of $1,853 in 2004 caused
        an increase in actual cash of $76,178 (to $117,893) for the fiscal period
        ended
        December 31, 2004 compared to $41,715 (to $41,715) for the period from inception
        to December 31, 2003.
 
 We
        estimate that after giving effect to the November, December, April and October
        Placements, the current capital reserves that result will allow us to operate
        for at least six months without relying on additional financing. If additional
        funds are raised through the issuance of equity or convertible debt securities,
        the percentage ownership of our stockholders will be reduced, stockholders
        may
        experience additional dilution and such securities may have rights, preferences
        and privileges senior to those of our common stock. There can be no assurance
        that additional financing will be available on terms favorable to us or at
        all.
        If adequate funds are not available or are not available on acceptable terms,
        we
        may not be able to fund expansion, take advantage of unanticipated acquisition
        opportunities, develop or enhance services or products or respond to competitive
        pressures. Such inability could harm our business, results of operations
        and
        financial condition.
  21
 *Table
            of Contents*
 
 For
        the
        next six months we expect the primary sources of liquidity to be funds generated
        by operations, cash on hand and possible private placements.
 
 Critical
        Accounting Policies
 
 The
        preparation of financial statements and related disclosures in conformity
        with
        accounting principles generally accepted in the United States requires us
        to
        make judgments, assumptions and estimates that affect the amounts reported.
        Note 2 of Notes to our Financial Statements describes the significant
        accounting policies used in the preparation of our financial
        statements..
 
 Item
                  7.
              Financial
                  Statements
 
 Our
        Financial Statements can be found immediately following Item 14
        below.
 
 Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
  Effective
        on October 4, 2004, Moores Rowland Mazars ("Moores") resigned as the principal
        accountant engaged to audit the financial statements of the Company. Moores
        reviewed the Company's financial statements for the fiscal quarter ended
        June
        30, 2004. During this period, and the subsequent interim period prior to
        their
        resignation, there were no disagreements with Mooreson any matter of accounting
        principles or practices, financial statement disclosure or auditing scope
        or
        procedure, which disagreements if not resolved to the satisfaction of Moores
        would have caused them to make reference to this subject
        matter of the disagreements in connection with their report, nor were there
        any
        "reportable events" as such term is defined in Item 304(a)(1)(iv) of Regulation
        S-B, promulgated under the Securities Exchange Act of 1934, as amended
        ("Regulation S-B").
 
 Moores
        was engaged by the Company from July 15, 2004 until October 4, 2004. In
        addition, Moores was also the auditor of the financial statements of Laizhou
        which are the historical financial statements of the Company, since the
        Company’s February 5, 2004 reorganization with Laizhou. Neither Moores or
        Braverman, the Company's previous independent public accountant, audit reports
        for the Company's fiscal year ended December 31, 2003 contained any adverse
        opinion, or a disclaimer of opinion, or qualification or modification as
        to
        uncertainty, audit scope, or accounting principles. Further
        during our most recent fiscal year and any subsequent interim period before
        Moores resigned, we did not have any disagreements with Moores on any matter
        of
        accounting principle or practice, financial statement disclosure, or auditing
        scope or procedure.
 
 Effective
        on October 5, 2005, we engaged Rotenburg and Co. to audit our financial
        statements. During our most recent fiscal year, and the subsequent period
        prior
        to such appointment, we have not consulted the newly engaged accountant
        regarding the application of accounting principals to a specified transaction
        or
        the type of audit opinion that might be rendered on our financial statements,
        nor on any matter that was either the subject of a disagreement or a reportable
        event.
 
 Our
        Board
        of Directors approved the aforementioned changes in accountants described
        herein.
 
 22
 *Table
            of Contents*
 
 Item
                  8A.
              Controls
                  and Procedures
 
 On
        December 31, 2004, our management concluded our evaluation of the effectiveness
        of our disclosure controls and procedures. As of that date, our President
        and
        Chief Financial Officer concluded that we maintain effective disclosure controls
        and procedures that ensure information required to be disclosed in reports
        under
        the Securities Exchange Act of 1934 is recorded, processed, summarized and
        reported within the time periods specified in the SEC's rules and forms.
        Specifically, the disclosure controls and procedures assure that information
        is
        accumulated and communicated to management, including the President and Chief
        Financial Officer, as appropriate, to allow timely decisions regarding required
        disclosure. There have been no significant changes in our internal controls
        or
        in other factors that could significantly affect these controls subsequent
        to
        the date of management's evaluation.
 
 PART
        III
  Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16 (a) of the Exchange Act
 
 The
        following table sets forth the names of all of our current directors and
        executive officers as of December 31, 2004. These persons will serve until
        the
        next annual meeting of the stockholders or until their successors are elected
        or
        appointed and qualified, or their prior resignation or termination.
  Name
              Age
              PositionDong
                  Chen
              44
              President
                  and DirectorJuan
                  Chen (1)
              50Piguo
                  Man
              45
              Manager
                  and DirectorMaria
                  C. Maz
              36
              TreasurerMichael
                  Miller
              50
              Vice-President
                  of Investor RelationsCostas
                  Takkas
              48
              Chief
                  Financial Officer and DirectorStephen
                  Spoonamore (2)
              40
              Director
 
 Note:
              (1)
              Juan
                  Chen resigned as Chief Financial Officer, Secretary and Director
                  effective
                  October 2, 2004.
 (2)
              Stephen
                  Spoonamore resigned as Director on January 19,
                  2005.
 
 Dong
        Chen: Mr. Chen has served as our President since the reorganization on February
        5, 2004. Prior to the reorganization, from June 2001 until joining us, Mr.
        Chen
        served as the Chief Executive Officer of Yantai Maple Leaf Beverage Company
        Ltd., a company that bottles and distributes bottled water in the People's
        Republic of China. From 1997 until May 2001, Mr. Chen was the Vice President
        of
        Marketing for China New Hope Electronic Development Co., which manufactured
        and
        sold digital videodisc players. Mr. Chen received a degree in Business
        Administration from Jilin Normal University in the People's Republic of China.
        Mr. Chen is the brother of Juan Chen, our Chief Financial Officer, Secretary
        and
        a Director.
 
 Juan
        Chen: Ms. Chen was our Vice General Manager, Chief Financial Officer, Secretary
        and a member of the Board of Directors since the reorganization on February
        5,
        2004 until her resignation effective October 2, 2004. Prior to the
        reorganization, from March 2003 until joining us, Ms. Chen served as the
        General
        Manager of Laizhou Jia Sheng Stone Company. From January 2002 until February
        2003, Ms. Chen was the Director of Operations of Yanbian Airblower Factory.
        From
        June 2000 until December 2001, she served as the Head of Mining at Jilin
        Huadian
        City San Dao Ling Gold Mine in Jilin, China. From 1998 until May 2000, Ms.
        Chen
        was the General Manager of Jilin Ocean Hotel in Jilin, China. Ms. Chen is
        the
        sister of Dong Chen, our President and a Director.
  23
 *Table
            of Contents*
 
 Piguo
        Man: Mr. Man has been our Manager since the reorganization on February 5,
        2004.
        Mr. Man is also one of our Directors. Prior to the reorganization, from March
        2003 until joining us, Mr. Man was Vice General Manager of Laizhou Jia Sheng
        Stone Company. From November 2002 until February 2003, Mr. Man served as
        the
        General Manager of the Laizhou Science and Technology Bureau, which consulted
        with agriculture and stone processing companies. From August 1998 until October
        2002, Mr. Man served as the General Manager of the Laizhou Science and
        Technology Development Company.
 
 Camilla
        Maz: Ms. Maz was appointed as Treasurer in October 2003. Prior to this position,
        Ms. Maz worked for the past five years in the financial services industry
        as an
        assistant and advisor for multiple small and medium size companies in the
        United
        States and Canada through her consulting company Prosper Financial Inc. In
        1993,
        Ms. Maz played an important role in the financing, bid preparation to the
        Colombian government and subsequent implementation of cellular communications,
        in the northern region of Columbia; Ms. Maz has also been founder, owner
        and
        operator of several companies in South America. Ms. Maz holds a Bachelors
        Degree
        in Business Administration (BBA) with emphasis in Finance from Universidad
        de
        Los Andes, Bogota, Colombia. Ms. Maz is the sister-in-law of Michael Miller,
        our
        Vice-President of Investor Relations.
 
 Michael
        Miller: Mr. Miller has served as our Vice President of Investor Relations
        since
        October 2003. Since January 2000, Mr. Miller has been the President and 50%
        shareholder of Candide Investments Ltd. which has offered consulting services
        to
        a number of public companies, assisting them with corporate restructuring,
        mergers and acquisitions, raising capital and investor relations. From 1997
        to
        1999, Mr. Miller was an account executive with Canaccord Capital Corp. Mr.
        Miller is the brother-in-law of Camilla Maz, our Treasurer.
 
 Costas
        Takkas: Mr. Takkas has served as a member of our Board of Directors since
        October 2002. Since October 2, 2004 he has also served as our Chief Financial
        Officer. He served as a director of the following Toronto Stock Exchange
        Venture
        Exchange (formerly the "VSE") companies: Serena Resources Ltd. (now named
        Capstone Gold Ltd.) (1998-2001) and Emerald Mining Corp. (1998-1999). He
        was
        also a director of Ourominas Minerals Inc. (1996-1997, now named Thistle
        Mining
        Ltd.) which is listed on the Toronto Stock Exchange. Mr. Takkas has been
        a
        member of the Institute of Chartered Accountants in England & Wales since
        1982. He graduated with a B.Sc. (Honors) and Associate to the Royal College
        of
        Science in Physics from the Imperial College of Science and Technology,
        University of London in 1978.
  24
 *Table
            of Contents*
 
 Stephen
        Spoonamore: Mr. Spoonamore served as a member of our Board of Directors from
        March 2003 until his resignation on January 19, 2005. Since September 2003
        he
        has served as the Director of Strategic Relationships for SendWordNow Inc.,
        a
        firm that provides high-speed, high-volume disaster recovery communications.
        In
        January 2001, he founded and currently acts as the CEO of DVDojo that provides
        digital videodisc shooting, editing and production training and equipment
        in New
        York City. In January 1999 he co-founded RSW Management, a construction
        management firm that he sold later in 1999. In 1997 he founded CPR-Group
        that
        provided studio and show design services until its sale in 2002.
 
 Family
        Relationships
 
 Other
        than as set forth above, there are no familial relationships between members
        of
        our Board of Directors or our executive officers.
 
 Involvement
        in Certain Legal Proceedings
 
 Mr.
        Robert Miller, our former Treasurer and Vice President of Investor Relations,
        the husband of Camilla Maz, our Treasurer and the brother of Michael Miller,
        our
        Vice President of Investor Relations, was a director of Nanovation Technologies
        Inc. ("Nanovation") from 1996 to 1999. Nanovation made switches and circuits
        for
        fiber optics networks and it filed for Chapter 11 bankruptcy protection in
        July
        2001.
 
 Committees
        of the Board of Directors
 
 Our
        Audit
        Committee is chaired by Costas Takkas. Dong Chen serves as the other members
        of
        the Audit Committee. The Audit Committee oversees our financial reporting
        processes and is responsible for reviewing our financial condition. The Audit
        Committee did not meet in 2004 since we were primarily focused on searching
        for
        new business opportunities.
 
 Audit
        Committee Financial Expert
 
 Our
        Board
        of Directors has determined that we have at least one audit committee financial
        expert serving on our audit committee, namely Costas Takkas. Mr. Takkas would
        not be considered independent, as that term is defined by the NASD because
        he
        was one of our officers within the past three years. Under the applicable
        Securities and Exchange Commission standard, an audit committee financial
        expert
        means a person who has the following attributes:
 
 ·
              An
                  understanding of generally accepted accounting principles and financial
                  statements;
 
 ·
              The
                  ability to assess the general application of such principles in
                  connection
                  with the accounting for estimates, accruals and
                  reserves;
  25
 *Table
            of Contents*
  ·
              Experience
                  preparing, auditing, analyzing or evaluating financial statements
                  that
                  present a breadth and level of complexity of accounting issues
                  that are
                  generally comparable to the breadth and complexity of issues that
                  can
                  reasonably be expected to be raised by the registrant's financial
                  statements, or experience actively supervising one or more persons
                  engaged
                  in such activities;
 
 ·
              An
                  understanding of internal controls and procedures for financial
                  reporting;
                  and
 
 ·
              An
                  understanding of audit committee
                  functions.
 
 Mr.
        Takkas received his designation as a chartered accountant from the Institute
        of
        Chartered Accountants in England and Wales in 1982. Early in his career he
        worked as a chartered accountant and auditor. He is now self-employed, investing
        his time and money in speculative projects.
 
 Compensation
        Committee
 
 Our
        Compensation Committee is chaired by Mr. Costas Takkas. Costas Takkas and
        Piguo
        Man serve as the other members of the Compensation Committee. The Compensation
        Committee oversees the compensation of our executive officers and directors.
        Our
        Compensation Committee did not meet in 2004 since we were primarily focused
        on
        searching for new business opportunities and did not have
        operations.
 
 Compliance
        with Section 16(a) of the Securities Exchange Act of 1934
 
 Section
        16(a) of the Exchange Act requires our officers and directors, and persons
        who
        own more than 10% of the our common stock, to file reports of ownership and
        changes of ownership of such securities with the United States Securities
        and
        Exchange Commission. Based on a review of the our records, management believes
        that all filing requirements applicable to the our officers, directors and
        holders of more than 10% of our common stock were complied with during the
        2004
        fiscal year, except that: with respect to Mr. Chen, a Form 3 was filed late;
        with respect to Ms. Chen, a Form 3 was filed late; with respect to Mr. Miller,
        a
        Form 3 was filed late; with respect to Ms. Maz a Form 3 was filed late, with
        respect to Mr. Stephen Spoonamore a Form 3 was filed late, and; with respect
        to
        Mr. Costas Takkas a Form 4 was filed late concerning the purchase of
        shares.
 
 Code
        of
        Ethics
 
 We
        do not
        yet have a Code of Ethics. Due to the recent completion of the reorganization
        with Laizhou, the Board of Directors had decided to postpone the adoption
        of a
        code of ethics until we are able to focus our business plan and develop a
        greater infrastructure. Once we have adopted a Code of Ethics, a copy may
        be
        obtained by sending a written request to the Secretary of Company.
  26
 *Table
            of Contents*
 
 Item
                  10.
              Executive
                  Compensation
 
 EXECUTIVE
        COMPENSATION SUMMARY
 
 The
        following table provides compensation information for the period indicated
        with
        respect to the persons who served as our President for the years ended December
        31, 2004, 2003 and 2002, and all other of our executive officers receiving
        total
        salary and bonus in excess of $100,000 during the years ended December 31,
        2004,
        2003 and 2002 (collectively, the "Named Executive Officers"):
 
 SUMMARY
        COMPENSATION TABLE
 
 Long
                  Term CompensationAnnual
                  Compensation
              Awards
              Payouts(a)
              (b)
              (c)
              (d)
              (e)
              (f)
              (g)
              (h)
              (i)Name
                  and Principal Position
              Year
              Salary
                  ($)
              Bonus($)
              Other
                  Annual Compensation
              Restricted
                  Stock Awards ($)
              Securities
                  Under-lying Options/ SarS(#)
              LTIP
                  Payouts ($)
              All
                  Other Compensation
                ($)Dong
                  Chen (1)
              2004
              0
              0
              $
                  24,000
              0
              0
              0
              0President
              2003
              0
              0
              0
              0
              0
              0
              0Juan
                  Chen (2)
              2004
              0
              0
              $
                  4,000
              0
              0
              0
              0CFO
              2003
              0
              0
              0
              0
              0
              0
              0Costas
                  Takkas (3)
              2004
              0
              0
              0
              0
              0
              0
              0CEO
                  & President
              2003
              0
              0
              $
                  18,000
              0
              0
              0
              02002
              0
              0
              0
              0
              0
              0
              0Stephen
                  Spoonamore (4)
              2004
              0
              0
              0
              0
              0
              0
              0CFO
                  & Secretary
              2003
              0
              0
              $
                  27,000
              0
              0
              0
              0Robert
                  Miller (5)
              2004
              0
              0
              0
              0
              0
              0
              0Treasurer
                  & VP Investor Relations
              2003
              0
              0
              0
              0
              0
              0
              0Camilla
                  Maz (6)
              2004
              0
              0
              $
                  36,000
              0
              0
              0
              0Treasurer
              2003
              0
              0
              $
                  36,000
              0
              0
              0
              0Michael
                  Miller (7)
              2004
              0
              0
              0
              0
              0
              0
              0VP
                  Investor Relations
              2003
              0
              0
              0
              0
              0
              0
              0Joginder
                  Brar (8)
              2003
              0
              0
              0
              0
              0
              0
              0CEO
                  & President
              2002
              0
              0
              0
              0
              0
              0
              0
  (1) Effective
        February 4, 2004 pursuant to the reorganization with Laizhou, Mr. Chen's
        salary
        is $2,000 per month.
  27
 *Table
            of Contents*
 
 (2) Effective
        February 4, 2004 pursuant to the reorganization with Laizhou, Ms. Chen's
        salary
        was $500 per month until she resigned effective October 2, 2004.
 (3) Mr.
        Takkas was our President, Chief Executive Officer and Director from October
        2002
        until February 5, 2004 when he resigned as an officer but remained as a
        Director. Effective October 2, 2004 Mr. Takkas was hired as our Chief Financial
        Officer. Prior to the reorganization with Laizhou, Mr. Takkas was paid $3,000
        per month pursuant to a consulting agreement under which he provided management
        services to us.
 (4) Mr.
        Spoonamore was our Chief Financial Officer, Secretary and director from March
        2003 until February 5, 2004 when he resigned as an officer but remained as
        a
        director until January 19, 2005. Prior to the reorganization with Laizhou,
        Mr.
        Spoonamore was paid $3,000 per month pursuant to a consulting agreement under
        which he provided management services to us.
 (5) Mr.
        Robert Miller was our Treasurer and Vice President of Investor Relations
        from
        March 2003 until October 2003.
 (6) Ms.
        Maz
        was appointed Treasurer in October 2003.
 (7) Mr.
        Michael Miller was appointed Vice President of Investor Relations in October
        2003.
 (8) Mr.
        Brar
        resigned as our President and a Director in March 2003.
 (9) The
        total
        value of the services rendered by Mr. Brar was $60,000. The services rendered
        included administrative duties, board duties, contract negotiations, financing
        services, production and distribution research, shareholder communication
        and
        organizational duties.
 
 Stock
        Options/SAR Grants
 
 During
        2004, we issued options to purchase 960,000 shares of our common stock to
        certain directors, officers and employees. The parties later terminated such
        options.
 
 Employment
        Contracts and Termination of Employment or Change of Control
 
 We
        have
        no plans or arrangements in respect of remuneration received or that may
        be
        received by our executive officers to compensate such officers in the event
        of
        termination of employment (as a result of resignation, retirement, change
        of
        control) or a change of responsibilities following a change of control, where
        the value of such compensation exceeds $60,000 per executive
        officer.
 
 Director
        Compensation
  28
 *Table
            of Contents*
 
 No
        cash
        compensation was paid to any of our directors for services as a director
        during
        the fiscal year ended December 31, 2004. We have no standard arrangement
        pursuant to which our Board of Directors are compensated for their services
        in
        their capacity as directors except for the granting from time to time of
        incentive stock options. The Board of Directors may award special remuneration
        to any director undertaking any special services on behalf of our company
        other
        than services ordinarily required of a director. All authorized out-of-pocket
        expenses incurred by a director on our behalf will be subject to reimbursement
        upon our receipt of required supporting document of such expenses. No director
        received and/or accrued any compensation for his services as a director,
        including committee participation and/or special assignments.
 
 Item
                11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
 
 Security
        Ownership of Certain Beneficial Owners and Management.
 
 The
        following table sets forth certain information known to us with respect to
        the
        beneficial ownership of our common stock as of December 31, 2004 and (i)
        all
        persons who are known to us to be beneficial owners of five percent or more
        of
        the common shares, (ii) each of our directors, (iii) the Named Executive
        Officers named in the "Executive Compensation" section of this Annual Report
        and
        (iv) all current directors and executive officers as a group.
 
 NAME
                  AND ADDRESS OF BENEFICIAL OWNER (1)
              
              SHARES
                  BENEFICIALLY OWNED
              
              %
                  OF CLASS OWNEDDong
                  Chen
              
              
              698,396
              
              
              4.82
              %Juan
                  Chen
              
              
              667,268
              
              
              4.60
              %Piguo
                  Man
              
              
              403,074
              
              
              2.78
              %Costas
                  Takkas
              
              
              452,000
              
              
              3.11
              %Stephen
                  Spoonamore
              
              
              115,000
              
              
              **Camilla
                  Maz
              
              
              40,450
              
              
              **Michael
                  Miller
              
              
              30,000
              
              
              **Officers
                  and directors as a group (seven persons)
              
              
              2,406,188
              
              
              16.60
              %
  (1)
              Unless
                  otherwise stated, the address of all persons in the table is c/o
                  China
                  Granite Corporation, 2642 Collins Avenue, Suite 305, Miami Beach,
                  Florida
                  33140.
  **
              Indicates
                  less than 1%
  29
 *Table
            of Contents*
  Beneficial
        ownership is determined in accordance with the rules of the Securities and
        Exchange Commission and includes voting or investment power with respect
        to the
        securities. Shares of Common stock subject to options or warrants that are
        currently exercisable or exercisable within 60 days of December 31, 2004
        are
        deemed to be outstanding and to be beneficially owned by the person or group
        holding such options or warrants for the purpose of computing the percentage
        ownership of such person or group but are not treated as outstanding for
        the
        purpose of computing the percentage ownership of any other person or group.
        Unless otherwise indicated, the address for each of the individuals listed
        in
        the table is care of China Granite Corporation., 2642 Collins Avenue, Suite
        305,
        Miami Beach, Florida 33140. Unless otherwise indicated by footnote, the persons
        named in the table have sole voting and sole investment power with respect
        to
        all shares of common stock shown as beneficially owned by them, subject to
        applicable community property laws. Percentage of beneficial ownership is
        based
        on 14,498,000 shares of our common stock outstanding as of December 31,
        2004.
 
 Item
                  12.
              Certain
                  Relationships and Related
                  Transactions
 
 In
        2002,
        we retained a consultant, Auron 2000, to assist our management. The services
        to
        be rendered include administrative duties, contract negotiations, financing
        services and shareholder communication. Auron 2000 received compensation
        of
        $3,000 per month plus expenses. Auron 2000 was wholly owned by Robert H.
        Miller,
        who was our Treasurer and Vice-President of Investor Relations, up until
        January
        2003, when he sold his interest in Auron 2000. We entered into an agreement
        with
        Prosper Financial Inc. to provide the services Auron 2000 formerly provided
        to
        us under the same terms as our engagement with Auron 2000. Maria C. Maz,
        our
        Treasurer and the wife of Robert H. Miller, owns Prosper Financial
        Inc.
 
 Mr.
        Costas Takkas, one or our directors, has a pre-existing relationship with
        CPL
        Construcoes e Comercio Inc. Mr. Takkas is owed $2,000,000 from CPL for loans
        made by Mr. Takkas to CPL for registration and taxes on the land owned by
        CPL in
        Tocantins, Brazil, working capital, legal opinions from various attorneys
        and
        other costs relating to financing sought for the project. Mr. Takkas has
        agreed
        to assign $1,000,000 of his interest in this debt to Arbor would occur if
        Arbor
        funded $3,000,000 to the Brazil Project. This did not occur and there is
        no
        obligation.
  On
        December 31, 2004, Mr. Takkas and Mr. Chen were part of the consortium which
        purchased our interests of CPL Arbor in the Brazil Project.
  30
 *Table
            of Contents*
 
 Conflicts
        Related to Other Business Activities.
 
 The
        persons serving as our officers and directors have existing responsibilities
        and, in the future, may have additional responsibilities, to provide management
        and services to other entities in addition to us. As a result, conflicts
        of
        interest between us and the other activities of those persons may occur from
        time to time.
 
 We
        will
        attempt to resolve any such conflicts of interest in our favor. Our officers
        and
        directors are accountable to us and our shareholders as fiduciaries, which
        requires that such officers and directors exercise good faith and integrity
        in
        handling our affairs. A shareholder may be able to institute legal action
        on our
        behalf or on behalf of that shareholder and all other similarly situated
        shareholders to recover damages or for other relief in cases of the resolution
        of conflicts in any manner prejudicial to us.
 
 Item
                  13.
              Exhibits
                  and Reports on Form 8-K
 
 (a)
              Exhibits
 
 3.1*
              Amended
                  and Restated Articles of Incorporation (incorporated by reference
                  to
                  exhibit 3.1 to our current report on Form 8-K filed on February
                  20,
                  2004).3.2*
              Amended
                  and Restated Bylaws (incorporated by reference to exhibit 3.1 to
                  our
                  current report on Form 8-K filed on February 20, 2004).4.2*
              Form
                  of Subscription Agreement10.3*
              Consulting
                  Agreement10.4*
              Stockholder
                  Transfer Agreement10.5**
              Secured
                  Promissory Note Purchase Agreement dated October 6,
                  200410.6**
              8%
                  Senior Secured Promissory Note dated October 6, 200410.7**
              Warrant
                  Agreement dated October 6, 200431.1
              Certification
                  of Chairman and Chief Executive Officer Pursuant to Section 302of
                  the
                  Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
                  herewith).31.2
              Certification
                  of Vice Chairman and Chief Financial Officer Pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
                  herewith).32.1
              Written
                  Statement of Chairman and Chief Executive Officer Pursuant to Section
                  906
                  of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted
                  herewith).32.2
              Written
                  Statement of Vice Chairman and Chief Financial Officer Pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
                  (transmitted herewith).
 
 *
        previously filed
 **
        to be
        filed at a later date
   31
 *Table
            of Contents*
  
 (b)
        Reports of Form 8-K
 
 On
        October 12, 2004 we filed a current report on Form 8-K to announce the October
        Placement.
 
 On
        October 14, 2004 we filed a current report on Form 8-K to announce a change
        in
        auditors.
 
 Item
                14.
              Principal
                  Accountant Fees and Services
 
 The
        following table shows the aggregate fees billed us for professional services
        by
        Braverman and Company (2003 to July 14, 2004), Moores Rowland Mazars (from
        July
        15, 2004 until October 4, 2004) and Rotenburg and Co. our independent auditor,
        for fiscal years 2004 and 2003:
 FISCAL
                  2004
              
              FISCAL
                  2003Audit
                  Fees
              
              $119,985
              
              $8,247Audit-Related
                  Fees
              
              $0
              
              $0Tax
                  Fees
              
              $750
              
              $750All
                  Other Fees
              
              $0
              
              $0Total
              
              $120,735
              
              $8,997
 
 
 Audit
        Fees. This category includes the aggregate fees billed for professional services
        rendered for the audits of our consolidated financial statements for fiscal
        years 2004 and 2003, for the reviews of the financial statements included
        in our
        quarterly reports on Form 10-QSB during fiscal 2004 and 2003, and for services
        that are normally provided by the independent auditors in connection with
        statutory and regulatory filings or engagements for the relevant fiscal
        years.
 
 Audit-Related
        Fees. This category includes the aggregate fees billed in each of the last
        two
        fiscal years for assurance and related services by the independent auditors
        that
        are reasonably related to the performance of the audits or reviews of the
        financial statements and are not reported above under "Audit Fees," and
        generally consist of fees for other attest engagements under professional
        auditing standards, accounting and reporting consultations, internal
        control-related matters, and audits of employee benefit plans.
 
 Tax
        Fees.
        This category includes the aggregate fees billed in each of the last two
        fiscal
        years for professional services rendered by the independent auditors for
        tax
        compliance, tax planning and tax advice.
  32
 *Table
              of Contents*
 
 
 All
        Other
        Fees. This category includes the aggregate fees billed in each of the last
        two
        fiscal years for products and services provided by the independent auditors
        that
        are not reported above under "Audit Fees," "Audit-Related Fees," or "Tax
        Fees."
 
 The
        Audit
        Committee considered the compatibility of the non-audit-related services
        performed by and fees paid to Braverman and Company in 2003 and to (i) Braverman
        and Company, (ii) Moores Rowland Mazars, and (iii) Rotenburg and Co. in the
        proposed non-audit-related services and proposed fees for 2004 and determined
        that such services and fees are compatible with the independence of such
        auditors. During 2004, Braverman and Company, Moores Rowland Mazars, Rotenburg
        and CoBraverm and us did not utilize any leased personnel in connection with
        the
        audits.
 
 SIGNATURES
 
 In
        accordance with section 13 and 15 (d) of the Securities Exchange Act of 1934,
        the registrant has duly caused this report to be signed on its behalf by
        the
        undersigned, thereunto duly authorized.
 
 China
        Granite Corporation
  /s/
        Dong Chen,
 President
        and CEO/Director
  February
        8, 2006
 
 In
        accordance with the Securities Exchange Act of 1934, this Annual Report on
        Form
        10-KSB has been signed below by the following persons on behalf of the
        registrant and in the capacities and on the dates indicated.
 
 SIGNATURE
              
              TITLE
              
              DATE/s/
                  Dong Chen
              
              President
                  and Director
              
              February
                  8, 2006Dong
                  Chen/s/
                  Costas Takkas
              
              Chief
                  Financial Officer
              
              February
                  8, 2006Costas
                  Takkas
              
              and
                  Director/s/
                  Piguo Man
              
              Director
              
              February
                  8, 2006Piguo
                  Man
  33
 *Table
            of Contents*
  **Report
        of Independent Accountants**
   To
        the
        Stockholders and the Board of Directors of
 
 **China
        Granite Corporation**
  We
        have
        audited the accompanying consolidated balance sheets of China Granite
        Corporation (the “Company”) as of December 31, 2004, and the related
        consolidated statements of operations, stockholders' equity and cash flows
        for
        the year then ended.  The financial statements for the year ended
        December 31, 2003 were audited by other advisors whose report dated March
        30,
        2004, expressed an unqualified opinion on those financial statements. 
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 Public Company Accounting Oversight
        Board Standards (United States). Those standards require that we plan and
        perform the audits to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of the Company
        as
        of December 31, 2004 and the results of their operations and its cash flows
        for the year ended December 31, 2004 in conformity with accounting
        principles generally accepted in the United States of America.
  As
        discussed in Note 17, the financial statements for the year ended December
        31,
        2004 have been restated to give effect to a deferred conversion premium on
        convertible note - common stocks and warrants and reclassification of current
        liabilities.
  */s/Rotenberg
        & Co. LLP*
 
 March
        16,
        2005, except for
        note
        17, as to which the date is December 5, 2005
 Rochester,
        New York
  *Table
            of Contents*
  To
        the
        Stockholders and the Board of Directors of
  **Laizhou
        Jia Sheng Stone Company Limited**
 
 
 We
        have
        audited the accompanying balance sheet of Laizhou Jia Sheng Stone Company
        Limited (the “Company”) as of December 31, 2003, and the related statements of
        operations, stockholders’ equity and cash flows for the period from January 9,
        2003 (date of incorporation) to December 31, 2003. 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
        audit.
 
 We
        conducted our audit in accordance with auditing standards generally accepted
        of
        the Public Company Accounting Oversight Board (United States). Those standards
        require that we plan and perform the audit to obtain reasonable assurance
        about
        whether the financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audit provides a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of the Company as of December 31,
        2003
        and the results of its operations and its cash flows for the period from
        January
        9, 2003 (date of incorporation) to December 31, 2003, in conformity with
        accounting principles generally accepted in the United States of
        America.
 
 As
        discussed in Note 17, the financial statements for the year ended December
        31,
        2003 have been restated to give effect to a change in accounting for deferred
        stripping costs and amortization of mineral interests.
 
 **Moores
        Rowland Mazars**
 *Chartered
        Accountants*
 *Certified
        Public Accountants,*
 Hong
        Kong, March 30, 2004, except for note 17, as to which the date is May 11,
        2005.
  F-1
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Consolidated
        Balance Sheets**
 
  **Expressed
        in US$**
 **As
                  of December 31,****ASSETS**
              
              
              *2004*
              
              
              *2003***Current
                  assets**Cash
                  and cash equivalents
              
              
              117,893
              
              
              41,715Accounts
                  receivable, net of provisions of $12,992 and $0
                  respectively
              
              
              489,547
              
              
              242,813Notes
                  Receivable (Note 12)
              
              
              400,000
              
              
              --Inventories
                  (Note 3)
              
              
              173,416
              
              
              114,408Deposits,
                  prepayments and other receivables
              
              
              572,892
              
              
              1,196**Total
                  current assets**
              
              
              1,753,748
              
              
              400,132Plant
                  and equipment, net (Note 4)
              
              
              4,391,014
              
              
              2,658,253Mineral
                  interests, net (Note 5)
              
              
              1,452,464
              
              
              1,503,622Deferred
                  stripping costs, net (Note 6)
              
              
              1,163,525
              
              
              927,194Deferred
                  conversion premium on convertible note - common stocks
              
              
              209,917
              
              
              --Deferred
                  conversion premium on convertible note - warrants
              
              
              277,000
              
              
              --**Total
                  assets**
              
              
              9,247,668
              
              
              5,489,201**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  liabilities**Accruals
                  and other payables (Note 7)
              
              
              245,310
              
              
              119,477Business
                  and resource tax and government surcharges payable
              
              
              226,168
              
              
              199,599Due
                  to a shareholder (Note 13)
              
              
              172,405
              
              
              90,580Due
                  to a director (Note 13)
              
              
              5,737
              
              
              120,773Income
                  tax payable
              
              
              715,333
              
              
              715,333**Total
                  current liabilities**
              
              
              1,364,953
              
              
              1,245,762**Long
                  term liabilities**Secured
                  Senior Promissory Note (Note 8)
              
              
              650,000
              
              
              --Conversion
                  premium payable on warrants
              
              
              277,000
              
              
              --**Total
                  long term liabilities**
              
              
              927,000
              
              
              --**Total
                  liabilities**
              
              
              2,291,953
              
              
              1,245,762**Stockholders'
                  equity**Common
                  Stock: par value $0.001, 25,000,000 shares authorized,14,498,000
                  and 5,000,000 issued and outstanding at December 31,2004
                  and 2003 respectively
              
              
              14,498
              
              
              603,865Additional
                  paid-in capital
              
              
              5,148,019
              
              
              2,187,199Dedicated
                  reserves
              
              
              348,084
              
              
              211,247Currency
                  translation adjustment
              
              
              (2,620
              )
              
              (767
              )Retained
                  earnings
              
              
              1,447,734
              
              
              1,241,095**Total
                  stockholders' equity**
              
              
              6,955,715
              
              
              4,243,439**Total
                  liabilities and stockholders' equity**
              
              
              9,247,668
              
              
              5,489,201
  F-2
 *Table
            of Contents*
 
 **China
        Granite Corporation**
  **Consolidated
        Statement of Operations**
 
 
 **Year
                  to December 31, 2004 and****Period
                  from January 9, 2003****(date
                  of incorporation)****to
                  December 31, 2003***2004*
              
              *2003*Net
                  sales
              
              
              2,387,582
              
              
              3,050,183Cost
                  of sales
              
              
              (873,565
              )
              
              (721,211
              )Gross
                  profit
              
              
              1,514,017
              
              
              2,328,972Selling,
                  general and administrative expenses
              
              
              (1,135,188
              )
              
              (161,780
              )**Operating
                  profit**
              
              
              378,929
              
              
              2,167,192Other
                  (loss) or income:Interest
                  (expense) or income
              
              
              (16,270
              )
              
              483Conversion
                  premium on convertible debts and warrants
              
              
              (19,083
              )
              
              --**Income
                  before income taxes**
              
              
              343,476
              
              
              2,167,675Provision
                  for income taxes (Note 9)
              
              
              --
              
              
              (715,333
              )**Net
                  income**
              
              
              343,476
              
              
              1,452,342**Basic
                  and diluted earnings per share**
              
              
              0.03
              
              
              0.29**Weighted
                  average number of shares outstanding - basic**
              
              
              13,481,366
              
              
              5,000,000**Weighted
                  average number of shares outstanding - diluted**
              
              
              13,672,880
              
              
              5,000,000
  F-3
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Statement
        of Stockholders' Equity**
 
  **Common
                  stock****Shares**
              
              **Amount**
              
              **Additional****paid-in****capital**
              
              **Dedicated****reserves**
              
              **Currency****Translation****adjustment**
              
              **Retained****earnings**
              
              **Total***US$*
              
              
              *US$*
              
              
              *US$*
              
              
              *US$*
              
              
              *US$*
              
              
              *US$*Balance,
                  at inceptionIssuance
                  of stock for:Cash
                  of $603,865
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Plant
                  and equipment, $1,145,822Inventories,
                  $317,285Mineral
                  interests, $724,892
              
              
              5,000,000
              
              
              603,865
              
              
              2,187,999
              
              
              
              
              
              
              
              
              
              
              
              2,791,864Net
                  income for the period to December 31, 2003
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (767
              )
              
              1,452,342
              
              
              1,451,575Transfer
              
              
              --
              
              
              --
              
              
              --
              
              
              211,247
              
              
              --
              
              
              (211,247
              )
              
              --Balances,
                  December 31, 2003
              
              
              5,000,000
              
              
              603,865
              
              
              2,187,999
              
              
              211,247
              
              
              (767
              )
              
              1,241.095
              
              
              4,243,439Recapitalization
                  on February 5, 2004
              
              
              8,998,000
              
              
              (589,867
              )
              
              1,236,520
              
              
              --
              
              
              --
              
              
              --
              
              
              646,653Stock
                  subscribed in private placement, net
              
              
              500,000
              
              
              500
              
              
              1,494,500
              
              
              --
              
              
              --
              
              
              --
              
              
              1,495,000Conversion
                  premium on convertible debt and warrants
              
              
              --
              
              
              --
              
              
              229,000
              
              
              --
              
              
              --
              
              
              --
              
              
              229,000Net
                  income for the year to December 31, 2004
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,853
              )
              
              343,476
              
              
              341,623Transfer
              
              
              --
              
              
              --
              
              
              --
              
              
              136,837
              
              
              --
              
              
              (136,837
              )
              
              --Balances,
                  December 31, 2004
              
              
              14,498,000
              
              
              14,498
              
              
              5,148,019
              
              
              348,084
              
              
              (2,620
              )
              
              1,447,734
              
              
              6,955,715
  F-4
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Statements
        of Cash Flow**
 
  **For
                  the year to December 31, 2004****and
                  the Period from January 9, 2003****(date
                  of incorporation)****to
                  December 31, 2003***2004*
              
              *2003***Cash
                  flows from operating activities**Net
                  income
              
              
              343,476
              
              
              1,452,342Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Conversion
                  premium on convertible debt and warrants
              
              
              19,083
              
              
              --Depreciation
                  of plant and equipment
              
              
              240,607
              
              
              117,818Amortization
                  of mineral interests
              
              
              51,158
              
              
              66,426Amortization
                  of deferred stripping costs
              
              
              39,031
              
              
              38,990Provision
                  fort doubtful debts
              
              
              12,992
              
              
              --Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (259,726
              )
              
              (242,813
              )Deposits,
                  prepayments and other receivables
              
              
              (571,696
              )
              
              (1,196
              )Inventories
              
              
              (59,008
              )
              
              202,765Deferred
                  stripping costs
              
              
              (275,362
              )
              
              (966,184
              )Accruals
                  and other payables
              
              
              125,833
              
              
              119,477Business
                  and resource tax and government surcharge payable
              
              
              26,569
              
              
              199,599Income
                  taxes payable
              
              
              --
              
              
              715,333**Net
                  cash provided by operating activities**
              
              
              (307,043
              )
              
              1,702,557**Cash
                  flows from investing activities**Acquisition
                  of plant and equipment
              
              
              (1,973,368
              )
              
              (1,630,650
              )Acquisition
                  of mineral interests
              
              
              --
              
              
              (845,410
              )Assets
                  received in recapitalization of the Company
              
              
              646,653
              
              
              --**Net
                  cash used in investing activities**
              
              
              (1,326,715
              )
              
              (2,476,060
              )**Cash
                  flows from financing activities**Proceeds
                  from issuance of registered capital
              
              
              1,495,000
              
              
              603,865(Repayment)/Advance
                  from a shareholder
              
              
              87,562
              
              
              90,580Notes
                  Payable/Receivable
              
              
              250,000
              
              
              --(Repayment)/Advance
                  from a director
              
              
              (120,773
              )
              
              120,773**Net
                  cash provided by financing activities**
              
              
              1,711,789
              
              
              815,218**Currency
                  translation adjustment**
              
              
              (1,853
              )
              
              --Cash
                  at beginning of period
              
              
              41,715
              
              
              --Net
                  increase in cash and cash equivalents
              
              
              76,178
              
              
              41,715**Cash
                  and cash equivalents, end of period**
              
              
              117,893
              
              
              41,715**Non-cash
                  investing and financing activities:**Common
                  stock issued in exchange for plant and equipment
              
              
              --
              
              
              1,145,421Common
                  stock issued in exchange for Inventories
              
              
              --
              
              
              317,173Common
                  stock issued in exchange for mineral interest
              
              
              --
              
              
              724,638**Supplementary
                  Information**Income
                  taxes paid
              
              
              --
              
              
              --Interest
                  paid
              
              
              --
              
              
              --
  F-5
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
 **1.**
              **ORGANIZATION
                  AND PRINCIPAL ACTIVITIES**
  China
        Granite Corporation conducts granite mining and processing operations in
        the
        People's Republic of China (the "PRC") through the wholly-owned subsidiary
        of
        its subsidiary, China Laizhou Bay Mining International Corporation, a
        corporation organized under the laws of the British Virgin Islands ("Laizhou").
        This operating company, Laizhou Jia Sheng Stone Company ("Laizhou China"),
        is a limited liability company organized under the laws of the People's Republic
        of China.
 
 China
        Granite Corporation, formerly known as Arbor Inc. a United States Corporation,
        acquired 100% of the shares of Laizhou Bay in a restricted share exchange.
        In
        this transaction China Granite received all of the shares of Laizhou Bay
        and
        issued treasury shares to the shareholders of Laizhou Bay. As a result of
        the
        transaction, China Granite Corporation was effectively established in February
        2004.
 
 China
        Granite (CGNT: OTCBB) was initially a company dedicated to the construction
        of
        concrete buildings, fencing and walls for major ranches, public parks, and
        government installations throughout North and South America. Currently, the
        Company only engages in granite operations.
 
 Laizhou
        Bay, a holding company incorporated in the British Virgin Islands, owns 100%
        of
        Laizhou China a limited liability company organized under the laws of PRC
        on
        January 9, 2003. Most of the raw granites mined are sold to the domestic
        market.
        The Company also acquires other kinds of raw granite other than those from
        its
        own mines for further processing into slabs and tiles to meet specific orders
        for processed stone.
 
 The
        Company now owns mineral interests of granite reserves in two locations in
        Laizhou City, Shandong Province. The Company also owns another mineral
        concession in the Laiyang district just to the East of Laizhou
        City.
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
  **Basis
        of accounting**
 The
        consolidated financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America.
        The
        financial statements are presented in United States Dollars.
 
 
 **Principles
        of Consolidation**
 The
        Consolidated financial statements include the accounts of China Granite
        Corporation and its wholly owned subsidiary China Laizhou Bay Mining
        International Corporation, and Laizhou Jia Sheng Stone Company. All significant
        intercompany accounts have been eliminated.
 
 
 **Cash
        and cash equivalents**
 The
        Company considers all cash and highly liquid investments purchased with an
        original maturity of three months or less to be cash
        equivalents.
  F-6
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
 
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (CONTINUED)**
 
 
 **Leasehold
        Land, Plant and equipment and depreciation**
 Leasehold
        land is recorded at cost less accumulated amortization. Amortization is provided
        over the term of the land use right certificate on a straight-line basis.
        Leasehold land located in the PRC is subject to lease term specified in the
        land
        use right certificate granted by the governmental authority. An initial lump-sum
        payment is paid to the government to acquire the right to use the land over
        a
        specified period. During the lease term, the leasehold land is transferable.
        After the expiration of the
 lease
        term, the leasehold land is required to be returned to the government unless
        further renewal is made with the governmental authority.
 
 Other
        Plant and equipment are stated at cost. Significant renewals and additions
        are
        capitalized at cost. Maintenance and repairs, and minor renewals and betterments
        are charged to operations as incurred.
 
 Mineral
        exploration costs are expensed as incurred. When it has been determined that
        a
        mineral property can be economically developed as a result of establishing
        proven and probable reserves, costs incurred prospectively to develop the
        property are capitalized as incurred and are amortized. Major development
        costs
        incurred after the commencement of production are capitalized and amortized.
        Ongoing development expenditures to maintain production are charged to
        operations as incurred. No exploration and development costs have been
        capitalized for the period.
 
 The
        existing terms of the mineral rights (mining right periods) are not sufficient
        to recover all identified and valued proven and probable reserves and/or
        undeveloped mineral interests in respect of the two mineral rights currently
        owned by the Company. Therefore the Company depreciates and amortizes its
        mining-related plant and equipment and mining development costs on a
        straight-line basis over the estimated useful lives of the plant and
        equipment.
 
 Depreciation
        is calculated to write off the cost of plant and equipment over their estimated
        useful lives from the date on which they become fully operational and after
        taking into account their estimated residual values, using the straight line
        method, at the following annual rates:
 
 
 Leasehold
                  land
              Over
                  the unexpired term of leaseBuildings
              10
                  - 20 yearsMotor
                  vehicles
              2
                  -
                  10 yearsFurniture
                  and equipment
              1
                  -
                  20 years
 
  **Accounts
        receivable**
 Accounts
        receivable are stated at the amount billed to customers.  The Company
        provides an allowance for doubtful accounts of $12,992 (2003 - 0), which
        is
        based upon a review of outstanding receivables, historical collection
        information and existing economic conditions.  Accounts past due more than
        120 days are all provided for.  Receivables that become delinquent of 0
        (2003 - 0) based on individual credit evaluation and the specific circumstances
        of the customer are written off.
 
 **Inventories**
 Inventories
        are valued at the lower of cost or market using weighted average cost method
        of
        accounting.
 
 Raw
        materials represent purchased raw granite for use in further processing into
        granite slabs. Work-in-progress represents materials that are currently in
        the
        process of being converted to granite slabs. Finished goods represent granite
        blocks (raw granite) held for sale from mining and processed granite slabs.
        The
        Company does not expect to maintain a material line of inventory from time
        to
        time as it only extracts granite once an order is received.
  F-7
 *Table
            of Contents*
 
 **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
 
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (CONTINUED)**
 
 
 **Mineral
        interests**
 Mineral
        interests represent acquired mineral rights for parcels of land not owned
        by the
        Company. These mineral interests are currently in the production stage which
        contains proven and probable reserves. Mineral interests are amortized using
        the
        units of production method over the terms of mineral rights, which are 20
        and 30
        years for the Company's two mineral interests. Units of production method
        of
        amortization is used because the production level may vary from period to
        period. In accordance with SFAS 151 we have applied waste factors of 60%
        and 50%
        respectively in determining the reserves from which the units of production
        were
        applied.
  The
        Company was issued a mining right certificate in respect of one of its two
        mineral interests from the relevant governmental authority. The initial
        application and registration fee of applying a mining right certificate from
        relevant governmental authority amounted to Rmb250,000 (US$30,193). The mining
        right certificate is to be renewed every five years. The management of the
        Company considers the renewal fee would be minimal and the chance of renewals
        not being granted by the relevant governmental authority is remote. The Company
        further received a confirmation from the governmental authority confirming
        that
        the mining right certificate can be renewed every five years. With respect
        to
        the remaining mineral interest, the Company has submitted an application
        for a
        mining right certificate for which an acknowledgment of application-in-progress
        was received from the relevant governmental authority.
 
 The
        Company has received another written confirmation from the relevant governmental
        authority that the Company has valid mining rights in its two mineral interests
        since the commencement of mining business throughout the terms of respective
        mineral interests, despite the fact that official mining right certificates
        have
        not been issued at the time of commencement of mining business. The last
        correspondence received from the authorities was December 8, 2004 , stating
        that
        it generally handles mining certificates once every two years. The Company
        expects to receive the official certificate by August 2006. The lack of
        certificate and delay in obtaining the certificate are common for mining
        companies in the PRC. The Company believes it is conforming to normal
        expectations and rules of the region.
 
 **Deferred
        stripping costs**
 The
        costs
        of removing overburden and other waste materials during mine development
        stage
        to access mineral deposits at open pit mines are capitalized and
        amortized. These costs of removing waste materials and road construction
        are referred to as stripping costs. Stripping costs during post-production
        phase
        are expensed as incurred. However, industry practice does vary for
        post-production phase stripping costs incurred. Some mining companies defer
        the
        costs in the post-production phase and expensing stripping costs may result
        in
        the reporting of greater volatility in period to period results of operations.
        Full amount of post-production stripping costs incurred will not be expensed
        until the end of mine life.
 
 During
        the year ended December 31, 2004 and the period ended December 31, 2003,
        the
        Company capitalized all the stripping costs in the statement of operations
        as
        the company believed that that these costs can benefit the exploration and
        production of minerals in subsequent periods. Such costs amounted to US$275,362
        in 2004 and US$966,184 in 2003, respectively. These stripping costs are
        attributed to specific identified reserves and the units of production method
        is
        being used to recognize the costs as a component of cost of sales in the
        same
        period as the related revenue.
 
 **Reclamation
        and remediation costs**
 Estimated
        future reclamation and abandonment costs are based principally on legal and
        regulatory requirements and are accounted for in accordance with Statement
        of
        Financial Accounting Standards (“SFAS”) No. 143, "Accounting for Asset
        Retirement Obligations". At the balance sheet date, such costs have not been
        provided because the costs involved are insignificant under the current legal
        and regulatory requirements in the PRC.
 
 The
        Company has reviewed the Mining Resource Law of the PRC, specifically Chapter
        4
        deals with reclamation of mining properties and Environmental Pollution.
        The
        relevant laws regarding this in Clause 32 states: “With exploitation of mining
        resources, companies must obey relatively legal prescribes of environmental
        protection, preventing pollution of environment. . . . any farmland, grassland,
        woodland which are destroyed by exploitation of mines or mining business
        should
        adopt re-mining utilization, plantation or other using step which are adjusted
        measures to local conditions.” Our Group 14 Quarry and Number 1 Quarry are
        located in dry rocky areas with very little vegetation, and are not considered
        “farmland, grassland or woodland”.
 
 To
        our
        knowledge none of the granite mines which have been closed by other granite
        mining companies which were operating in the Laizhou area have performed
        any
        reclamation and remediation of any type, including but not limited to,
        replanting trees and grassland. However, even if some sort of replanting
        was
        necessary, the Company believes that the cost for such reclamation and
        remediation would be minimal. Furthermore, since granite mining does not
        use any
        toxic materials like cyanide nor has problems with acid discharges as happened
        in some other types of mining, the Company believes there is no need to have
        a
        reserve for environmental pollution.
  F-8
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (CONTINUED)**
 
 **Impairment
        of long-lived assets**
 Long-lived
        assets are evaluated for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be recoverable in
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”. An asset is considered impaired if its carrying amount
        exceeds the future net cash flow the asset is expected to generate. If such
        assets are considered to be impaired, the impairment to be recognized is
        measured by the amount by which the carrying amount of the asset exceeds
        its
        fair market value. The recoverability of long-lived assets is assessed by
        determining whether the unamortized balances can be recovered through
        undiscounted future net cash flows of the related assets. The amount of
        impairment, if any, is measured based on projected discounted future net
        cash
        flows using a discount rate reflecting the Company's average cost of
        capital.
 
 **Stock
        options and warrants.**
 The
        Company has elected to follow Accounting Principles Board Opinion (APBO)
        No. 25
        and related interpretations in accounting for its stock and warrant based
        compensation made to its employees. APBO No.25 requires recognition of
        compensation expense for variable awards over the vesting periods based upon
        the
        then current market values of the underlying stock. Stock options and awards
        made to consultants are subject to the provisions of Statement of Financial
        Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”,
        as amended by SFAS no. 148, “Accounting for Stock=Based Compensation -
        Transition and Disclosure - an amendment of FASB statement No. 123”, which
        requires the recognition of compensation expenses for grants of stock, stock
        options, and other equity instruments, over the vesting periods of such grants,
        based on the estimated grant-date fair values of those grants. The fair market
        value is calculated using the Black
        Schoels model and the
        Company generally uses the straight line method of amortization for stock-based
        compensation.
 
 **Net
        sales**
 The
        Company recognizes revenue when there is persuasive evidence of an agreement
        with customers, with a fixed fee that is collectible and when delivery has
        occurred. In accordance with the provisions of Staff Accounting Bulletin
        No.
        103, revenue is recognized when product is shipped, title passes to the
        customer. The price is fixed or determinable and collectability is reasonably
        assured.
 
 **Cost
        of sales**
 Costs
        classified as cost of sales relate to the mining of minerals and production
        of
        granite slabs and include such items as material cost, depreciation of fixed
        assets, amortization of mineral interests, direct labor costs and other
        production costs.
 
 **Income
        taxes**
 Income
        taxes are provided under the provisions of SFAS No. 109, which requires
        recognition of the estimated future tax consequences attributable to differences
        between the financial statement carrying amounts of existing assets and
        liabilities and their respective tax bases and net operating loss carry-forwards
        under the liability method. Deferred tax assets and liabilities are measured
        using expected tax rates in effect for the period, in which those temporary
        differences, are expected to be recovered or settled.
 
 **Comprehensive
        income**
 The
        Company has adopted SFAS No. 130 “Reporting Comprehensive Income”, which
        requires the disclosure of comprehensive income, which includes net income
        (loss), unrealized gains and losses on marketable securities classified as
        available-for-sale and foreign currency translation adjustments. Comprehensive
        income for the period only consisted of net income for the period.
 
 **Foreign
        currency translation**
 Transactions
        in currencies during the period are translated into the functional currency
        at
        the applicable rates of exchange prevailing at the time of the transactions.
        Monetary assets and liabilities denominated in currencies other than functional
        currency are translated into the functional currency at the applicable rates
        of
        exchange in effect at the balance sheet date. Exchange gains and losses are
        recorded in the statement of operations. There is no translation adjustment
        to
        date due to translations into our reporting currency as the Renminbi has
        been
        fixed against the United States dollar for the past 10 years. The Chinese
        government adjusted its policy of being fixed against the United States dollar
        to a package of currencies on July 21 st ,
        2005
        and we expect such translation adjustments to occur in future
        reports.
 
 Translation
        of amounts from Renminbi into United States dollars ("US$") is for the
        convenience of readers and has been made at the noon buying rate in New York
        City for cable transfers in foreign currencies as certified for customs purposes
        by the Federal Reserve Bank of New York on December 31, 2003 of US$1.00 =
        Rmb8.28. No representation is made that the Renminbi amounts could have been,
        or
        could be, converted into United States dollars at that rate or at any other
        rate.
  F-9
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (CONTINUED)**
 
 
 **Use
        of estimates**
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and the disclosure of contingent assets and liabilities at the
        date
        of the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Such estimates include provisions for doubtful
        accounts, sales returns and allowances, long-lived assets and deferred income
        taxes. Actual results could differ from those estimates.
 
 **Fair
        value of financial instruments**
 The
        estimated fair values for financial instruments under SFAS No. 107, “Disclosures
        about Fair Value of Financial Instruments”, are determined at discrete points in
        time based on relevant market information. These estimates involve uncertainties
        and cannot be determined with precision. The estimated fair values of the
        Company's financial instruments, which includes cash, accounts receivable
        and
        other payables, approximates their carrying values in the consolidated financial
        statements.
 
 **Net
        Income (Loss) Per Common Share**
 Net
        income (loss) per common share is computed in accordance with SFAS No. 128,
        “Earnings Per Share”. Basic earnings per common share is calculated by dividing
        income available to common shareholders by the weighted-average number of
        common
        shares outstanding for each period. Diluted earnings per common share is
        calculated by adjusting the weighted-average shares outstanding assuming
        conversion of all potentially dilutive stock options, warrants and convertible
        securities (common stock equivalents). Diluted earnings per share is the
        same as
        basic earnings per share for all of the periods presented as the effect of
        common stock equivalents resulting from the convertible notes and warrants
        were
        anti-dilutive.
 
 **Recent
        accounting pronouncements**
 In
        November 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standard (“SFAS”) No. 151 "Inventory Costs -
        an amendment of ARB No. 43, Chapter 4" (“SFAS 151”). This statement amends the
        guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
        accounting for abnormal amounts of idle facility expense, freight, handling
        costs, and wasted material (spoilage). SFAS 151 requires that those items
        be
        recognized as current-period charges. In addition, this Statement requires
        that
        allocation of fixed production overheads to costs of conversion be based
        upon
        the normal capacity of the production facilities. The provisions of SFAS
        151 are
        effective for fiscal years beginning after June 15, 2005. As such, the Company
        is required to adopt these provisions at the beginning of the fiscal year
        ended
        December 31, 2006. The Company is currently evaluating the impact of SFAS
        151 on
        its consolidated financial statements, but management does not expect that
        it
        will have a material effect.
 
 In
        December 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate
        Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67"
        (“SFAS 152”). This statement amends FASB Statement No. 66 “Accounting for Sales
        of Real Estate” to reference the financial accounting and reporting guidance for
        real estate time-sharing transactions that is provided in AICPA Statement
        of
        Position 04-2 “Accounting for Real Estate Time-Sharing Transactions” (“SOP
        04-2”).
  F-10
 *Table
            of Contents*
 
 **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (CONTINUED)**
 
 
 **Recent
        accounting pronouncements (continued)**
 
 SFAS
        152
        also amends FASB Statement No. 67 “Accounting for Costs and Initial Rental
        operations of Real Estate Projects” to state that the guidance for incidental
        operations and costs incurred to sell real estate projects does not apply
        to
        real estate time-sharing transactions, with the accounting for those operations
        and costs being subject to the guidance in SOP 04-2. The provisions of SFAS
        152
        are effective in fiscal years beginning after June 15, 2005. As such, the
        Company is required to adopt these provisions at the beginning of the fiscal
        year ended December 31, 2006. The Company is currently evaluating the impact
        of
        SFAS 152 on its consolidated financial statements, but management does not
        expect that it will have a material effect.
 
 In
        December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
        -
        an amendment of APB Opinion No. 29" (“SFAS 153”). SFAS 153 replaces the
        exception from fair value measurement in APB Opinion No. 29 for nonmonetary
        exchanges of similar productive assets with a general exception from fair
        value
        measurement for exchanges of nonmonetary assets that do not have commercial
        substance. A nonmonetary exchange has commercial substance if the future
        cash
        flows of the entity are expected to change significantly as a result of the
        exchange. SFAS 153 is effective for all interim periods beginning after June
        15,
        2005. As such, the Company is required to adopt these provisions at the
        beginning of the fiscal quarter ended September 30, 2005. The Company is
        currently evaluating the impact of SFAS 153 on its consolidated financial
        statements, but management does not expect that it will have a material
        effect.
 
 In
        December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" (“SFAS
        123R”). SFAS 123R revises FASB Statement No. 123 “Accounting for Stock-Based
        Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock Issued to
        Employees”. SFAS 123R requires all public and non-public companies to measure
        and recognize compensation expense for all stock-based payments for services
        received at the grant-date fair value, with the cost recognized over the
        vesting
        period (or the requisite service period). SFAS 123R is effective for non-small
        business issuers for all interim periods beginning after June 15, 2005. SFAS
        123R is effective for small business issuers for all interim periods beginning
        after December 15, 2005. As such, the Company is required to adopt these
        provisions at the beginning of the fiscal quarter ended September 30, 2005.
        Retroactive application of the provisions of SFAS 123R to the beginning of
        the
        fiscal year that includes the effective date is permitted, but not required.
        The
        Company is currently evaluating the impact of SFAS 123R on its consolidated
        financial statements, but management does not expect that it will have a
        material effect.
 
 **3.**
              **INVENTORIES**
   Inventories
        consisted of:
 
 **As
                  of December 31,***2004*
              
              *2003*Raw
                  materials
              
              
              72,240
              
              
              82,882Work-in-progress
              
              
              18,323
              
              
              19,109Finished
                  goods
              
              
              82,853
              
              
              12,417173,416
              
              
              114,408
  F-11
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **4.**
              **PLANT
                  AND EQUIPMENT, NET**
 
 Plant
        and
        equipment consisted of:
 **As
                  of December 31,***2004*
              
              *2003*Leasehold
                  land
              
              
              569,820
              
              
              569,820Buildings
              
              
              749,874
              
              
              708,316Furniture
                  and equipment
              
              
              2,271,448
              
              
              877,872Motor
                  vehicles
              
              
              112,101
              
              
              23,978Construction-in-progress
              
              
              1,001,399
              
              
              596,085Leasehold
                  Improvements
              
              
              44,797
              
              
              --Cost
              
              
              4,749,439
              
              
              2,776,071Less:
                  Accumulated depreciation
              
              
              (358,425
              )
              
              (117,818
              )Plant
                  and equipment, net
              
              
              4,391,014
              
              
              2,658,253
 
 
 Depreciation
        expense amounted to US$240,607 for the year ended December 31, 2004 and
        US$117,818 for the period ended December 31, 2003.
 
 **5.**
              **MINERAL
                  INTERESTS, NET**
 
 
 Mineral
        interests represented:
 **As
                  of December 31,***2004*
              
              *2003*Gross
                  carrying amount
              
              
              1,570,048
              
              
              1,570,048Accumulated
                  amortization
              
              
              (117,584
              )
              
              (66,425
              )Net
                  book value
              
              
              1,452,464
              
              
              1,503,623
 
 
 All
        the
        mineral interests are in the production stage and amortization expense amounted
        to US$51,159 and $66,425 for the year ended December 31, 2004 and the period
        ended December 31, 2003, respectively.
 
 **6.**
              **DEFERRED
                  STRIPPING COSTS, NET**
 
 
 Deferred
        stripping costs represented:
 **As
                  of December 31,***2004*
              
              *2003*Gross
                  carrying amount
              
              
              1,241,546
              
              
              966,184Accumulated
                  amortization
              
              
              (78,021
              )
              
              (38,990
              )Net
                  book value
              
              
              1,163,525
              
              
              927,194
  F-12
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **7.**
              **ACCRUALS
                  AND OTHER PAYABLES**
 
 
 Accruals
        and other payables consisted of:
 
 **As
                  of December 31,***2004*
              
              *2003*Wages
                  and bonus
              
              
              15,590
              
              
              25,983Accrued
                  interest
              
              
              13,000
              
              
              0Others
              
              
              216,720
              
              
              93,494245,310
              
              
              119,477
  
 **8.**
              **NOTE
                  PAYABLE**
  On
        October 6, 2004, China Granite Corporation (the "Company") completed the
        sale of
        a $650,000 8% Senior Secured Promissory Note to institutional and accredited
        investors pursuant to a Secured Promissory Note Purchase Agreement (the "Senior
        Purchase Agreement").
  Under
        the
        Senior Purchase Agreement, the Company issued a Secured Convertible Promissory
        Note (the "Senior Convertible Note") in the aggregate principal amount of
        $650,000, convertible into Common Stock of the Company at the option of the
        investors at $1.60 per share. The Senior Convertible Note accrues interest
        at 8%
        per year and all outstanding principal and unpaid interest is due on September
        30, 2007. The Company must make quarterly interest-only payments of $13,000
        to
        the investors until the Senior Convertible Note is either paid in full or
        is
        converted into the Company's common stock. At December 31, 2004, $13,000
        due for
        interest was accrued.
  Under
        the
        Senior Purchase Agreement, the Company also issued warrants (the "Warrants")
        to
        purchase an aggregate of 406,250 shares of the Common Stock at a per share
        exercise price of $2.00. The Warrants are exercisable, in whole or in part,
        until September 30, 2009.
  The
        Company's obligations under the Senior Purchase Agreement, the Senior
        Convertible Note and the Warrants are secured by a security interest in all
        of
        the Company's assets pursuant to a general security agreement between the
        Company and the investors. In addition, pursuant to a registration rights
        agreement between the Company and the investors, the Company has agreed to
        file
        a registration statement with the Securities and Exchange Commission ("SEC")
        covering the resale of the subject shares of the Company's common stock
        underlying the Senior Convertible Note and the Warrant.
  The
        excess fair value of the common stock into which the notes can convert at
        the
        conversion date over the proceeds is recorded as conversion premium and is
        limited to the amount of the proceeds of the debentures. The calculation
        of the
        original entry was based on the Black Schoels model as follows; FMV of
        conversion premium on Note Payable $229,125 (406,250 shares * 0.564) (3 years)
        and FMV of warrants on Note Payable $277,062 (406,250 * 0.682) (5 years).
        The
        valuation of the warrants was based on the following assumptions; Share price;
        0.90, dividend; 0, maturity; 5 years., strike price; 2.00, interest rate;
        3.50
        and volatility; 120 . Per paragraph 19 (issue 6) of EITF 00-27, the discount
        from beneficial conversion on notes payable are amortized from the date of
        issuance to the stated date of redemption of the convertible
        instrument.
 
 YEAR
                  ENDED DECEMBER31,2004Net
                  loss
              
              
              ***362,559***Total
                  compensation expense under the fair-value based method for all
                  awards, net
                  of related tax effects
              
              
              ***(19,083***
              ***)***Pro
                  forma net loss
              
              
              ***343,476***Basic
                  and diluted EPS, as reported
              
              
              ***0.03***Basic
                  and diluted EPS, pro forma
              
              
              ***0.03***
 
 No
        information is presented for the year ended December 31, 2003 because no
        options
        and warrants on the notes payable were issued and outstanding during the
        period.
 
 On
        September 30, 2005, we filed a Form 8-K with the SEC disclosing an Item 2.04
        event. We disclosed two of the three investors holding Senior Convertible
        Notes
        we issued in October of 2004, had sent us notice that they want to be paid
        back
        their principal, plus interest at 8% per annum and any unpaid liquidated
        damages
        by September 30, 2005. On October 5, 2005, we repaid $296,860.82 to one of
        the
        three investors holding Senior Convertible Notes.
 
 We
        are
        currently trying to arrange the necessary financing to repay the two remaining
        Senior Convertible Note holders. We will attempt to raise this additional
        capital through the private placement of our securities. There is no guarantee,
        however, that we will be able to successfully raise the required funds for
        this
        purpose or that such funds will be available on terms satisfactory to us.
        Any
        inability to raise additional funds may seriously jeopardize our future
        operations.
 
 **9.**
              **INCOME
                  TAXES**
 
  The
        Company was subject to the PRC income tax at a rate of 33% in 2003.
  **9.**
              **INCOME
                  TAXES (CONTINUED)**
  F-13
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  For
        a
        period of two years commencing 2004, the operations in China will not incur
        income taxes and for three years following that period the income tax rate
        will
        be reduced 50 percent in accordance with the regulations relating to foreign
        companies. In addition, the accrual for income taxes for 2003 of approximately
        $715,000 may eventually be eliminated if pending approvals are finalized.
        The
        reconciliation of the PRC income tax rate to the effective income tax rate
        based
        on income before income taxes is as follows:
 
 **Year
                  to December 31, 2004****and
                  the Period from January 9, 2003****(date
                  of incorporation)****to
                  December 31, 2003**%PRC
                  income tax rate
              
              33Effective
                  income tax rate
              
              33
 
 The
        following is a geographical breakdown of income before the provision for
        income
        taxes:
 
 Year
                  to December 31,
              
              Period
                  from January 9, 2003 (date of incorporation to December
                  31,(in
                  thousands)
              
              2004
              
              2003Domestic
              
              
              0
              
              
              0Foreign
              
              
              343
              
              
              2,167Total
              
              
              343
              
              
              2,167
 
 The
        provision for income taxes consists of the following:
 
 Year
                  to December 31,
              
              Period
                  from January 9, 2003 (date of incorporation to December
                  31,(in
                  thousands)
              
              2004
              
              2003Current
                  provision:Federal
              
              
              0
              
              
              0State
              
              
              0
              
              
              0Foreign
              
              
              0
              
              
              715Total
                  current provision
              
              
              0
              
              
              715Deferred
                  provision (benefit):Federal
              
              
              0
              
              
              0State
              
              
              0
              
              
              0Foreign
              
              
              0
              
              
              0Total
                  deferred provision
              
              
              0
              
              
              0Total
                  provision for income taxes
              
              
              0
              
              
              715Effective
                  income tax rate
              
              
              0
              
              
              33
              %
 
 Deferred
        tax assets and liabilities have not been provided as there are no temporary
        differences existed during the period and at the balance sheet
        date.
 
 **10.**
              **STOCKHOLDERS'
                  EQUITY**
 
 On
        incorporation, the shareholders of the Company contributed a total of
        Rmb5,000,000 (US$603,865) to the Company as registered capital. In addition
        to
        cash, the Company's shareholders also contributed Rmb18,110,284 (US$2,187,232)
        in value of fixed assets, inventories and mineral interest to the Company
        which
        is recorded as additional paid-in capital.
 
 The
        Company's income is distributable to its shareholders after transfer to
        dedicated reserves as required under relevant PRC laws and regulations and
        the
        Company's Articles of Association. Dedicated reserves include statutory surplus
        reserve and statutory public welfare fund.
 
 Statutory
        surplus reserve represents the appropriation of 10% of income after taxation
        calculated in accordance with PRC accounting standards and regulations and
        the
        Articles of Association of the Company. The appropriation may cease to apply
        if
        the balance of the statutory surplus reserve has reached 50% of the Company's
        registered capital. In addition, the Company's Articles of Association also
        allows the Company to transfer certain amounts of income after taxation and
        after appropriations to the statutory surplus reserve and statutory public
        welfare fund, subject to shareholders' approval, to a discretionary surplus
        reserve. According to the Company's Articles of Association, statutory surplus
        reserve can be used to make up prior year losses, to expand production operation
        or to increase registered capital.
 
 Statutory
        public welfare fund represents the appropriation of income after taxation
        according to the requirements of the Company's Articles of Association and
        the
        PRC laws and regulations. According to the requirements, the Company transfers
        5% to 10%, at the discretion of directors, of income after taxation calculated
        in accordance with PRC accounting standards and regulations. The fund can
        only
        be utilized for capital expenditure on employees' collective welfare facilities
        and cannot be used in staff welfare expenses. The statutory public welfare
        fund
        is not distributable to shareholders other than in liquidation.
 
 **11.**
              **COMMITMENTS
                  AND CONTINGENCIES**
  F-14
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  At
        the
        balance sheet date, the Company had capital expenditure commitments in respect
        of granite slabs production facilities contracted for, but not provided for,
        net
        of deposits paid, amounting to US$0 in 2004 (2003 - US$274,155).
 
 The
        Company has made full tax provision in accordance with relevant national
        and
        local laws and regulations of the PRC. However, the local tax authority granted
        the Company certain tax allowances and exemption and collected less than
        the
        full amount from the Company. This is not in compliance with national laws
        and
        regulations. Accordingly, despite the fact that the Company has made full
        tax
        provision in the financial statements, the Company may be subject to penalty
        ranging from 50% to 500% of the underpaid tax amount, plus a default interest
        on
        the unpaid amount calculated on a daily basis. The exact amount of penalty
        cannot be estimated with any reasonable degree of certainty. The board of
        directors considers it is not probable that the tax penalty will be imposed
        as a
        result of tax concession/exemption, which may not be in compliance with relevant
        national laws and regulations, provided by the local tax authority.
 
 **12.**
              **RETIREMENT
                  PLAN AND POST-EMPLOYMENT
                  BENEFITS**
 
 The
        Company has no retirement plan or post-employment benefits for its
        employees.
  **13.**
              **RELATED
                  PARTY TRANSACTIONS**
 
 During
        the period, the Company had the following transactions with related
        parties.
  (1)
              Brazil
                  Project
 
 In
        October and November 2003 (the "November Placement"), we received $500,000
        ($250,000 of which came from one of our Directors) through a private placement
        of 600,000 shares of our restricted common stock to fund a real estate
        development project between CPL Construcoes e Comercio, Inc. ("CPL") and
        China
        Granite in Brazil. To this end a Brazilian corporation was formed to carry
        on
        the venture, namely CPLArbor do Brasil Construtora Limitada ("CPLArbor"),
        which
        is owned in equal parts by CPL and the Company. An aggregate of $425,000
        of the
        funds raised in the November Placement were committed to CPLArbor. During
        2004
        two of the Company's Directors lent funds to the Company totaling $170,000
        specifically for use by this project.
 
 On
        December 31, 2004, the Company entered into an agreement with a consortium
        that
        included the two directors to sell its interest in the Brazil Project. Under
        the
        agreement the buyer has accepted the interest in the Brazilian corporation
        and
        the responsibility to repay the notes due there from totaling $595,000 set
        off
        against notes payable by China Granite to its two Directors totaling $170,000
        requiring a net payment to China Granite of $425,000. As $25,000 was paid
        on
        execution of the agreement, the remaining balance of note receivable of $400,000
        is presented in the current assets section. The two directors have personally
        guaranteed the following payments: $200,000 due on March 31 and the balance
        of
        $200,000 due on June 30th.
  **13.**
              **RELATED
                  PARTY TRANSACTIONS
                  (CONTINUED)**
 
 It
        has
        always been the intent (as disclosed in our filings) since the merger of
        Arbor
        Limited (now China Granite) and Laizhou Bay on February 5, 2004, to convert
        the
        interest in the Brazilian development project into working capital for its
        granite operations.
  F-15
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  (2)
              Other
                  Related party transactions during the period are as
                  follows:
 
 During
        the period the Company entered into an Agreement to purchase two excavators
        for
        US$321,256 partly funded through a loan arrangement. Under the Laws of the
        PRC
        such a loan cannot be extended to a company and it was therefore adopted
        on
        behalf of the Company by one of its shareholders.
 
 In
        2003,
        a car was purchased by the Company for US$16,780, under a similar funding
        arrangement to that noted above. In this case another shareholder, who is
        also a director adopted the loan on behalf of the Company.
 
 In
        2003,
        the Company acquired a mineral interest from one of its shareholders at a
        consideration of Rmb7,000,000 (US$845,410), which was transferred at
        cost.
 
 As
        disclosed in note 9, the shareholders contributed certain assets to the Company
        in addition to the registered capital. Included in such assets is a mineral
        interest acquired from one of the Company's shareholders at a consideration
        of
        Rmb6,000,000 (US$724,638), which was transferred at cost.
 
 In
        2003,
        one of the Company's bank accounts was in the name of one of its staff members,
        who held the bank account in trust for the Company. Settlement received from
        customers of the Company deposited into this bank account and payment for
        expenditures of the Company withdrawn from this bank account during the period
        amounted to Rmb23,780,260 (US$2,872,012). The Company had a bank account
        opened
        in the name of the staff member because it was much easier to deposit and
        withdraw funds for an individual than a corporation in the PRC. This bank
        account was closed in December 2003 and the Company now only uses its own
        bank
        account for funds deposits and withdrawals.
  (3)
              Balances
                  with related parties are as
                  follows:
  **As
                  of December 31,***2004*
              
              *2003*Due
                  to shareholder A
              
              
              172,405
              
              
              0Due
                  to shareholder B
              
              
              0
              
              
              90,580
 
 The
        amount due to shareholder A represents the unsettled balance of the acquisition
        of two excavators. In 2003 the balance due to shareholder B represents the
        amount due from the acquisition of a mineral interest from that
        shareholder.
  F-16
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **13.**
              **RELATED
                  PARTY TRANSACTIONS
                  (CONTINUED)**
 
 
 (3)
              Balances
                  with related parties continued:
 
 
 The
        Company has committed itself to making the payments due under the funding
        arrangement noted above. Nonetheless, the outstanding balance shown is
        unsecured, interest-free and has no fixed repayment terms.
 
 **As
                  of December 31,***2004*
              
              *2003*Due
                  to director A
              
              
              5,737
              
              
              11,679Due
                  to director B
              
              
              0
              
              
              120,773
 
 
 The
        amount due to director A, who is also a shareholder of the Company, represents
        the balance due on the purchase of a car. In 2003 another director B was
        owed
        for short-term financing to the Company for operating purposes.
 
 The
        Company has committed itself to making the payments due under the funding
        arrangement noted above. Nonetheless, the outstanding balance shown is
        unsecured, interest-free and has no fixed repayment terms.
  **14.**
              **SEGMENT
                  INFORMATION**
 
  The
        Company adopted SFAS No. 131 “Disclosures About Segments of an Enterprise and
        Related Information”, in respect of its operating segments. The Company's
        reportable segments are granite mining (sale of granite blocks) and production
        of granite slabs. The majority of the Company's operating activities and
        customers are located in the PRC.
 
 
 These
        segments are managed separately because each business requires different
        technology and marketing strategies. The Company evaluates performance based
        on
        operating earnings of the respective business units. The accounting policies
        of
        the segments are the same as those described in the summary of significant
        accounting policies. The corporate assets primarily include cash and cash
        equivalents and deposits and other receivables. There were no significant
        inter-segment transactions during the period. In determining operating
        income/loss by reportable segment, general corporate expenses, other income
        and
        expense items of non-operating nature are not considered, as such items are
        not
        allocated to the Company's segments. Segment information for the period are
        as
        follows:
  F-17
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **14.**
              **SEGMENT
                  INFORMATION (CONTINUED)**
 
 
 (a)
              Net
                  sales:
 
  **Year
                  to December 31, 2004 and****Period
                  from January 9, 2003****(date
                  of incorporation) to****December
                  31, 2003***2004*
              
              *2003*Granite
                  mining
              
              
              1,699,922
              
              
              2,443,327Production
                  of granite slabs
              
              
              687,660
              
              
              606,8562,387,582
              
              
              3,050,183
 
 
 (b)
              Net
                  income / (loss):
 
  **Year
                  to December 31, 2004 and****Period
                  from January 9, 2003****(date
                  of incorporation) to****December
                  31, 2003***2004*
              
              *2003*Granite
                  mining
              
              
              1,393,964
              
              
              1,882,444Production
                  of granite slabs
              
              
              127,299
              
              
              132,9741,521,263
              
              
              2,015,418Reconciliation:Net
                  income for reportable segments
              
              
              1,521,263
              
              
              2,015,418OthersUnallocated
                  corporate income and expenses (see below)
              
              
              (1,177,787
              )
              
              (563,076
              )343,476
              
              
              1,452,342
 
 Unallocated
        corporate income and expenses includes the following:
 US$’000’sPublic
                  Relations
              
              
              205Consulting
                  fees
              
              
              186Legal
                  Fees
              
              
              160Notes
                  payable costs
              
              
              93Accounting
              
              
              76US
                  Administration
              
              
              35Sundry
              
              
              45China
                  - General, Administration and other operating costs (2003 -
                  $563)
              
              
              378Total
              
              
              1,178
 
 (c)
              Assets:
 
  **As
                  of December 31,***2004*
              
              *2003*Granite
                  mining
              
              
              4,619,570
              
              
              3,320,699Production
                  of granite slabs
              
              
              2,077,443
              
              
              1,020,5866,697,013
              
              
              4,341,285Reconciliation:Total
                  assets for reportable segments
              
              
              6,697,013
              
              
              4,341,285Other
                  corporate assets
              
              
              2,550,655
              
              
              1,147,9169,247,668
              
              
              5,489,201
  F-18
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **14.**
              **SEGMENT
                  INFORMATION
                  (CONTINUED)**
 
 
 All
        of
        the Company's identifiable assets are located in the PRC
 
 (d)
              Other
                  items:
 
 
 **Year
                  to December 31, 2004 and****Period
                  from January 9, 2003****(date
                  of incorporation) to****December
                  31, 2003***2004*
              
              *2003*Depreciation
                  of fixed assets:Granite
                  mining
              
              
              157,633
              
              
              60,770Production
                  of granite slabs
              
              
              35,541
              
              
              26,208Unallocated
                  corporate assets
              
              
              47,433
              
              
              30,840240,607
              
              
              117,818Capital
                  expenditures for fixed assets:Granite
                  mining
              
              
              1,419,986
              
              
              946,114Production
                  of granite slabs
              
              
              438,519
              
              
              694,112Unallocated
                  corporate assets
              
              
              114,863
              
              
              1,135,8451,973,368
              
              
              2,776,071Amortization
                  of mineral interests:Granite
                  mining
              
              
              56,950
              
              
              71,891
 
 
 (e)
              Major
                  customers
 
 
 Major
        customers, for the period, which accounted for more than 10% of total revenues
        are as follows:
 
 
 **Year
                  to December 31, 2004 and Period from January 9, 2003 (date of
                  incorporation) to December 31, 2003**Granite
                  mining
              
              In
                  2004, no customers accounted for more than 10% of total revenues.
                  In 2003,
                  2 customers accounted for 10% and 13% of total revenues,
                  respectivelyProduction
                  of granite slabs
              
              In
                  2004, no customers accounted for more than 10% of total revenues.
                  In 2003,
                  1 customer accounted for 12% of total
                  revenues
  F-19
 *Table
            of Contents*
  **China
        Granite Corporation**
  **Notes
        to and forming part of the Financial Statements**
  **15.**
              **OPERATING
                  RISK**
 
 (a)
              Country
                  risk
 
 The
        Company's operations are conducted in the PRC. Accordingly, the Company's
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, and by the general
        state
        of the PRC economies.
 
 The
        Company's operations in the PRC are subject to special considerations and
        significant risks not typically associated with companies in North America
        and
        Western Europe. These include risks associated with, among others, the
        political, economic and legal environments and foreign currency exchange.
        The
        Company's results may be adversely affected by changes in the political and
        social conditions in the PRC, and changes in governmental policies with respect
        to laws and regulations, anti-inflationary measures, currency conversion
        and
        remittance abroad, and rates and methods of taxation, among other
        things.
 
 (b)
              Industry
                  risk
 
 The
        Company operates in business segments which requires the use of specialized
        facilities and technology. The Company relies heavily on such facilities
        and
        technology to maintain its production level. The cash flow and profitability
        of
        the Company's current operations are significantly affected by the market
        price
        of granite which are affected by numerous factors beyond the Company's control.
        As mentioned in Note 2 to the financial statements, the Company's mining
        rights
        are subject to renewals by the relevant governmental authority. Despite the
        fact
        that the Company has received written confirmation from the governmental
        authority, there is no guarantee that the Company will be granted the
        renewals.
 
 (c)
              Concentration
                  of credit risk
 
 As
        of
        December 31, 2004, two customers had accounts receivable balances representing
        16.35% and 14.91% of total accounts balance receivable, respectively. At
        December 31, 2003, two customers had accounts receivable balances representing
        85.55% and 14.44% of total accounts receivable balance, respectively. No
        other
        customers had an accounts receivable balance that exceeded 10% of the total
        accounts receivable balance.
 
 The
        Company performs ongoing credit evaluation of each customer's financial
        condition. It maintains reserves for potential credit losses and such losses
        in
        the aggregate have not exceeded management's projections.
 
 **16.**
              **STOCK
                  OPTIONS**
 
 During
        the year the Company approved the issuance of 960,000 non qualified stock
        options to acquire 960,000 shares of the Company's common stock for certain
        directors, officers and employees. The price per share for 840,000 shares
        was $4
        per share and the balance of 120,000 shares was $5.20 per share. Subsequent
        to
        the 2004 year end, the Company cancelled all options issued.
 
 Under
        the
        Senior Purchase Agreement (Note 8), the Company issued a Secured Convertible
        Promissory Note (the "Senior Convertible Note") in the aggregate principal
        amount of $650,000, convertible into Common Stock of the Company at the option
        of the investors at $1.60 per share. The Senior Convertible Note accrues
        interest at 8% per year and all outstanding principal and unpaid interest
        is due
        on September 30, 2007
 
 Under
        the
        same Senior Purchase Agreement, the Company also issued warrants (the
        "Warrants") to purchase an aggregate of 406,250 shares of the Common Stock
        at a
        per share exercise price of $2.00. The Warrants are exercisable, in whole
        or in
        part, until September 30, 2009.
  **17.**
              **RESTATEMENT**
 
 The
        financial statements for the year ended December 31, 2003 have been restated
        to
        give effect to a change in amortization methods from the straight line method
        to
        the units of production method and to capitalize deferred stripping costs
        previously expensed. The effect on income and stockholders' equity at December
        31, 2003 is summarized as follows:
 
 NetIncome
              
              Stockholders'EquityAs
                  previously reported
              
              $
              831,122
              
              $
              3,622,219Deferred
                  stripping costs
              
              
              927,194
              
              
              927,194Amortization
                  of Mineral interests Income taxes
              
              
              (305,974
              )
              
              (305,974
              )Restated
              
              $
              1,452,342
              
              $
              4,243,439
 
 The
        financial statements for the year ended December 31, 2004 have been restated
        to
        give effect to deferred conversion premium on convertible note - common stocks
        and warrants, as well as reclassification in current liabilities. The effect
        on
        assets, liabilities, stockholders’ equity, and statement of operations is
        summarized as follows:
 
 Restated
              
              As
                  previously reportedDeferred
                  conversion premium on convertible note - common stocks
              
              $
              209,917
              
              
              0Deferred
                  conversion premium on convertible note - warrants
              
              
              277,000
              
              
              0Total
                  assets
              
              $
              9,247,668
              
              $
              8,760,751Business
                  and resource tax and Government surcharge payable
              
              $
              226,168
              
              $
              1,098Due
                  to a shareholder
              
              
              172,405
              
              
              178,142Due
                  to a director
              
              
              5,737
              
              
              0Income
                  tax payable
              
              
              715,333
              
              
              940,403Conversion
                  premium payable on warrants
              
              
              277,000
              
              
              0Total
                  long term liabilities
              
              
              927,000
              
              
              650,000Additional
                  paid in capital
              
              $
              5,148,019
              
              $
              5,425,019Retained
                  earnings
              
              
              1,447,734
              
              
              960,817Total
                  stockholders’ equity
              
              
              6,955,715
              
              
              6,745,798Conversion
                  premium on convertible debt and warrants
              
              $
              (19,083
              )
              $
              (506,000
              )Operating
                  profit (loss)
              
              
              378,929
              
              
              (127,171
              )Net
                  income (loss)
              
              
              343,476
              
              
              (143,441
              )
  F-20
 *Table
            of Contents*
  Exhibits
  3.1*
              Amended
                  and Restated Articles of Incorporation (incorporated by reference
                  to
                  exhibit 3.1 to our current report on Form 8-K filed on February
                  20,
                  2004).3.2*
              Amended
                  and Restated Bylaws (incorporated by reference to exhibit 3.1 to
                  our
                  current report on Form 8-K filed on February 20, 2004).4.2*
              Form
                  of Subscription Agreement10.3*
              Consulting
                  Agreement10.4*
              Stockholder
                  Transfer Agreement10.5**
              Secured
                  Promissory Note Purchase Agreement dated October 6,
                  200410.6**
              8%
                  Senior Secured Promissory Note dated October 6, 200410.7**
              Warrant
                  Agreement dated October 6, 200431.1
              Certification
                  of Chairman and Chief Executive Officer Pursuant to Section 302of
                  the
                  Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
                  herewith).31.2
              Certification
                  of Vice Chairman and Chief Financial Officer Pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350) (transmitted
                  herewith).32.1
              Written
                  Statement of Chairman and Chief Executive Officer Pursuant to Section
                  906
                  of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted
                  herewith).32.2
              Written
                  Statement of Vice Chairman and Chief Financial Officer Pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
                  (transmitted herewith).
  *
        previously filed
 **
        to be
        filed at a later date
  34