Edgar Filing: CHINA DIGITAL WIRELESS INC

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

FORM 10-KSB

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number: 333-120431

CHINA DIGITAL WIRELESS, INC.
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(Name of Small Business Issuer in its Charter)

Nevada 90-0093373
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

429 Guangdong Road
Shanghai, China 200001 N/A
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (011) 86-21-6336-8686

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]

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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

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

The issuer's revenues for its most recent fiscal year ended December 31, 2005
were US$20,419,022.

The aggregate market value of the voting common stock held by non-affiliates
computed by reference to the price at which the common stock was sold, or the
average bid and asked prices of such common stock, as of March 1, 2006, is
$4,277,787. The number of shares of common stock outstanding as of March 1, 2006
was 17,147,268.

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

CHINA DIGITAL WIRELESS, INC.

FORM 10-KSB

TABLE OF CONTENTS

Page
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PART I

Item 1. Description of Business..............................................3
Item 2. Description of Property.............................................37
Item 3. Legal Proceedings...................................................37
Item 4. Submission of Matters to a Vote of Security Holders.................37

PART II

Item 5. Market For Common Equity and Related Stockholder Matters............38
Item 6. Management's Discussion and Analysis or Plan of Operation...........39
Item 7. Financial Statements................................................47
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure..........................................47
Item 8A. Controls and Procedures.............................................47
Item 8B. Other Information...................................................47

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.................48
Item 10. Executive Compensation..............................................51
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters...................................51
Item 12. Certain Relationships and Related Transactions......................52
Item 13. Exhibits............................................................55
Item 14. Principal Accountant Fees and Services..............................57

Consolidated Financial Statements............................................F-1

PART I

When we use the terms "we," "us," "our" and "the Company," we mean
China Digital Wireless, Inc., a Nevada corporation, and its wholly-owned
subsidiary, Sifang Holdings Co., Ltd., and Sifang Holdings Co., Ltd.'s
wholly-owned subsidiary, Shanghai TCH Data Technology Co., Ltd.

The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis or Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements relate
to future events or our future financial performance, and involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential," or "continue," or
the negative of such terms or other comparable terminology. These statements are
only predictions. Actual results may materially differ from those projected in
the forward-looking statements as a result of certain risks and uncertainties
set forth in this report. Although management believes that the assumptions made
and expectations reflected in the forward-looking statements are reasonable,
there is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be different from the
expectations expressed in this report. In evaluating these statements, you
should specifically consider various factors, including the risks outlined in
the "Risk Factors" section below.

ITEM 1. DESCRIPTION OF BUSINESS

General

Our current operations include providing value added information
services, cellular phone distribution and advertising services through our
Chinese operating subsidiaries.

Overview

Business History. We originally began operations as a Colorado
corporation known as Boulder Brewing Company, or Boulder Brewing. We were
incorporated in Colorado on May 8, 1980 and operated as a microbrewery of
various beers. Boulder Brewing was unable to become profitable within any
segment of its core business, became illiquid, and was forced to divest itself
of all of its assets. Boulder Brewing became dormant without any operations or
assets in the second quarter of 1990.

In September 2001, Boulder Brewing changed its state of incorporation
from Colorado to Nevada and changed its name to Boulder Acquisitions, Inc., or
Boulder Acquisitions. From the date of reincorporation until June 23, 2004
Boulder Acquisitions had no material operations or assets.

On June 23, 2004, we completed a stock exchange transaction with the
shareholders of Sifang Holdings Co., Ltd. ("Sifang Holdings"). The exchange was
consummated under Nevada and Cayman Islands law pursuant to the terms of a
Securities Exchange Agreement dated as of June 23, 2004 by and among Boulder
Acquisitions, Sifang Holdings and the shareholders of Sifang Holdings. Pursuant
to the Securities Exchange Agreement, we issued 13,782,636 shares of our common

stock to the shareholders of Sifang Holdings, representing approximately 89.7%
of our post-exchange issued and outstanding common stock, in exchange for 100%
of the outstanding capital stock of Sifang Holdings. We presently carry on the
business of Sifang Holdings' wholly-owned subsidiary, Shanghai TCH Data
Technology Co., Ltd., a corporation organized under the laws of the PRC, or TCH.

Effective August 6, 2004, we changed our name from Boulder
Acquisitions, Inc. to China Digital Wireless, Inc.

Our business is primarily conducted through our wholly-owned
subsidiary, Sifang Holdings and its wholly-owned subsidiary, TCH. TCH was
established as a foreign investment enterprise in Shanghai under the laws of the
PRC on May 25, 2004, with registered capital of $7.2 million.

Our current operations were originally a business division of Sifang
Information. Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business to
TCH. As the acquiring entity under common control, TCH initially recognized all
the assets and liabilities transferred at their carrying amounts in the accounts
of Sifang Information at the date of transfer under the guidance of the
Statement of Financial Accounting Standard ("SFAS") No. 141, Appendix D.

On May 26, 2004, Sifang Information exchanged 100% of the equity
interest in TCH for 100% of the equity interest in Sifang Holdings. Since the
ultimate owners of the three entities were the same owners and the three
entities remained under common control, the ownership exchange transaction was
accounted for at historical costs under the guidance of SFAS No. 141, Appendix
D. Prior to May 26, 2004, there were no activities in Sifang Holdings. As a
result of the exchange of ownership between TCH and Sifang Holdings, TCH's
historical financial statements became the historical financial statements of
Sifang Holdings.

As a result of the spin-off, TCH engages in the business of mobile
phone distribution and provides pager and mobile phone users with access to
certain value-added information reformatted by TCH. TCH purchases mobile phones
from first tier distributors and sells them to retailers with a mark-up. In the
process of providing value-added information services through monthly
subscription agreements with various users, TCH purchases trading activity
information from stock exchanges, comments and analysis on PRC stock markets
provided by certain reputable security and investment companies, lottery
information, weather forecast, and other value-added products and reformats the
aforementioned information through decoding and recoding and then has the
reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The value-added information is constantly saved on
TCH's server in order for mobile phone users to dial in via China Mobile or
China Unicom. By signing a monthly subscription agreement, wireless receiver
users agree to make advance payments for our services for either three or
six-month subscription periods.

records. The general and administrative expenses are allocated based on
management hours spent and payroll records. The income tax provision has been
calculated on a separate company basis and is in line with the historical actual
income tax provision at the Sifang Information level assuming that all income
taxes had been paid by Sifang Information and no income tax liability was in
existence in the periods reported in the accompanying financial statements.
Management believes that the costs, operating expenses, interest expense, and
income tax provision included in the Company's financial statements are a
reasonable representation of the costs and expenses that would have been
incurred if the Company had performed these functions as a stand-alone company.

We launched a new digital media project to move into the media market
in China in 2005. In conjunction with charitable organizations, we have
installed donation boxes with digital TV incorporated on top of them in the main
lobbies of commercial banks, hotels, malls and other public locations to call
the public's attention to the charity and broadcast commercial advertisements.

Value-Added Information Services for Mobile Phone and Pager Users. We
render value-added information services in China by purchasing content from
third-party providers and reformatting that content. Our value-added information
services enable wireless receiver (mobile phone and pager) users in China to
access financial information and various entertainment-related services. We
contract with our affiliated wireless service providers to transmit the
reformatted content to customers of China's various network operators.

The primary focus of our value-added information services is to provide
wireless receiver users in China with access to financial information. We derive
the vast majority of our value-added information services revenue from our
financial information business. Our financial information software, Sifang
Gutong, allows our customers to access stock and currency exchange information
and execute stock trades. We are one of the largest stock information and
trading value-added information service providers in China.

We began providing our entertainment-related services, including icons,
screen savers, multiplayer games, Western horoscopes, jokes, and sports and
entertainment news during the latter part of 2003. These services are ancillary
to our financial information services and they represent only a small portion of
our value-added information services revenue at the present time.

Leveraging our experience and understanding of the wireless value-added
services market in China, we have consistently purchased and reformatted
content, applications and technologies that are popular in the Chinese wireless
market. To further enhance and differentiate our services, we have entered into,
and will continue to actively pursue, collaborative relationships with third
parties to customize, market and provide access to their content through various
wireless technologies to Chinese consumers. In addition, all of our services are
promoted by our sales force and supported by our customer service team, each of
which is strategically based in Shanghai.

In order to meet ownership requirements under Chinese law that restrict
us, as a foreign company, from operating in certain industries such as
value-added telecommunication and Internet services, we have entered into
information service and cooperation agreements with two of our affiliates that
are incorporated in the People's Republic of China ("PRC" or "China"): Shanghai
Sifang Information Technology Co. ("Sifang Information") and Tianci. We hold no
ownership interest in Sifang Information or Tianci. Sifang Information and
Tianci contract with China Mobile Communications Corporation, or China Mobile,
and China United Telecommunications Corporation, or China Unicom, respectively,

to provide wireless value-added information services to wireless receiver
customers in China via China Mobile and China Unicom. Sifang Information
transmits those services to customers of China Mobile and China Unicom on behalf
of itself and Tianci pursuant to a signed agreement between Sifang Information
and Tianci.

Mobile Phone Distribution. We distribute various mobile phone brands in
the Shanghai, China region. We distribute mobile phones manufactured primarily
by SAMSUNG Electronics Co., Ltd. ("Samsung") and NOKIA Corporation ("Nokia"),
and to a lesser extent, by Motorola, Inc. ("Motorola"). We began distributing
Motorola mobile phones in early 2002, Samsung mobile phones in November 2002 and
Nokia mobile phones in March 2005. We began discontinuing our Motorola mobile
phone distribution business on June 30, 2004. We are a distributor, for the
Shanghai region, of over ten different mobile phone models manufactured by
Samsung and plan to increase our sales of Samsung mobile phones.

Most of the Samsung models we distribute are compatible with the GSM
network and only a few Samsung models we distribute are compatible with the Code
Division Multiple Access, or CDMA, network.

We entered an agreement to distribute select Nokia mobile phones
exclusively in the Shanghai region of China beginning in May 2005 and now have
obtained the right to distribute two popular models of Nokia's mobile phones.
Initially, we believed that this agreement would enhance both our market share
and profitability. However, as a result of the sudden change in the market
factors during the latter half of 2005, whereas the demand for mobile phones in
the Chinese market started becoming saturated along with the intensified
competition among mobile phone distributors, our sales mark-up of the Nokia
mobile phones to our customers dropped significantly from the initial 8% to
approximately 1% during the 4th quarter of 2005. Our management is currently
reviewing the market factors and considering discontinuing the mobile phone
distribution business in 2006 if the market situation remains unchanged.

There are three main first-tier wholesalers of Samsung phones in China:
Shanghai Taili Communication Equipment Co., Ltd., Shenzhen Tianyin Communication
Development Co., Ltd., and Guangzhou Yingtai Data Power Technology Co., Ltd.
These wholesalers contract, through local branches, with sub-wholesalers to
distribute each model in a defined area. We have contracts with Shanghai branch
offices of the three main first-tier wholesalers, making us a sub-wholesaler
distributor of nine Samsung mobile phone models in the Shanghai region. We
received approximately 45% of the mobile phones we sold in 2005 from the three
retailers.

We have rebate programs with Shanghai Taili Communication Equipment
Co., Ltd. and Shenzhen Tianyin Communication Development Co., Ltd. whereby we
are credited a certain portion of the sales price we paid to the first-tier
wholesaler if we are able to fulfill certain sales volume prescribed by that
first-tier wholesaler. As a result, we are entitled to receive certain rebates
and credits for the inventory held and sold by us within a specified period of
time as set by the first-tier wholesaler offering the rebate program.

Digital Advertising. We launched a new digital media project to move
into the media market in China in 2005. In conjunction with charitable
organizations, we have installed donation boxes with digital TV incorporated on
top of them in the main lobbies of commercial banks, hotels, malls and other
public locations to call the public's attention to the charity and broadcast
commercial advertisements.

We have an agreement with China Charity Foundation ("CCF"), a national
non-profit charitable organization, which enables us to install donation boxes
for CCF in banks and other commercial locations throughout China that will also
have the Company's out-of-home digital television advertising media platform
attached. The completion of this agreement enables us to accelerate the
placement of out-of-home digital television platforms, particularly in banks
across China. We negotiate placement of the donation boxes and digital
television media platform with banks and other commercial entities that wish to
support the national charity. The China Banking Regulatory Commission ("CBRC")
has previously agreed, pending completion of the agreement with CCF, to support
and coordinate this effort with respect to approvals of donation box placements
in banks throughout China. This agreement facilitates the continued placement of
platforms with little or no direct costs. We believe that such costs may
constitute as much as 30% of the direct costs of competitors based upon an
analysis of publicly available information.

We have placed more than 850 multimedia donation boxes in the inbound
area of Shanghai and other arranged spots will be rolled out in the public
places with high traffic flow. Based on Shanghai, our strategy is to expand our
network to penetrate other large and mid-sized developed cities throughout
China. We believe the earnings potential from the advertising service will be a
new source of profit in view of the upcoming Special Olympic World Summer Games
in 2007 and World Exposition in 2010 to be held in Shanghai.

Other Advertising Services. During the year ended December 31, 2005,
TCH rendered advertisement designing and producing services to Shanghai Tianci
Real Estate Co. Ltd. ("Tianci Real Estate") for publicity and promoting its
apartment. Net advertising service revenue of $1,738,878 was derived from this
service. TCH performed such services via an agent, Shanghai Sifang Media Co.,
Ltd. ("Sifang Media"), which is a related company that granted the license to
provide advertising in China.

In January 2005, Sifang Media and TCH entered into the "Bank Digital
TV's Cooperation Agreement", where TCH will assist in the promotion of TV ads
for various customers, including Tianci Real Estate. TCH received a net fee of
$2,620,044 for providing the service from January 2005 to December 2005. There
was an "Advertisement Agency Contract" between Tianci Real Estate and Sifang
Media, which expired in November 2005. In June and September 2005, Sifang Media,
TCH and two unrelated customers, entered into certain agreements, where TCH will
assist in the promotion of TV ads for these customers. TCH received a net fee of
approximately $900,000 for providing the service via Sifang Media during the
fiscal year of 2005.

Energy Saving Products. In February 2006, we entered into an agreement
to acquire 95% of the equity interests of Shanghai Kena Energy Saving Electric
Co., Ltd. ("Kena") and related patent and patent rights to produce high-energy,
high-efficiency transformers. The Company's decision to enter into the Kena
acquisition is driven by an effort to re-focus the Company's strategy and
capitalize on the strategic opportunity this transaction presents.

Kena was established in China on April 26, 2005. Its chief scientist
Dr. Chang Kenan, an experienced Chinese-American scientist, is the inventor of
energy saving street lighting system ballasts which are noted for energy
savings, material savings, long-life, and being environmentally friendly. Since
its establishment, Kena has undertaken four street lighting projects and
generated revenue of over RMB 5,000,000. There are approximately nine street
lighting projects under negotiation.

We believe that the Kena acquisition represents a strategic opportunity
for the Company in the following ways:

1) The Chinese government has provided strong support of energy saving
products. In the first quarter of 2006, Kena's energy saving lighting products
will be included in the Chinese government purchasing lists. Official documents
will be issued by the Chinese government to help promote these products.

2) There is a large demand for energy saving streetlights. According to
the Chinese Construct Department, currently, there are 18,000,000 streetlights
in China with a 17%-18% yearly growth rate. The average replacement rate is 10%.
The worldwide demand is estimated at five times as much as the demand in China.

3) Kena's products present consumers with positive economic and social
effects. According to a Report from National Centre of Supervision & Inspection
on Electric Light Source Quality of Shanghai, Kena's energy saving lighting
system ballasts result in a 20% energy saving, allowing consumers to recover
their costs in two years. Compared to other similar products, Kena's system
ballasts use 15% less materials than other similar products and have a 20-year
service life, which is 10 years longer than other similar products.

Our Value-Added Information Services

Financial Services

Our primary focus with regard to value-added information services is
the provision of financial information services utilizing our Sifang Gutong
software. This software, developed by Chengao, utilizes the JAVA and BREW
platforms. JAVA and BREW utilize the more advanced 2.5G technology standard,
which enables high-capacity wireless data transmissions. As a result, services
offered over these platforms are more sophisticated and offer users higher
quality graphics and richer content and interactivity, commanding a premium
price over our other services. Our Sifang Gutong software enables our mobile
phone and pager customers to access quotes and retrieve customized
investment-related information, as well as access our currency exchange
information.

Sifang Gutong provides our mobile phone and pager customers with the
ability to receive streaming real-time quotes, including stocks, most active
issues, largest gainers and losers, and mutual funds for securities trading on
the Shenzhen and Shanghai stock exchanges. Our Sifang Gutong software available
to mobile phone users includes a stock trading function that enables our mobile
phone customers to directly place orders to buy and sell securities listed on
the two aforementioned stock exchanges. Our trading window corresponds with the
hours that securities markets are open from 9:30 a.m. to 11:30 a.m., and from
1:00 p.m. to 3:00 p.m., Beijing Time.

We receive a continuous direct feed of detailed quote data, market
information and news. Our customers can create customized lists of stocks for
quick access to current trading information. Through our relationships with
financial information companies such as Shanghai Stock Information Company, we
also provide access to breaking news, charts, market commentary and analysis.

The value-added financial information we offer can only be accessed by
a customer on whose mobile phone or pager the end-user portion of our Sifang
Gutong software has been installed. We plan to pre-install the end-user portion
of our Sifang Gutong software in all of the Samsung mobile phones that we

distribute. With regard to mobile phones and pagers not distributed by us, we
will provide installation of our Sifang Gutong software free of charge upon
request.

Pursuant to the request of a Beijing retailer, we entered into an
agreement with Chengao and Sifang Information whereby Chengao installs the
end-user portion of our Sifang Gutong software into mobile phones owned by the
retailer. The retailer sells these phones at a premium price to consumers. In
return for the premium price, the consumers receive our value-added information
services for six months free of charge. The retailer passes the premium back to
Chengao, who retains a small installation fee and then passes the remainder on
to us. This relationship helps us market our value-added information services
and enables us to establish relationships with new customers.

Other Services

We also provide icons and screen savers, Western horoscopes, jokes and
event-driven or entertainment news updates. These services represent only a
small portion of our value-added information services revenues at the present
time. However, we believe that providing wireless receiver users in China access
to entertainment-related services increases our ability to retain our financial
information subscribers and expand our subscriber base, and we expect the
entertainment-related services portion of our value-added information services
business will grow over time.

o Horoscopes. With this service, users can obtain daily Western
horoscopes via their mobile phones or pagers.

o Jokes. We send users of this service a variety of jokes on demand or
via automatic daily messages.

o News. We automatically send periodic SMS messages on recent
event-driven news, sports (especially soccer), or entertainment events
to subscribers of this service. Mobile phone users can also download
desired information on demand. We obtain our news content from
government affiliated media companies and other local media.

Content Relationships

Our content collaborators authorize the inclusion of their content in
one or more of our value-added information services for a fixed fee which we pay
directly to the provider. Our agreements with our content collaborators usually
have a one-year term, and are non-exclusive. Currently, our key content
collaborators are:

o Shanghai Stock Information Company.
o Shanghai Wanguo Stock Information Company.
o Shanghai Yibang Stock Information Company.
o Shanghai Shiji Stock Information Company.

Marketing Relationships

Sifang Information and Tianci, our affiliated value-added mobile phone
service providers, have marketing relationships with China Mobile and China
Unicom. We sell and market our services principally through China Mobile and
China Unicom. We also sell and market through Sifang Information's Web site,
www.sifang.net, and promotional events, direct marketing, media advertising and
other activities.

We sell all of our paging value-added information services through our
affiliated value-added paging service provider, Sifang Information. We market
our paging value-added information services through traditional media outlets,
including newspapers and magazines, and directly to end-users.

Operator Channels

General. All of our paging value-added information services are
provided through the paging network owned by Sifang Information. We contract
directly with the pager users to collect all fees generated from our value-added
information services. We have an information service and cooperation agreement
with Sifang Information that provides us exclusive access to their paging
network for ten years. This agreement is automatically renewable for additional
one year terms unless we decide to terminate. All of our mobile phone
value-added information services are provided to mobile phone users by Sifang
Information through the networks of China Mobile and China Unicom. Previously,
mobile phone users paid for our services by purchasing pre-paid services cards.
Now, our services are billed to mobile phone customers in one of two ways: (1)
certain of our customers pay for our services in advance when they purchase our
services and a mobile phone together in a premium package (through our
relationship with Chengao and Sifang Information), and (2) our other customers
(who do not purchase our services as part of any such premium package) are
billed by the mobile operators, who collect the fees for our services, including
both our data access and short message services, from their mobile phone
subscribers. The mobile operators then pass those fees (net of fees charged by
the mobile operator) to our affiliated value-added service providers, Sifang
Information and Tianci, who in turn pass those fees to us in return for a small
fee pursuant to the terms of information service and cooperation agreements
between us and each of them.

Our management team utilizes our experience in China to develop close
ties with the key personnel of the mobile operators at the central and
provincial levels. As of December 31, 2005, we had ten sales professionals
strategically located in provinces and municipalities concentrated in the
eastern and southern regions of China to work closely with the mobile operators
at the local level, where pricing and important marketing and operational
decisions are made. Our sales network enables us to work closely with operators
to facilitate the approval required for new service offerings and for related
pricing and to enjoy enhanced marketing and promotional support. We are also
able to gain insight into developments in the local markets and the competitive
landscape, as well as new market opportunities. Our sales professionals are
well-incentivized; most of their compensation is tied to usage of our services
in the applicable region.

Coordinated Marketing Campaigns. Our affiliated wireless service
providers cooperate in marketing campaigns with China Mobile and China Unicom.
These network operators distribute literature marketing us and our affiliates.

Non-Operator Channels

We also focus on non-mobile operator sales and marketing activities,
such as:

o promoting Sifang Information's Web site, www.sifang.net, to potential
users as a fun, easy-to-access place to request our wireless content
and applications,

o engaging in direct marketing to mobile phone users by, for example,
including advertising inserts in users' bills from Shanghai Mobile and
Shanghai Unicom,

o engaging in direct marketing to stock market investors by, for example,
including advertising inserts in investors' bills from brokerage
companies such as GF Securities Co., Ltd., Guotai Junan Securities Co.,
Ltd., Everbright Securities Co., Ltd. and Guoxin Securities Co., Ltd.,

o utilizing our database of users to create targeted marketing campaigns,

o advertising in traditional media outlets such as newspapers and
magazines, and

o we plan to pre-install the Samsung mobile phones we distribute with the
end-user portion of our Sifang Gutong software, and place brochures
touting our stock information, stock trading and currency exchange
services in the packaging of those phones, before distributing them to
retailers.

Customer Research

We spent $60,092 and $17,468 on marketing and advertising fees for our
mobile phone distribution and value-added service business in fiscal 2004 and
2005, respectively. Our sales, marketing and product development activities are
supported by our five-member customer research department. This department
focuses our sales efforts in the following three distinct phases:

Customer Acquisition. Our customer research department analyzes the
success rates of various national and local marketing campaigns in which we are
involved, including by user segment and cost per user, in order to determine
which campaigns are the most effective. Using phone surveys, focus groups and
analyses of usage patterns, the department also considers demographic and other
market factors to identify product mixes and product categories which are
suitable for the current market environment.

Customer Conversion. To enhance our ability to convert one-time or
occasional customers into regular users of our services, our customer research
department analyzes customer and product churn rates across the market, average
revenue per user data and other information. In this way, it can identify
different customer segments and develop targeted marketing campaigns for those
segments, including cross-selling and up-selling marketing campaigns.

Customer Retention. Our customer research department evaluates ways to
maximize user interest in our services through, for example, providing feedback
to our product developers to improve product features based on customer
information and bundling older services with newly launched services. It also
creates various reward programs designed to enhance customer loyalty.

Customer Services

We pride ourselves in providing high quality customer service. Our
dedicated customer service center based in Shanghai provides our users real-time
support and is staffed by 20 full-time professionals. The center currently
operates everyday from 7:00 a.m. to 10:00 p.m. We strive to achieve the fastest
response times and highest customer satisfaction levels in the industry.

Competitive Landscape

There are currently three broad categories of wireless service
providers in China:

o Portal service providers, which have established expertise in Internet
content and have subsequently branched into mobile space. The portals
serve as content aggregators offering a variety of wireless value-added
services. These national portal operators include Sohu, NetEase, Sina,
and Tom.com.

o Dedicated service providers, whose businesses focus on offering a
variety of wireless content directly to mobile users. These providers
include Linktone, Newpalm and Mtone Wireless.

o Niche service providers, which focus on a particular market segment or
application that often builds on a pre-existing sector competency.
These providers include Tencent, Enorbus, and Solute. We belong in this
category because of our focus on financial information services.

We may also face competition from international wireless service
providers.

As the mobile operators are becoming more selective in choosing their
service providers to promote high quality content, ensure high levels of
customer service and limit the number of providers with which they have to deal,
scale is becoming more important, and we believe the industry will likely
experience consolidation with the leading nationwide providers gaining more
market share at the expense of smaller local providers. Nationwide providers may
also acquire some of their smaller competitors to gain access to local
relationships with the mobile operators in China or new product expertise.

We estimate that we compete with between ten to twenty other
sub-wholesalers for the rights to distribute Samsung phones in the Shanghai
region. The three main competitive factors the wholesalers consider in granting
a sub-wholesaler the rights to distribute a particular model include:

Available Cash Flow. Sub-wholesalers must be able to pay for the mobile
phones they desire to purchase from first-tier wholesalers. First-tier
wholesalers will be hesitant to grant rights to distribute a particular model to
a sub-wholesaler if that sub-wholesaler does not have sufficient capital to make
large purchases. We believe that having adequate cash flow gives us a
competitive advantage.

Relationships with Retailers. The wholesalers look to the types of
relationships sub-wholesalers have with large retailers when deciding which
sub-wholesaler to utilize. We have strong relationships with three large
retailers in Shanghai and sell approximately 65% of our mobile phones to these
three retailers.

Relationships with Wholesalers. We have relationships with the three
major wholesalers of Samsung phones in China and have been sub-wholesalers for
those three wholesalers for more than a year.

Our Business Strategy

Our main objective is to maintain and strengthen our position as a
provider of wireless value-added information services in the Shanghai region. In
order to achieve this objective, we plan to, among other things, increase the
number of subscribers to our value-added information services by increasing the
number of mobile phones we distribute and pre-installing those phones with the
end-user portion of our Sifang Gutong software.

We launched an "out-of-home" digital television advertising business in
January 2005. However, we have decided to shift our focus away from the digital

advertising business in light of the lack of demand for out-of-home digital
advertising in China. We believe that the lack of demand is caused by several
factors, including the availability of other more traditional advertising
outlets such as television, radio and newspapers, and the reduction of
advertising fees due to the merger of media companies. In addition, there are an
increasing number of competitors in the media industry, resulting in intense
market competition. Key strategies for achieving our goals are to:

o Continue to expand and diversify our portfolio of wireless value-added
information services, including new SMS, 2.5G and other next generation
services such as those compatible with 3G;

o Increase investment in sales, marketing and branding, both in
conjunction with network operators and through independent activities,
in order to promote customer awareness of our wireless value-added
information and advertising services in China;

o Continue to strengthen our relationships with China Mobile and China
Unicom by increasing our sales presence at the national and local
levels and through joint marketing and promotion activities;

o Expand our marketing channels by continuing to develop integrated
marketing campaigns with traditional media outlets and other media
companies; and

o Continue to pursue strategic opportunities, such as the Kena
acquisition.

Employees

The following table summarizes the functional distribution of our
employees as of December 31, 2004 and 2005:

December 31,
Department 2004 2005

Business Development 5 10
Customer Research 5 10
Customer Service 20 20
Finance 3 3
Human Resources 2 2
Investor Relations 2 2
Legal and Administrative 2 2
Sales and Marketing 25 30
Product Development 20 25
Technical Support 10 5

Total 94 109

All of our personnel are employed full-time and none of them are
represented under collective bargaining agreements. We consider our relations
with our employees to be good.

Wireless Technology Standards in China

Several different wireless technology standards have been developed
which operate at different frequencies with both analog and digital radio
signals. First generation wireless telephone systems employ analog technology,
while newer systems employ digital technology. Digital wireless technology,
commonly referred to as second generation technology, or 2G, multiplies the
number of users that can be served by the same band of spectrum using analog
technology. The wireless technologies most relevant in China currently include:

o Global System for Mobile Communications, or GSM -- initially developed
in order to facilitate unification and integration of
telecommunications within the European Union has become widespread
throughout most Asian countries. GSM technology breaks audio signals
into sequential pieces of data of a defined length, places each piece
into an information conduit at specific intervals and then reconstructs
the pieces at the end of the conduit. A key component of the GSM system
is the SIM card. Data stored on the card identifies the subscriber to
the mobile network as well as the service authorized for that
subscriber. Since the identity of the subscriber is held on the card,
any mobile phone can be used in conjunction with the SIM card.

o Code Division Multiple Access, or CDMA -- a digital technology standard
which has been used in commercial operation by several operators in
certain countries such as the United States and Korea. Unlike GSM, CDMA
technology is a continuous transmission technology which uses a coding
system to mix discrete audio signals together during transmission and
then separates those signals at the end of transmission.

Prior to the commercial rollout of third generation, or 3G, networks,
2.5G technology standards have been developed for both the GSM and CDMA
technologies to offer higher data transmission speeds, enabling the use of more
data intensive products. Current 2.5G wireless technologies include:

o General Packet-Switched Radio Service, or GPRS -- offers faster data
transmission with speeds ranging from 56 kilobits per second, or Kbps,
to 114 Kbps via a GSM network. GPRS supports a wide range of bandwidths
and is particularly suited for sending and receiving small bursts of
data, such as e-mail and Web browsing, as well as large volumes of
data. GPRS also makes it possible for users to make telephone calls and
transmit data simultaneously.

o CDMA 1x RTT -- an advanced CDMA-based technology which allows
transmission of data at speeds of up to 144 Kbps, compared to a maximum
of 64 Kbps for second generation CDMA networks.

3G represents several technology standards developed by The
International Telecommunications Union. Third generation technology has been
developed for both the GSM standard and CDMA standard.

Wireless value-added services can be offered through all of these
technology standards and most commonly include:

o Short Messaging Services, or SMS -- a service that enables a user to
send and receive text messages comprised of words or numbers or an
alphanumeric combination. SMS was created when it was incorporated into
the GSM standard.

o Wireless Application Protocol, or WAP -- a software protocol standard
that defines a standardized means of transmitting Internet-based
content and data to handheld devices such as mobile phones and pagers
with secure access to e-mail and text-based Web pages. WAP supports
most wireless networks including GSM and CDMA.

o Multimedia Messaging Services, or MMS -- a method of transmitting
graphics, video clips, sound files and short text messages over
wireless networks using the WAP protocol. MMS, however, is not the same
as e-mail in that MMS is based on the concept of multimedia messaging.
An MMS message is coded so that the images, sounds and text are
displayed in a predetermined order as one singular message.
Furthermore, MMS does not support attachments as e-mail does.

o JAVA -- a general programming environment that creates applications for
the Internet or any other distributed networks. JAVA applications are
intended to be independent of the hardware platform.

Market Overview

Wireless Value-Added Services as a Revenue Driver for the Mobile Operators

As the wireless market in China continues to develop, an increasing
portion of the mobile operators' users have relatively low per capita incomes.
These subscribers generally yield lower levels of average revenue per user, or
ARPU, because they are primarily users of pre-paid services. In addition,
China's wireless market is becoming increasingly competitive, as demonstrated by
the recent CDMA promotions by China Unicom, as well as the intra-city wireless
offerings by China's two fixed-line operators, China Telecom and China Netcom,
which offer users limited mobile services within a city based on Personal
Handyphone Service or Personal Access System technology. In addition, China
Telecom, China Netcom and possibly other parties are expected to be awarded two
wireless licenses, although the timing of such grants is unclear. Both China
Telecom and China Netcom are large, established companies with significant
assets and the entry by them or other companies into the Chinese wireless market
could lead to further competition among the mobile operators. Due to these
pressures on the traditional voice-related businesses of the mobile operators,
SMS and other wireless value-added services have become a key differentiator and
increasingly important driver for the growth prospects of China Mobile and China
Unicom. We believe wireless value-added services will play a key role in the
mobile operators' competitive positioning when attracting and retaining users as
well as in their efforts to reverse declining ARPU levels.

Against this competitive backdrop, the market for wireless value-added
services in China has expanded significantly and is expected to continue to grow
at a fast pace. Currently, SMS services continue to represent the bulk of the
wireless value-added services market in China. This market is increasingly
shifting towards next generation technologies, with mobile operators upgrading
their networks to GPRS and CDMA 1x RTT and users upgrading to next generation
mobile phones that can operate with technologies such as MMS and WAP. China
Mobile and China Unicom have recognized this opportunity and are collaborating
with select service providers, including us, to further develop 2.5G
applications and services.

Operators' Wireless Value-Added Services Initiatives in China

China Mobile was the first to enter the market by introducing a popular
trial SMS program in connection with the Sydney Olympic Games in August 2000.
China Mobile later established its Monternet(TM) platform in November 2000.
China Unicom started its Uni-Info platform in May 2001. Monternet(TM) and
Uni-Info offer mobile phone users a single access point to order and pay for
wireless value-added services.

From the inception of Monternet(TM) and Uni-Info, China Mobile and
China Unicom have outsourced almost all content and applications for their
platforms, meaning that these operators, much like NTT DoCoMo and SK Telecom,
rely almost entirely upon third-party service providers to drive their network
traffic, supply attractive wireless services and increase revenue from their
wireless value-added services. In turn, the operators focus on the operation of
their networks. For their part, wireless value-added service providers in China
rely on the two operators, China Mobile and China Unicom, for the network
distribution of their content and services, billing and collection, and
remittance of revenues. Both operators have established similar fee
arrangements.

In addition to their working relationships with third-party service
providers, China's mobile operators will likely form closer alliances with
mobile phone vendors in order to standardize user friendly access to and
functionality for wireless value-added services in all mobile phones.

Government Regulation

The following is a summary of the principal governmental laws and
regulations that are or may be applicable to wireless service providers like us
in China. The scope and enforcement of many of the laws and regulations
described below are uncertain. We cannot predict the effect of further
developments in the Chinese legal system, including the promulgation of new
laws, changes to existing laws or the interpretation or enforcement of laws,
particularly with regard to wireless value-added services, which is an emerging
industry in China.

Regulation of Telecommunication Services

The telecommunications industry, including certain wireless value-added
services, is highly-regulated in China. Regulations issued or implemented by the
State Council, the Ministry of Information Industries, and other relevant
government authorities cover many aspects of telecommunications network
operation, including entry into the telecommunications industry, the scope of
permissible business activities, interconnection and transmission line
arrangements, tariff policy and foreign investment.

The principal regulations governing the telecommunications services
business in China include:

o Telecommunications Regulations (2000), or the Telecom Regulations. The
Telecom Regulations categorize all telecommunications businesses in
China as either infrastructure telecommunications businesses or
value-added telecommunications businesses. The latter category includes
SMS and other wireless value-added services. Under the Telecom
Regulations, certain services are classified as being of a value-added
nature and require the commercial operator of such services to obtain
an operating license, including telecommunication information services,
online data processing and translation processing, call centers and
Internet access. The Telecom Regulations also set forth extensive
guidelines with respect to different aspects of telecommunications
operations in China.

o Regulations for the Administration of Foreign-Invested
Telecommunications Enterprises (2002), or the FI Telecom Regulations.
The FI Telecom Regulations set forth detailed requirements with respect
to capitalization, investor qualifications and application procedures
in connection with the establishment of a foreign-invested telecom
enterprise. Under the FI Telecom Regulations, a foreign entity is
prohibited from owning more than 50% of the total equity in any
value-added telecommunications business in China, subject to certain
geographic limitations.

o Administrative Measures for Telecommunications Business Operating
License (2001), or the Telecom License Measures. Under the Telecom
License Measures, an approved value-added telecommunications service
provider must conduct its business in accordance with the
specifications recorded on its Telecom Business Operating License.

In addition to regulations promulgated at the national level by the
Chinese government, the Shanghai municipal government has issued provisional
regulations requiring SMS service providers to obtain licenses from or register
with the local Ministry of Information Industries branch office before providing
SMS service within the city. At this time, it is unclear whether national
regulations will be promulgated regulating SMS services.

Our affiliates, Sifang Information and Tianci, each have a value-added
telecommunication services license issued by the Shanghai Municipal
Telecommunications Administration Bureau, which is the local office of the
Ministry of Information Industries. Each has also been granted an
inter-provincial value-added telecommunication license by the Ministry of
Information Industries.

Other Laws and Their Application

Regulation of Internet Content Services. As a wireless value-added
information services provider, we do not engage in the Internet portal business
which typically involves the provision of extensive Internet content services,
including Chinese language Web navigational and search capabilities, content
channels, web-based communications and community services and a platform for
e-commerce, such as auction houses. Sifang Information registered with the
Shanghai Telecommunication Administration Bureau in January 2001 to provide
commercial services at the www.sifang.net web site.

As a commercial ICP provider, Sifang Information is prohibited from
posting or displaying any content that:

o opposes the fundamental principles determined in China's Constitution;
o compromises state security, divulges state secrets, subverts state
power or damages national unity;
o harms the dignity or interests of the state;
o incites ethnic hatred or racial discrimination or damages inter-ethnic
unity;
o sabotages China's religious policy or propagates heretical teachings or
feudal superstitions;
o disseminates rumors, disturbs social order or disrupts social
stability;
o propagates obscenity, pornography, gambling, violence, murder or fear
or incites the commission of crimes;
o insults or slanders a third party or infringes upon the lawful rights
and interests of a third party; or
o includes other content prohibited by laws or administrative
regulations.

Failure to comply with these prohibitions may result in the closing of
Sifang Information's Web site.

Regulation of News Dissemination through SMS Services. Pursuant to a
circular issued by the Shanghai Communications Administration, distribution of
news content through wireless applications like SMS must be approved by relevant
government agencies. Both Sifang Information and Tianci have all necessary
approvals.

Regulation of Advertisements. The State Administration of Industry and
Commerce, or the SAIC, is the government agency responsible for regulating
advertising activities in China. The SAIC has not promulgated regulations

specifically aimed at wireless advertising through a media other than the
Internet, such as through SMS services. One provisional regulation issued by
Shanghai municipal government prohibits service providers from sending SMS
advertisements without the client's consent.

As part of our non-mobile operator marketing activities, we have
developed integrated marketing campaigns with traditional media outlets such as
magazines and newspapers and multinational corporations through certain
cross-selling efforts with companies, including Motorola and Samsung. If the
SAIC were to treat our integrated marketing campaigns or other activities as
being advertising activities, we would need to apply to the local SAIC for an
advertising license to conduct wireless advertising business (through SMSs, for
example). We can give no assurance that such application would be approved by
the SAIC. Failure to obtain such approval could result in penalties including
being banned from engaging in online advertising activities, confiscation of
illegal earnings and fines.

Foreign Exchange Controls. The principal regulations governing foreign
exchange in China are the Foreign Exchange Control Regulations (1996) and the
Administration of Settlement, Sale and Payment of Foreign Exchange Regulations
(1996), or the Foreign Exchange Regulations. Under the Foreign Exchange
Regulations, Renminbi is freely convertible into foreign currency for current
account items, including the distribution of dividends. Conversion of Renminbi
for capital account items, such as direct investment, loans and security
investment, however, is still subject to the approval of the State
Administration of Foreign Exchange, or SAFE.

Under the Foreign Exchange Regulations, foreign-invested enterprises
are required to open and maintain separate foreign exchange accounts for capital
account items (but not for other items). In addition, foreign-invested
enterprises may only buy, sell and/or remit foreign currencies at those banks
authorized to conduct foreign exchange business after providing valid commercial
documents and, in the case of capital account item transactions, obtaining
approval from SAFE.

Intellectual Property and Proprietary Rights

We rely primarily on a combination of copyright laws and contractual
restrictions to establish and protect our intellectual property rights. We
require our employees to enter into agreements requiring them to keep
confidential all information relating to our customers, methods, business and
trade secrets during and after their employment with us. Our employees are
required to acknowledge and recognize that all inventions, trade secrets, works
of authorship, developments and other processes, whether or not patentable or
copyrightable, made by them during their employment are our property. They also
sign agreements to substantiate our sole and exclusive right to those works and
to transfer any ownership that they may claim in those works to us.

While we actively take steps to protect our proprietary rights, such
steps may not be adequate to prevent the infringement or misappropriation of our
intellectual property. This is particularly the case in China where the laws may
not protect our proprietary rights as fully as in the United States.
Infringement or misappropriation of our intellectual property could materially
harm our business. Sifang Information has registered the following Internet and
WAP domain name www.sifang.net.

Shanghai Sifang Communication Company ("Sifang Communication") has
registered one trademark with China's Trademark Office. That trademark is our
logo, a square (the English translation of "Sifang" is "square"). China's

trademark law utilizes a "first-to-file" system for obtaining trademark rights.
As a result, the first applicant to file an application for registration of a
mark will preempt all other applicants. Prior use of unregistered marks, except
"well known" marks, is generally not a basis for legal action in China. We may
not be able to successfully defend or claim any legal rights in any trademarks
for which we apply in the future.

Pursuant to a license agreement between our affiliate, Sifang
Communication, and us, we have the right to use our registered trademark, our
square logo, whenever necessary. We also acquired all of Sifang Information's
interest in the Sifang Gutong software pursuant to the terms of the spin-off of
Sifang Information's business divisions focusing on value-added information
services and distribution of mobile phones. We have the right to use the word
"Sifang" and to market ourselves through www.sifang.net with regard to both of
the spun-off divisions.

Many parties are actively developing and seeking patent protection for
wireless services-related technologies. We expect these parties to continue to
take steps to protect these technologies, including seeking patent protection.
There may be patents issued or pending that are held by others and that cover
significant parts of our technology, business methods or services. Disputes over
rights to these technologies are likely to arise in the future. We cannot be
certain that our products do not or will not infringe valid patents, copyrights
or other intellectual property rights held by third parties. We may be subject
to legal proceedings and claims from time to time relating to the intellectual
property of others.

Pending 2006 Acquisition

On December 29, 2005, TCH entered into a series of agreements to
purchase (i) 95% of the equity interests of Kena for an aggregate purchase price
of RMB 28,500,000 (approximately $3,532,000); (ii) a related patent from one of
the shareholders of Kena for RMB 11,000,000 (approximately $1,363,000); and
(iii) related rights to make a patent application from one of the shareholders
of Kena for RMB 11,000,000 (approximately $1,363,000).

The transactions are subject to regulatory approval in the PRC. We
expect to complete the acquisition in the second quarter of 2006.

On February 10, 2006, these agreements were amended to impose an additional
condition on Zhang Naiyao, the transferor of the patent and the holder of the
right to make the patent application, that if he fails to provide the necessary
technical assistance services to enable TCH to use the patented technology in
producing products on a large scale that meet the standards set by the Company
within one year, TCH shall have the right to demand the return of the relevant
payment received by him in full and to terminate the agreement for the
assignment of the patent and the right to apply for registration of the patent.
The amendments also set forth the arrangement for payment of the purchase price
between TCH and Sifang Information. The purchase price for both the equity
interests in Kena and the consideration for purchase of the patent and the right
to apply for registration of the patent is to be paid by Sifang Information on
behalf of TCH. Sifang Information is our affiliate in that Sifang Information's
stockholders are also stockholders of the Company. According to the amended
agreements, the amount of the purchase consideration paid by Sifang Information
on behalf of TCH will be applied to offset advances owed to TCH by Sifang
Information.

Kena was established on April 26, 2005 and specializes in the research,
development and manufacture of energy-saving products, as well as illumination

projects in China. The patent and patent application mentioned above relate to a
"three phase transformer" which is used in connection with a power supply system
that utilizes technology that allows manufacturers to produce transformers with
high energy transfer efficiency at a low costs. This technology is expected to
be available for mass production within one year.

RISK FACTORS

In addition to the other information contained in this annual report,
including the documents we incorporate by reference, you should consider the
following factors that may affect our future results and financial condition
before investing in our securities. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under no
duty to update any of the forward-looking statements after the date of this
report to conform such statements to actual results or to changes in our
expectations.

Risks Related to Our Business

We depend upon contractual arrangements with our affiliated value-added mobile
phone service providers, Sifang Information and Tianci, for the success of our
business. These arrangements may not be as effective in providing operational
control as direct ownership of these businesses and may be difficult to enforce.

Because we conduct our business only in China, and because we are
restricted by the Chinese government from owning telecommunications or Internet
operations in China, we depend on our affiliated value-added mobile phone
service providers, Sifang Information and Tianci, in which we have no direct
ownership interest, but with which we have entered into information service and
cooperation agreements, to provide those services to mobile phone users in China
through contractual agreements with the mobile operators, China Mobile and China
Unicom. These arrangements may not be as effective in providing control over our
value-added information services to mobile phone users in China as would be
direct ownership of these businesses. For example, Sifang Information or Tianci
could fail to take actions required to operate our business, such as entering
into service contracts with China Mobile or China Unicom. Moreover, a portion of
the fees for our services are paid by the mobile operators directly to Sifang
Information and Tianci, which are then obligated to transfer all of those fees
to us, in return for a small fee. If Sifang Information or Tianci fails to
perform their obligations under these agreements, we may have to rely on legal
remedies under Chinese law, which we cannot assure you would be effective or
sufficient.

In the opinion of our Chinese counsel, Grandall Legal Group (Shanghai),
Sifang Information and Tianci each possess such licenses, permits, certificates,
authorities and approvals, issued by appropriate governmental agencies or bodies
in the People's Republic of China, as are necessary to conduct its business as
presently conducted as well as to perform its obligations under any contracts
between it and China Mobile and China Unicom, respectively. In addition, in the
opinion of Grandall Legal Group (Shanghai), TCH is not in breach of or in
default under any laws of the People's Republic of China or any approval,
consent, waiver, authorization, exemption, permission, endorsement or license
granted by any People's Republic of China governmental agencies. There are,
however, substantial uncertainties regarding the interpretation and application
of current and future Chinese laws and regulations, as discussed below.

We depend on one software developer for a significant portion of our software
development, as well as for important marketing relationships.

We rely on Shanghai Chengao Industrial Co., Ltd., or Chengao, to
develop a significant portion of our software, including our Sifang Gutong
software. We also rely on Chengao to provide us with an important marketing
relationship regarding the mobile phone version of our Sifang Gutong software.
If we lose our relationship with Chengao, we could have a difficult time finding
a suitable replacement in the short term.

Our corporate structure could be deemed to be in violation of current or future
Chinese laws and regulations which could adversely affect our ability to operate
our business effectively or at all.

In connection with China's entry into the World Trade Organization, or
WTO, foreign investment in telecommunications and Internet services in China was
liberalized to allow for 30.0% foreign ownership in value-added
telecommunication and Internet services in 2002, 49.0% in 2003, and 50.0%
thereafter. In order to meet these ownership requirements, we have entered into
information service and cooperation agreements with Sifang Information and
Tianci. We do not have any direct ownership interest in Sifang Information or
Tianci. The original shareholder structure of Sifang Holdings was identical to
the current shareholder structure of Sifang Information, and each of Sifang
Information and Tianci are beneficially owned 69% by Tai Caihua, our president
and the chairman of our board of directors. It is possible that the relevant
Chinese authorities could, at any time, assert that any portion or all of TCH's,
Sifang Information's, or Tianci's existing or future ownership structure and
businesses violate existing or future Chinese laws, regulations or policies. It
is also possible that the new laws or regulations governing the
telecommunication or Internet sectors in China that have been adopted or may be
adopted in the future will prohibit or restrict foreign investment in, or other
aspects of, TCH's, Sifang Information's or Tianci's current or proposed
businesses and operations. In addition, these new laws and regulations may be
retroactively applied. In any such case, we could be required to restructure our
operations, which could adversely affect our ability to operate our business
effectively or at all.

We depend on China Mobile and China Unicom for delivery of our value-added
information services to mobile phone users in China, and the termination or
alteration of Sifang Information's and Tianci's various contracts with either of
them or their provincial or local affiliates could materially and adversely
impact our business.

Our affiliated value-added mobile phone service providers, Sifang
Information and Tianci, contract with the two principal mobile phone operators
in China, China Mobile and China Unicom, to offer our wireless value-added
information services to mobile phone users through these mobile phone operators,
which service nearly all of China's approximately 282 million mobile phone
subscribers. Given their dominant market position, our affiliated value-added
mobile phone service providers' negotiating leverage with these operators is
limited. If our affiliated value-added mobile phone service providers' various
contracts with either operator are terminated or adversely altered, it may be
impossible for our affiliated value-added mobile phone service providers to find
appropriate replacement operators with the requisite licenses and permits,
infrastructure and customer base to offer our services, and our business would
be significantly impaired.

Our value-added information services are provided to mobile phone users
in China pursuant to contracts Sifang Information and Tianci have with China
Mobile and China Unicom and their provincial or local affiliates. Each of these
contracts is non-exclusive, and has a limited term (generally one year). Our
affiliates usually renew these contracts or enter into new ones when the prior
contracts expire, but on occasion the renewal or new contract can be delayed by
periods of one month or more. The terms of these contracts vary, but the
operators are generally entitled to terminate them in advance for a variety of
reasons or, in some cases, for no reason in their discretion. For example,
several of our affiliates' contracts with the mobile operators can generally be
terminated if:

o our affiliate fails to achieve performance standards which are
established by the applicable operator from time to time,

o our affiliate breaches its obligations under the contracts, which
include, in many cases, the obligation not to deliver content that
violates the operator's policies and applicable law,

o the operator receives high levels of customer complaints about our
affiliate's services, or

o the operator sends written notice to our affiliate that it wishes to
terminate the contract at the end of the applicable notice period.

Our affiliates may also be compelled to alter their arrangements with
these mobile operators in ways which adversely affect our business. China Mobile
and China Unicom have unilaterally changed their policies as applied to
third-party service providers in the past, and may do so again in the future. We
may not be able to adequately respond to negative developments in the
contractual relationships between our affiliates and China Mobile or China
Unicom in the future because we do not have a contractual relationship with
China Mobile or China Unicom.

Our business could be adversely affected if China Mobile or China Unicom or both
begin providing their own wireless value-added services.

Our wireless value-added information services business may be adversely
affected if China Mobile or China Unicom or both decide to begin providing their
own wireless value-added services to mobile phone users. In that case, we would
face enhanced competition, and our services could be fully or partially denied
access to their networks.

We depend in part on China Mobile and China Unicom to maintain accurate records
and to continue to pay our affiliated value-added wireless service providers.

We depend in part on China Mobile and China Unicom to maintain accurate
records of the fees paid by mobile phone users and to pay our affiliated
value-added wireless service providers. Specifically, the mobile operators
provide our affiliates with monthly statements that do not provide itemized
information regarding which of our services are being paid for. Our business and
results of operation could be adversely affected if these mobile phone companies
miscalculate the revenue generated from our services and our affiliates' portion
of that revenue, or refuse to pay our affiliates altogether.

Our revenues and cost of services are affected by billing and transmission
failures which are often beyond our control.

Our affiliates do not collect fees for our services owed to them by
China Mobile and China Unicom in a number of circumstances, including if:

o the delivery of our service to a customer is prevented because his or
her phone is turned off for an extended period of time, the customer's
prepaid phone card has run out of value or the customer has ceased to
be a customer of the applicable operator,

o China Mobile or China Unicom experiences technical problems with their
networks which prevent the delivery of our services to the customer,

o we experience technical problems with our technology platform that
prevent delivery of our services,

o our affiliates experience technical problems with their technology
platforms that prevent delivery of our services, or

o the customer refuses to pay for our service due to quality or other
problems.

These situations are known in the industry as billing and transmission
failures, and we do not recognize any revenue for services which are
characterized as billing and transmission failures. The failure rate can vary
among the operators, and by province, and also has fluctuated significantly in
the past. If actual billing and transmission failures exceed our estimates, our
revenues could be materially adversely affected.

China Mobile and China Unicom may impose higher service or network fees on our
affiliated value-added service providers if we are unable to satisfy customer
usage and other performance criteria.

Fees for our wireless value-added information services are charged on a
monthly subscription or per use basis. Based on our contractual arrangement and
those of our wireless value-added service providers, we rely on China Mobile and
China Unicom to bill and collect fees for our services from mobile phone users.

China Mobile and China Unicom generally charge our affiliated
value-added service providers service fees of 15% and 30% of the revenues
generated by their services, respectively. To the extent that the number of
messages sent by Sifang Information over China Mobile's network exceeds the
number of messages their customers send to it, Sifang Information must pay per
message network fees, which decrease in several provinces as the volume of
customer usage of our services increases. The number of messages sent by Sifang
Information will exceed those sent by end-users, for example, if a user sends
Sifang Information a single message to order a game but Sifang Information in
turn must send that user several messages to confirm his or her order and
deliver the game itself. Tianci's service fees owed to China Unicom could also
rise if Tianci fails to meet certain customer usage, revenue and other
performance criteria. We cannot be certain that our affiliates will be able to
continue to satisfy these criteria in the future or that the mobile operators
will keep the criteria at their current levels. Any increase in China Mobile's
or China Unicom's network fees and service charges could reduce our gross
margins.

China Mobile and China Unicom may terminate their relationships with our
affiliates if our affiliates fail to achieve minimum customer usage, revenue and
other criteria.

Our business could be adversely affected if our affiliated value-added
mobile phone service providers fail to achieve minimum customer usage, revenue
and other criteria imposed or revised by China Mobile and China Unicom at their
discretion from time to time. China Mobile and China Unicom, through their
national and local offices, have historically preferred to work only with a
small group of the best performing wireless value-added service providers, based
upon the uniqueness of the service offered by each provider, total number of
users, usage and revenue generated in the applicable province or municipality,
the rate of customer complaints, and marketing expenditures in the applicable
province or municipality.

The services our affiliated value-added mobile phone service providers offer and
the prices they charge are subject to approval by China Mobile and China Unicom,
and if requested approvals are not granted in a timely manner, our business
could be adversely affected.

Our affiliated value-added mobile phone service providers must obtain
approval from China Mobile and China Unicom with respect to each service that
they propose to offer to their customers and the pricing for each such service.
In addition, any changes in the pricing of our affiliates' existing services
must be approved in advance by these operators. There can be no assurance that
such approvals will be granted in a timely manner or at all. Moreover, under
some of our affiliates' contracts with the operators, prices cannot be changed
more than once every six months and prices must be within fixed parameters,
depending on the service. Any failure of our affiliates to obtain, or any delay
in obtaining, such approvals could place us at a competitive disadvantage in the
market and adversely affect our business.

We operate in a rapidly evolving industry, which makes it difficult for
investors to evaluate our business.

We began commercially offering wireless value-added information
services to mobile phone and pager users in China in January 2002, and since
that time, the technologies and services used in the wireless value-added
information services industry in China have developed rapidly. As a result of
this rapid and continual change in the industry, the prospects of our
value-added information service business should be considered in light of the
risks and difficulties frequently encountered by businesses in an early stage of
development. These risks include our ability to:

o attract and retain users for our wireless value-added information
services,

o expand the content and services that we offer and, in particular,
develop and aggregate innovative new content and service offerings,

o respond effectively to rapidly evolving competitive and market dynamics
and address the effects of mergers and acquisitions among our
competitors,

o build relationships with strategic partners, and

o increase awareness of our brand and user loyalty.

Due to these factors, there can be no certainty that we will maintain
or increase our current share of the highly competitive wireless value-added
information services market in which we operate.

The success of much of our wireless value-added information services is
significantly dependent on our ability to obtain and reformat desirable content
and technology from third parties.

We obtain much of our content, including financial information, games,
logos, music, news and other information, from third parties. Furthermore, we
expect that we will develop and purchase technology in connection with our
development of next generation services such as MMS, JAVA and BREW. As the
market for wireless value-added information services develops, content and
technology providers may attempt to increase their profits from distribution
arrangements by demanding greater fees or a share of revenues, which would
adversely affect our financial performance. Many of our arrangements with
content and technology providers are non-exclusive, have a term of one year, and
are subject to renewal. If our competitors are able to obtain such content in a
similar or superior manner or to develop, purchase or license the same
technologies, it could adversely affect the popularity of our services and our
negotiating leverage with third-party providers.

If we fail to establish and maintain economically attractive
relationships with content and technology providers and to thereafter
successfully reformat their products, we may not be able to attract and retain
customers or maintain or improve our financial performance.

We depend on our Sifang Gutong software continuing to be compatible with new
mobile phone models.

There can be no assurance that our Sifang Gutong software will be
compatible with new mobile phones developed by manufacturers such as Samsung. If
the software is no longer compatible, we will be forced to engage Chengao or an
alternative software developer to develop software that is compatible with the
new mobile phones or we will have to develop the software ourselves. If we are
unable to either engage a software developer or develop software in house that
is compatible with new mobile phones, we will lose a significant portion of our
value-added information services revenue, including all of the pre-charged
subscription fee revenues we receive pursuant to our information services and
cooperation agreement among us, Chengao, and Sifang Information.

We face intense competition from other service providers.

The Chinese markets for wireless value-added and advertising services
are intensely competitive. We believe there were more than 800 wireless
value-added service providers (including the three groups discussed below) as of
June 30, 2004. We compete directly or indirectly with three groups of wireless
value-added service providers in China:

o portal service providers, which have established expertise in Internet
content and have subsequently branched into mobile space. The portals
serve as content aggregators offering a variety of wireless value-added
services,

o dedicated service providers, whose businesses focus on offering a
variety of wireless content directly to mobile phone users, and

o niche service providers, which focus primarily on a particular market
segment or application that often builds on a pre-existing sector
competency.

We have faced direct or indirect competition from all three groups
since our entry into this market. Moreover, there are low barriers to entry for
new competitors in the wireless value-added services market. As a result, our
existing or potential competitors may in the future achieve greater market
acceptance and gain additional market share, which in turn could reduce our
revenues. There is increasing number of competitors in the media industry and
the reduction of advertising fees, resulting in intense market competition. Our
advertising services have also facing direct or indirect competitions from other
more traditional advertising outlets such as television, radio and newspapers.

Most of our value-added information services revenues are derived from the
Shanghai municipal area and surrounding provinces, and the termination or
alteration of our affiliates' contracts with the mobile operators, or a general
economic downturn in those areas, could have a particularly adverse effect on
our business.

Per capita income levels and mobile phone penetration rates (i.e., the
number of mobile subscribers divided by the population of China) in China are
generally higher in the coastal and southern provinces, and most of our revenues
are derived from those areas, including the municipality of Shanghai and the
provinces of Beijing and Jiangsu. If our affiliates' contracts with the mobile

operators with respect to those areas are terminated or adversely modified, or
if there is a general economic downturn in those areas, it could have a
particularly adverse effect on our business.

Rapid growth and a rapidly changing operating environment strain our limited
resources.

As our value-added information services customer base increases, we
will need to increase our investment in our technology infrastructure,
facilities and other areas of operations, in particular our product development,
customer service and sales and marketing departments, which are important to our
future success. If we are unable to manage our growth and expansion effectively,
the quality of our services and our customer support could deteriorate and our
business may suffer. Our future success will depend on, among other things, our
ability to:

o develop and quickly introduce new services, adapt our existing services
and maintain and improve the quality of all of our services,
particularly as new mobile technologies such as 3G are introduced,

o expand the percentage of our value-added information services revenues
which are recurring and are derived from monthly subscription based
services,

o continue to enter into and maintain relationships with desirable
content providers,

o continue training, motivating and retaining our existing employees and
attract and integrate new employees, including our senior management,
most of whom have been with our company for less than one year,

o develop and improve our operational, financial, accounting and other
internal systems and controls, and

o maintain adequate controls and procedures to ensure that our periodic
public disclosure under applicable laws, including U.S. securities
laws, is complete and accurate.

Any failures of the mobile telecommunications network, the Internet or our
technology platform may reduce use of our services.

Both the continual accessibility of China Mobile's and China Unicom's
mobile networks and the performance and reliability of China's Internet
infrastructure are critical to our ability to attract and retain our value-added
information services customers. Moreover, our business depends on our ability to
maintain the satisfactory performance, reliability and availability of our
technology platform. The servers which constitute the principal system hardware
for our operations are located in one location in Shanghai. Any server
interruptions, break-downs or system failures, including failures caused by
sustained power shutdowns, floods or fire causing loss or corruption of data or
malfunctions of software or hardware equipment, or other events outside our
control that could result in a sustained shutdown of all or a material portion
of the mobile networks, the Internet or our technology platform, could adversely
impact our ability to provide our services to our value-added information
services customers and decrease our revenues.

Computer viruses and hacking may cause delays or interruptions on our systems
and may reduce use of our services and harm our reputation.

Computer viruses and hacking may cause delays or other service
interruptions on our systems. "Hacking" involves efforts to gain unauthorized
access to information or systems or to cause intentional malfunctions or loss or

corruption of data, software, hardware or other computer equipment. In addition,
the inadvertent transmission of computer viruses could expose us to a material
risk of loss or litigation and possible liability. We may be required to expend
significant capital and other resources to protect our systems against the
threat of such computer viruses and hacking and to rectify any damage to our
systems. Moreover, if a computer virus or hacking which affects our systems is
highly publicized, our reputation could be materially damaged and usage of our
services may decrease.

We may be held liable for information we purchase and reformat.

We may face liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the reformatted content to
which we provide access through our wireless value-added information services.
For example, SMS news updates provided by us could possibly be deemed to contain
state secrets in violation of applicable Chinese law. In addition, third parties
could assert claims against us for losses incurred in reliance on information
distributed by us. We may incur significant costs in investigating and defending
these claims, even if they do not result in liability.

We may not be able to adequately protect our intellectual property, and we may
be exposed to infringement claims by third parties.

We rely on contractual restrictions on disclosure to protect our
intellectual property rights. Monitoring unauthorized use of our information
services is difficult and costly, and we cannot be certain that the steps we
take will effectively prevent misappropriation of our technology and content.
Our management may determine in the future to make application for copyright,
trademark or trade secret protection if management determines that such
protection would be beneficial and cost-effective.

From time to time, we may have to resort to litigation to enforce our
intellectual property rights, which could result in substantial costs and
diversion of our resources. In addition, third parties may initiate litigation
against us for alleged infringement of their proprietary rights. In the event of
a successful claim of infringement and our failure or inability to develop
non-infringing technology or content or license the infringed or similar
technology or content on a timely basis, our business could suffer. Moreover,
even if we are able to license the infringed or similar technology or content,
license fees that we pay to licensors could be substantial or uneconomical.

Our ability to generate revenues could suffer if the Chinese market for wireless
value-added services does not develop as anticipated.

The wireless value-added services market in China has evolved rapidly
over the last four years, with the introduction of new services, development of
consumer preferences, market entry by new competitors and adaptation of
strategies by existing competitors. We expect each of these trends to continue,
and we must continue to adapt our strategy to successfully compete in our
market.

In particular, we currently offer a wide range of wireless value-added
information services for mobile phones using 2.5G technologies. There can be no
assurance, however, that these 2.5G technologies and any services compatible
with them will be accepted by consumers or promoted by the mobile operators.
Moreover, there are numerous other technologies in varying stages of
development, such as third generation mobile technologies, which could radically
alter or eliminate the market for SMS or 2.5G services.

Accordingly, it is extremely difficult to accurately predict consumer
acceptance and demand for various existing and potential new offerings and
services, and the future size, composition and growth of this market.
Furthermore, given the limited history and rapidly evolving nature of our
market, we cannot predict the price that wireless subscribers will be willing to
pay for our services or the services of our affiliated value-added service
providers or whether subscribers will have concerns about security, reliability,
cost and quality of service associated with wireless services. If acceptance of
our wireless value-added information services is different than anticipated, our
ability to maintain or increase our revenue and profits could be materially and
adversely affected.

The popularity of our services which operate with next generation technology
standards are necessarily dependent on the market penetration of mobile phones
that are compatible with those standards, which is beyond our control.

Mobile phone users can access our MMS, WAP, JAVA, BREW and other
services which operate with next generation technology standards only if they
purchase mobile phones that are compatible with those standards. In particular,
mobile phones that are 2.5G-compatible have historically been significantly more
expensive in China than mobile phones using older technology such as GSM.
Although the prices of 2.5G-compatible mobile phones have been dropping rapidly
in recent quarters, we cannot be certain whether this trend will continue or the
extent to which existing users will be willing to upgrade their mobile phones to
obtain the latest technology. The pricing, marketing and other factors which
affect the sales of more sophisticated mobile phones are all outside of our
control, and weak sales of mobile phones for which we have developed services
could adversely affect our business.

The telecommunication laws and regulations in China are evolving and subject to
interpretation and will likely change in the near future. If we are found to be
in violation of current or future Chinese laws or regulations, we could be
subject to severe penalties.

Although wireless value-added services are subject to general
regulations regarding telecommunication services, we believe that currently
there are no Chinese laws at the national level explicitly governing wireless
value-added services, such as our services related to MMS, WAP, JAVA, and BREW,
and no Chinese government authority has been specifically designated to regulate
these services. Many providers of wireless value-added services have obtained
various value-added telecommunication services licenses, such as the licenses
possessed by our Chinese affiliates, Sifang Information and Tianci. These
value-added telecommunication licenses were issued by the local Shanghai
Municipal Telecommunications Administration Bureau, and may not be sufficient to
offer wireless value-added services on a national basis. Sifang Information and
Tianci are in the process of applying with the Ministry of Information
Industries for an inter-provincial value-added telecommunication license in
accordance with the Ministry's general regulations regarding telecommunication
services. However, we cannot predict whether either will be granted that
license. Moreover, we cannot be certain that any local or national value-added
telecommunication license requirements will not conflict with one another or
that any given license will be deemed sufficient by the relevant governmental
authorities for the provision of this category of service. It is also possible
that new national legislation might be adopted to regulate such services.

If we or our affiliates are found to be in violation of any existing or
future Chinese laws or regulations regarding wireless value-added services or
Internet access, the relevant Chinese authorities have the power to, among other
things:

o levy fines;

o confiscate our income or the income of our affiliated value-added
service providers;

o revoke our business license or the business licenses of our affiliated
value-added service providers;

o shut down our servers or the servers of our affiliated value-added
service providers or block any Web sites that we or our affiliated
value-added service providers may operate;

o require us to discontinue any portion or all of our wireless
value-added information services business; or

o require our affiliated value-added service providers to discontinue any
portion or all of their wireless value-added services business.

The Chinese government, China Mobile or China Unicom may prevent us from
distributing, and we may be subject to liability for, content that any of them
believe is inappropriate.

China has enacted regulations governing telecommunication service
providers, Internet access and the distribution of news and other information.
In the past, the Chinese government has stopped the distribution of information
over the Internet that it believes violates Chinese law, including content that
is obscene, incites violence, endangers national security, is contrary to the
national interest, or is defamatory. In addition, our affiliated value-added
service providers may not publish certain news items, such as news relating to
national security, without permission from the Chinese government. Furthermore,
the Ministry of Public Security has the authority to cause any local Internet
service provider to block any Web site maintained outside China at its sole
discretion.

China Mobile and China Unicom also have their own policies regarding
the distribution of inappropriate content by wireless value-added service
providers and have recently punished certain providers for distributing content
deemed by them to be obscene. Such punishments have included censoring of
content, delaying payments of fees by the mobile operators to the offending
service provider, forfeiture of fees owed by the mobile operators to the
offending service provider and suspension of the service on the mobile
operators' networks. Accordingly, even if our affiliated wireless value-added
service providers comply with Chinese governmental regulations relating to
licensing and foreign investment prohibitions, if the Chinese government, China
Mobile or China Unicom were to take any action to limit or prohibit the
distribution of information or to limit or regulate any current or future
content or services available to users, our revenues could be reduced and our
reputation harmed.

The Chinese government is expected to grant licenses to offer wireless
services in China to China Telecom, China Netcom and possibly other parties with
which our affiliated wireless value-added service providers have not yet
developed close relationships. If those parties receive licenses and are
successful in the market but our affiliates are unable to develop cooperative
relationships with them, our business could be adversely affected.

It is also possible that China Telecom, China Netcom and any other
parties receiving wireless licenses may decide to offer wireless value-added
services created by them, rather than by third-party service providers such as
our affiliated wireless value-added service providers. In that case, our
business could be adversely affected.

Government regulation of the telecommunications and Internet industries may
become more complex.

Government regulation of the telecommunications and Internet industries
is highly complex. New regulations could increase our costs of doing business
and prevent us from efficiently delivering our services. These regulations may
stop or slow down the expansion of our wireless value-added information services
customer base and limit access to our services.

We are dependent on three main first-tier wholesalers to supply all of our
mobile phones.

Our performance depends on whether we can continue to secure contracts
with the three first-tier wholesalers of Samsung mobile phones on whom we rely.
We have no long-term purchase contracts or other contracts that provide
continued supply, pricing or access to new mobile phone models and any of the
first-tier wholesalers on whom we rely could discontinue selling to us at any
time. We may not be able to acquire new Samsung and Nokia models in the future
and we may not be able to acquire the models that we need in sufficient
quantities or on terms that are acceptable to us in the future. As a result, our
revenues may decrease.

Our performance is dependent on the popularity of Samsung's and Nokia's mobile
phone models.

We primarily distribute mobile phones manufactured by Samsung and
Nokia. Thus we are dependant on Samsung's and Nokia's ability to create and
deliver high quality mobile phone models in a cost effective and timely manner.
Nokia is the market leader in worldwide mobile phone industry and rapidly
growing mobile phone market in China. Samsung is a leading world-class
competitor of mobile phones based on both the CDMA network and the GSM network
in China. There can be no assurance that Samsung and Nokia will continue to
create high quality mobile phone models that are popular with consumers. As a
result, our revenues may decrease. In addition, our success depends on our
ability to anticipate and respond to changing mobile phone model trends and
consumer demands in a timely manner. The models we distribute must appeal to a
broad range of consumers whose preferences cannot always be predicted with
certainty and may change between sales seasons. If we misjudge which mobile
phone models will be popular or the market for the models we distribute, our
sales may decline or we may be required to sell our models at lower prices.

We rely on cash flow to purchase mobile phones from wholesalers, and any
significant decrease in cash flow could have a negative impact on our ability to
meet customer demand.

It is important that we have sufficient cash flow to purchase enough
mobile phones from the first-tier wholesalers on whom we rely. If our cash flow
decreases significantly, we will not be able to purchase a sufficient quantity
of inventory to meet our customers' demands, which would have a negative impact
on our sales, and may cause the first-tier wholesalers on whom we rely to look
to other sub-wholesalers to distribute their mobile phones. This development
would have a negative impact on our revenues.

Our customers are under no obligation to do business with us, and if they
terminate or materially reduce their relationship with us it would adversely
impact our business.

One of the factors the first-tier wholesalers on whom we rely consider
when determining who they will use as a sub-wholesaler is the sub-wholesaler's
relationship with retailers. Currently approximately 72% of our mobile phone
sales are made to five retailers. We have no long-term sales contracts or other

contracts that provide continued selling or pricing and any of the retailers we
supply could discontinue buying from us at any time. If we lose our
relationships with our five largest retailers, we will have a difficult time
finding new large retailers to purchase our Samsung and Nokia mobile phones and
may lose our relationships with the first-tier wholesalers on whom we rely. This
would have a negative impact on our business.

We face certain risks relating to customer service, and any resulting problems
could adversely affect our sales.

Any material disruption or slowdown in our order processing systems
resulting from labor disputes, mechanical problems, human error or accidents,
fire, natural disasters, or comparable events could cause delays in our ability
to receive and distribute orders and may cause orders to be lost or to be
shipped or delivered late. As a result, customers may cancel orders or refuse to
receive goods on account of late shipments, which would result in a reduction in
our net sales and could result in increased administrative and shipping costs.

We face risks associated with the concentration of our distribution operations
in one location.

We conduct all of our distribution operations from one facility in
Shanghai, China. Any disruption in the operations at our distribution center
could have a negative impact on our business.

We face competition from distributors selling other mobile phone models.

Despite the fact that we distribute nine Samsung mobile phone models
and two Nokia's mobile phone models in the Shanghai, China region, we face
competition from distributors of different models of mobile phones manufactured
by Samsung and Nokia in the Shanghai region and from distributors of phones
manufactured by companies other than these two brands that distribute in the
Shanghai region.

Competition is based on a variety of factors including maintenance of
product quality, competitive pricing, delivery efficiency, customer service and
satisfaction levels and the ability to anticipate technological changes and
changes in customer preferences. The first-tier wholesalers on whom we rely or
Samsung and/ or Nokia may acquire, startup, or expand their own distribution
systems to sell directly to our customers.

We are dependent on advertising contracts, some of which are short term. If
these contracts are terminated or completed without replacement, our results of
operations would be materially adversely affected.

We are dependent upon "Bank Digital TV's Cooperation Agreement", where
TCH will assist in the promotion of TV ads for various customers, including
Tianci Real Estate, a related party. Service revenue from Tianci Real Estate was
approximately $1.9 million, or 9%, of total consolidated revenue for the year
ended December 31, 2005 and represented approximately 47% of the service
revenues for the year. There was an "Advertisement Agency Contract" between
Tianci Real Estate and Sifang Media, which expired in November 2005. We may not
be able to renew these contracts and agreements in future. Because of the
significance of the revenues from these contracts to our consolidated results of
operations, the termination of either contract could have a material adverse
effect on our financial condition and results of operations.

We may not be able to complete or successfully realize the benefits of the Kena
acquisition.

The Kena acquisition is subject to certain conditions, including
regulatory approval in the People's Republic of China. We cannot assure you that
we will obtain regulatory approval or otherwise be able to complete the
acquisition. In addition, to be successful after the acquisition, we will need
to integrate the operations of Kena into ours. We could encounter difficulties
in this integration process, such as distraction of our management team. If we
cannot integrate Kena's business successfully, we may fail to realize the
benefits we expect to result from the acquisition.

We depend on key personnel for the success of our business. Our business may be
severely disrupted if we lose the services of our key executives and employees
or fail to add new senior and middle managers to our management.

Our future success is heavily dependent upon the continued service of
our key executives, particularly Tai Caihua, our president and chairman of our
board of directors, Fu Sixing, our chief executive officer, Qian Fang, our chief
financial officer, and Huang Tianqi, our chief technology officer. Each of our
executive officers has entered into a non-competition agreement with TCH. We
also rely on a number of key technology staff for the operation of our company.
Our future success is also dependent upon our ability to attract and retain
qualified senior and middle managers to our management team. If one or more of
our current or future key executives or employees are unable or unwilling to
continue in their present positions, we may not be able to easily replace them,
and our business may be severely disrupted. In addition, if any of these key
executives or employees joins a competitor or forms a competing company, we
could lose customers and suppliers and incur additional expenses to recruit and
train personnel. Each of our executive officers has entered into non-competition
agreements with TCH. We do not maintain key-man life insurance for any of our
key executives.

We also rely on a number of key technology staff for the operation of
our company. Given the competitive nature of our industry, the risk of key
technology staff leaving our company is high and could disrupt our operations.

Our management does not devote full-time efforts to the Company and our
management may have potential conflicts of interest.

Our executive officers spend approximately 30% of their time managing
Sifang Information. Thus, they do not devote full-time effort to the Company. In
addition, as discussed in Item 12, "Certain Relationships and Related
Transactions", the Company has had numerous significant transactions with
businesses controlled by, and with people who are related to, the officers and
directors of the Company. Our management may thus have potential conflicts of
interest.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of
development. Insurance companies in China offer limited business insurance
products, and do not, to our knowledge, offer business liability insurance. As a
result, we do not have any business liability insurance coverage for our
operations. Moreover, while business disruption insurance is available, we have
determined that the risks of disruption and cost of the insurance are such that
we do not require it at this time. Any business disruption, litigation or
natural disaster might result in substantial costs and diversion of resources.

A downturn in the Chinese economy may slow down our growth and profitability.

The growth of the Chinese economy has been uneven across geographic
regions and economic sectors. There can be no assurance that growth of the
Chinese economy will be steady or that any downturn will not have a negative
effect on our business. Our profitability, will decrease if expenditures for
wireless value-added services decrease due to a downturn in the Chinese economy.
More specifically, increased penetration of wireless value-added services in the
less economically developed central and western provinces of China will depend
on those provinces achieving certain income levels so that mobile phones and
related services become affordable to a significant portion of the population.

The uncertain legal environment in China could limit the legal protections
available to you.

The Chinese legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which decided legal cases
have little precedential value. In the late 1970s, the Chinese government began
to promulgate a comprehensive system of laws and regulations governing economic
matters. The overall effect of legislation enacted over the past 20 years has
significantly enhanced the protections afforded to foreign invested enterprises
in China. However, these laws, regulations and legal requirements are relatively
recent and are evolving rapidly, and their interpretation and enforcement
involve uncertainties. These uncertainties could limit the legal protections
available to foreign investors, such as the right of foreign invested
enterprises to hold licenses and permits such as requisite business licenses.

Any recurrence of Avian influenza, or another widespread public health problem,
could adversely affect our business and results of operations.

A renewed outbreak of Avian influenza or another widespread public
health problem in China, where all of our revenue is derived, and in Shanghai,
where our operations are headquartered, could have a negative effect on our
operations. Our operations may be impacted by a number of health-related
factors, including the following:

o quarantines or closures of some of our offices which would severely
disrupt our operations,

o the sickness or death of our key officers and employees, and

o a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public
health problems could adversely affect our business and results of operations.

Changes in China's political and economic policies could harm our business.

The economy of China has historically been a planned economy subject to
governmental plans and quotas and has, in certain aspects, been transitioning to
a more market-oriented economy. Although we believe that the economic reform and
the macroeconomic measures adopted by the Chinese government have had a positive
effect on the economic development of China, we cannot predict the future
direction of these economic reforms or the effects these measures may have on
our business, financial position or results of operations. In addition, the
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD. These
differences include:

o economic structure;

o level of government involvement in the economy;

o level of development,

o level of capital reinvestment;

o control of foreign exchange;

o methods of allocating resources; and

o balance of payments position.

As a result of these differences, our business may not develop in the
same way or at the same rate as might be expected if the Chinese economy were
similar to those of the OECD member countries.

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

Because almost all of our future revenues may be in the form of
Renminbi, any future restrictions on currency exchanges may limit our ability to
use revenue generated in Renminbi to fund any future business activities outside
China or to make dividend or other payments in U.S. dollars. Although the
Chinese government introduced regulations in 1996 to allow greater
convertibility of the Renminbi for current account transactions, significant
restrictions still remain, including primarily the restriction that
foreign-invested enterprises may only buy, sell or remit foreign currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign exchange business. In addition, conversion of Renminbi for capital
account items, including direct investment and loans, is subject to governmental
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that
the Chinese regulatory authorities will not impose more stringent restrictions
on the convertibility of the Renminbi, especially with respect to foreign
exchange transactions.

The value of our securities will be affected by the foreign exchange rate
between U.S. dollars and Renminbi.

The value of our common stock will be affected by the foreign exchange
rate between U.S. dollars and Renminbi. For example, to the extent that we need
to convert U.S. dollars into Renminbi for our operational needs and should the
Renminbi appreciate against the U.S. dollar at that time, our financial position
and the price of our common stock may be adversely affected. Conversely, if we
decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
from our subsidiaries in China would be reduced.

Risks Related to our Common Stock

The market price for our common stock may be volatile.

The market price for our common stock is likely to be highly volatile
and subject to wide fluctuations in response to factors including the following:

o actual or anticipated fluctuations in our quarterly operating results,

o announcements of new services by us or our competitors,

o changes in financial estimates by securities analysts,

o conditions in the wireless value-added services market,

o changes in the economic performance or market valuations of other
companies involved in wireless value-added services or distribution of
mobile phones,

o announcements by our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments,

o additions or departures of key personnel,

o potential litigation, or

o conditions in the mobile phone market.

In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.

Shareholders could experience substantial dilution.

We may issue additional shares of our capital stock to raise additional
cash for working capital. If we issue additional shares of our capital stock,
our shareholders will experience dilution in their respective percentage
ownership in the company.

We have no present intention to pay dividends.

Neither during the preceding two fiscal years nor during the year ended
December 31, 2005 did we pay dividends or make other cash distributions on our
common stock, and we do not expect to declare or pay any dividends in the
foreseeable future. We intend to retain any future earnings for working capital
and to finance current operations and expansion of our business.

A large portion of our common stock is controlled by a small number of
shareholders.

A large portion of our common stock is held by a small number of
shareholders. As a result, these shareholders are able to influence the outcome
of shareholder votes on various matters, including the election of directors and
extraordinary corporate transactions including business combinations. In
addition, the occurrence of sales of a large number of shares of our common
stock, or the perception that these sales could occur, may affect our stock
price and could impair our ability to obtain capital through an offering of
equity securities. Furthermore, the current ratios of ownership of our common
stock reduce the public float and liquidity of our common stock which can in
turn affect the market price of our common stock.

We may be subject to "penny stock" regulations.

The Securities and Exchange Commission, or SEC, has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of risks of the
penny stock market. A broker-dealer must also provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer, and
our sales person in the transaction, and monthly account statements indicating
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for stock that becomes subject to those penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities. Whenever any of our securities become subject
to the penny stock rules, holders of those securities may have difficulty in
selling those securities.

Where You Can Find More Information

We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference room in Washington, D.C.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.

ITEM 2. DESCRIPTION OF PROPERTY

We currently occupy two office spaces in the Shanghai region. We lease
the first office space, located at 429 Guangdong Road, Shanghai, People's
Republic of China 200001, for approximately $49,000 a year. This office space
contains our corporate headquarters, and is approximately 250 square meters. We
own the second office space, located at 689 Laoshandong Road, Shanghai, People's
Republic of China 200120, which houses our administration, technical team and
servers, and is approximately 800 square meters. We believe that these two
properties are adequately covered by insurance. In addition, we believe that we
will be able to obtain adequate facilities, principally through the leasing of
appropriate properties, to accommodate our future expansion plans.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material pending legal
proceedings

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

The Annual Meeting of Stockholders was held on December 1, 2005. At the
meeting, the stockholders elected each of the thirteen directors who had been
nominated by our Board of Directors to serve for one year and ratified the

selection of Grobstein, Horwath & Company, LLP as the Company's independent
auditors for the fiscal year ending December 31, 2005. The following are the
results of the stockholder vote at the annual meeting:

Proposition #1: Election of Directors

----------------------- ----------------- ----------------- ----------------
For Against Abstain
----------------------- ----------------- ----------------- ----------------
Tai Caihua 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Shi Ying 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Huang Tianqi 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Jing Weiping 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Mao Ming 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Song Jing 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Fu Sixing 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Yu Ruijie 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Zhang Xiaodong 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Huang Wei 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Jiang Hong Ming 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Yuan Feng 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------
Juchen Li 14,098,683 216 3,545
----------------------- ----------------- ----------------- ----------------

Proposition #2: Ratification of Selection of Grobstein, Horwath & Company, LLP
as Independent Auditors for Fiscal Year Ending December 31, 2005

------------------- ----------------- -----------------
For Against Abstain
------------------- ----------------- -----------------
14,101,746 535 163
------------------- ----------------- -----------------

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is traded on the NASD's Over-the-Counter Bulletin
Board under the symbol "CHDW." On August 6, 2004 we changed our name from
Boulder Acquisitions, Inc. to China Digital Wireless, Inc. and changed our
symbol from "BAQI" to "CHDW." On March 1, 2006, the last reported sales price
for our common stock was $1.03 per share.

The following table sets forth, for the quarters indicated, the range
of closing high and low bid prices of our common stock as reported by the NASD
Over-the-Counter Bulletin Board, as adjusted for all previously effected stock
splits.

Common Stock
------------
By Quarter Ended High Low
---------------- ---- ---

Fiscal 2004

March 31, 2004........................................... $5.00 $0.42
June 30, 2004............................................ $4.05 $2.30

September 30, 2004....................................... $3.90 $1.98
December 31, 2004........................................ $4.85 $2.80

Fiscal 2005

March 31, 2005........................................... $5.50 $3.42
June 30, 2005............................................ $5.20 $1.40
September 30, 2005....................................... $3.01 $1.41
December 31, 2005........................................ $2.49 $1.60
Fiscal 2006
------------------------------------------------------------
January 1, 2006 (through March 1, 2006).................. $1.75 $0.60

------------------------

As of March 1, 2006, there were 17,147,268 shares of our common stock
outstanding held by approximately 2,553 shareholders of record.

We did not pay any cash dividends on our common stock in fiscal 2003,
2004 or 2005. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. We currently intend to retain future earnings, if
any, to finance operations and the expansion of our business.

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

Overview of Business Background

Sifang Holdings was formed under the laws of the Cayman Islands on
February 9, 2004 for the purpose of holding a 100% equity interests in TCH. TCH
was established as a foreign investment enterprise in Shanghai under the laws of
the PRC on May 25, 2004, with a registered capital of $7.2 million.

Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business by
presenting a set of carve-out financial statements for the years ended December
31, 2002 and 2003 and three months ended March 31, 2004 as if the spun-off
business had been a stand-alone company for two years and one quarter. On March
31, 2004, Sifang Information transferred the spun-off business into TCH. Being a
receiving entity under common control, TCH initially recognized all the assets
and liabilities transferred at their carrying amounts in the accounts of Sifang
Information at the date of transfer under the guidance of SFAS No. 141, Appendix
D. On May 26, 2004 Sifang Information exchanged 100% of equity interest in TCH
for a 100% equity interest in Sifang Holdings. Since the ultimate owners of the
three entities were the same owners and the three entities remained under common
control, the ownership exchange transaction was accounted for at historical
costs under the guidance of SFAS No. 141, Appendix D. Prior to May 26, 2004,
there were no activities in Sifang Holdings. As a result of exchanging the
ownership between TCH and Sifang Holdings, TCH's historical financial statements
become the historical financial statements of Sifang Holdings.

Sifang Information operates in a business segment that is subject to
certain restrictions imposed by the government of the PRC. For example, paging
facilities, radio transmitting stations and transmitting equipment owned by
Sifang Information are not allowed to be owned by foreign investment enterprises
in accordance with PRC government regulations. Therefore, Sifang Information
still maintains a small part of its business and paging facilities in order to
stay in compliance with relevant regulations and laws in the PRC.

As a result of the spin-off, TCH engages in the business of mobile
phone distribution and provides access to certain information reformatted by TCH
to pager and mobile phone (collectively "wireless receiver") users. TCH
purchases mobile phones from the first tier distributors and sells them to
retailers with a mark-up. In the process of providing value-added information
services through entering into monthly subscription agreements with various
users, TCH purchases trading activity information from stock exchanges, comments
and analysis on PRC stock markets provided by certain reputable security and
investment companies, lottery information, weather forecast, and other
value-added products and reformats the aforementioned information through
decoding and recoding and then has the reformatted information transmitted by
Sifang Information, via service contracts, to pager users. The information is
constantly saved in TCH's server in order for mobile phone users to dial in via
China Mobile or China Unicom. By signing a monthly subscription agreement,
wireless users agree to make advance payments for either three or six-month
subscription periods.

Discussion and Analysis of Operating Results

Fiscal Year Ended December 31, 2005 Compared to the Fiscal Year Ended December
31, 2004

Revenue

Total Revenues

Total revenue consists of product sales, product sales to related
parties, and net information and advertising service revenue. Total revenue for
the 2005 fiscal year decreased by $4,101,928, representing a decrease of
approximately 16.7%, to $20,419,022 as compared to $24,520,950 for the same
period of the prior year. The decrease was mainly due to the decline of mobile
phone sales to non-related third parties. The market for mobile phones in China
is gradually becoming saturated.

Product Sales

In the year ended December 31, 2005, Samsung and Nokia's mobile phones
accounted for 89% and 8% of our total product sales and other brands accounted
for the balance, compared to the 2004 fiscal year, in which Samsung's mobile
phones accounted for about 97% of our total product sales and other name brands

mobile phones accounted for the remaining 3%. During 2005 market competition for
mobile phone sales intensified, causing us to decrease our overall mark-up ratio
to 2.1% in order to maintain our market position, in comparison with a mark-up
ratio of 6.4% for the same period the prior year.

Revenue from product sales for our 2005 fiscal year decreased by
$5,282,329, representing a decrease of approximately 47.8%, to $5,775,069 as
compared to $11,057,398 for the prior year. The decrease was mainly due to
market factors. The market for mobile phones in China is becoming saturated
along with intensified competition developing among mobile phone distributors.

We entered an agreement to distribute select Nokia mobile phones
exclusively in the Shanghai region of China in May 2005 and now have obtained
the right to distribute two popular models of Nokia's mobile phones. Initially,
we believed that this agreement would enhance both our market share and
profitability. However, as a result of the sudden change in the market factors
during the latter half of 2005, the sales mark-up of the Nokia mobile phones to
our customers dropped significantly from the initial 8% to approximately 1%
during the 4th quarter of 2005. The management of the Company is currently
reviewing the market factors and considering discontinuing the mobile phone
distribution business in 2006 if the market situation remains unchanged.

Product sales to a related party

We distributed Samsung mobile phones to our related party, Shanghai
Shantian Telecommunication Co. Ltd. ("Shantian"), in which Sifang Information
holds a 51% equity interest, for its retail market channel and facility. During
the 2005 fiscal year, we sold $10,608,287 worth of mobile phones to Shantian,
with an average markup ratio of approximately 3.6% (compared to $9,178,674 at
gross profit margin of 4% in 2004). This represents an aggregate increase of
$1,429,613 compared to the prior year. During the year ended December 31, 2004,
TCH also sold mobile phones to other related parties, which included Tianci
Industy and Tianci Group for $136,310 and $576,707 at gross profit margins of
14% and 14% respectively. There were no mobile phone sales to Tianci Industry
and Tianci Group during the year ended December 31, 2005. The decrease in the
markup ratio was also attributable to the market factors mentioned above.

Information Service revenue, net

Total information service revenue net of related business tax and
service fee for the 2005 fiscal year decreased by $2,297,793, representing a
decrease of approximately 64.3%, to $1,274,068 compared to $3,571,861 for the
the prior year.

Value-added service revenue from mobile phone users for the 2005 fiscal
year decreased by $1,957,664 to $634,728 compared to $2,592,392 for the prior
year, representing a 75.5% decrease. $588,385 of the service revenue from mobile
phone users was attributable to prepaid service fees generated by an installing
agent, Chengao Industry Co. Ltd, who installed the software on a retailer's
(Beijing Jianghe Communication Co., Ltd.) inventories and collected proceeds
from the retailer and transferred the proceeds to the Company, representing a
$1,385,457 decrease compared to the prior year. The remaining $46,343 portion of
the service revenue was generated by our SMS service via China Mobile's network,
representing a material decrease compared to the prior year. The decrease was
mainly due to the decline of our financial value-added service. The sluggish

Chinese stock market along with inactive stock exchanges hindered our growth in
this segment of business. In addition, service revenue from pager users for the
2005 fiscal year decreased by $340,129 to $639,340 compared to $979,469 for the
prior year, representing a decrease of approximately 34.7%. We believe that
service revenue from pager users will continue to decrease given the increased
popularity of mobile phones over beepers and pagers. We project that the
decrease in service revenue from pager users will likely plateau at a certain
level as most lower income pager users still like to use pagers to access our
information services.

Advertising service revenue, net

We reached an agreement with CCF, a national non-profit charitable
organization, which enables the Company to install donation boxes for CCF in
banks and other commercial locations throughout China that will also have the
Company's out-of-home digital television advertising media platform attached.
The completion of this agreement enables us to accelerate the placement of
out-of-home digital television platforms, particularly in banks across China.
The Company negotiates placement of the donation boxes and digital television
media platform with banks and other commercial entities that wish to support the
national charity. The CBRC has previously agreed, pending completion of the
agreement with CCF, to support and coordinate this effort with respect to
approvals of donation box placements in banks throughout China.

This agreement facilitates the continued placement of platforms with
little or no direct costs. We believe that such costs may constitute as much as
30% of the direct costs of our competitors based upon an analysis of publicly
available information.

We have placed more than 850 multimedia donation boxes in the inbound
area of Shanghai and other arranged spots will be rolled out in the public
places with high traffic flow. Based on our experience in Shanghai, our strategy
is to expand our network to penetrate other large and mid-sized developed cities
throughout China. We believe the earnings potential from the advertising service
will be a new source of profit in view of the upcoming Special Olympic World
Summer Games in 2007 and World Exposition in 2010 to be held in Shanghai.

In addition, during the 2005 fiscal year, TCH rendered advertisement
designing and producing services to Tianci Real Estate, a related party, for
publicity and promoting its apartment. Service revenue of $1,879,965 was derived
from this service. TCH has also generated advertising service income from other
customers amounting to $881,633 during the 2005 fiscal year.

Cost of goods sold

The cost of goods sold for the 2005 fiscal year decreased by $3,583,873
to $16,024,959 compared to $19,608,832 for the prior year, representing a
decrease of approximately 18.3%. The percentage of decrease, which was lower
than the decrease in revenue from product sales, resulted from the declining
product markup as the Chinese market is gradually becoming saturated.

Cost of service

The cost of service for the 2005 fiscal year decreased by $222,815 to
$823,178 compared to $1,045,993 for the prior year, representing a decrease of
approximately 21.3%. The decline was mainly due to the decrease of information
fees paid to content providers for the value-added service. The breakdown of our
service business has changed and the proportion of beep services that are
related to financial services has decreased, resulting in a decrease in
associated costs pertaining to the securities information fee paid. During the
2005 fiscal year, we continued to maintain current fee structures and to
establish collaborative relationships or partnerships with mobile operators and
certain information content providers in China. The percentage of decrease of
cost of service was less than the decrease in information service revenue
because the fixed costs remained unchanged.

Gross profit

After taking into account the cost of goods sold and cost of service,
our gross profit for the 2005 fiscal year decreased by $295,240 to $3,570,885,
representing a decrease of approximately 7.6%, compared to gross profit of
$3,866,125 for the prior year. The decrease in gross profit was primarily
attributable to the continuing decline in mobile phone sales to non-related
parties and gross profit margin thereon being offset by the proceeds generated
from the new advertising service with related parties during the 2005 fiscal
year.

The following table summarizes certain information related to the
various components of revenue.

Advertising Phone Sales/ Information Information
Service Mobile Phone Service - Service -
Revenue Distribution Mobile Phone Pager Total
------------ ------------ ------------ ------------ ------------

For the year ended December
31, 2004

Revenue $ -- $ 20,949,089 $ 2,592,392 $ 979,469 $ 24,520,950
---------------------------- ------------ ------------ ------------
Cost -- 19,608,832 498,194 547,799 20,654,825
---------------------------- ------------ ------------ ------------
Gross profit -- 1,340,257 2,094,198 431,670 3,866,125
---------------------------- ------------ ------------ ------------
Gross profit ratio -- 6.4% 80.8% 44.1% 15.8%
---------------------------- ------------ ------------ ------------

For the year ended December
31, 2005

Revenue $ 2,761,598 $ 16,383,356 $ 634,728 $ 639,340 $ 20,419,022
---------------------------- ------------ ------------ ------------
Cost 141,554 16,024,959 410,898 270,726 16,848,137
---------------------------- ------------ ------------ ------------
Gross profit 2,620,044 358,397 223,830 368,614 3,570,885
---------------------------- ------------ ------------ ------------
Gross profit ratio 94.9% 2.2% 35.3% 58.1% 17.5%
---------------------------- ------------ ------------ ------------

Sales and marketing expenses

Sales and marketing expenses for the 2005 fiscal year decreased by
$112,000 to $134,639 compared to $246,639 the prior year, representing a
decrease of approximately 45.4%. The decrease was primarily due to the decrease
in commission fees paid to the salesmen for mobile phones and advertising
expenses.

General and administrative expenses

General and administrative expenses for the 2005 fiscal year decreased
by $405,675 to $1,251,166 compared to $1,656,841 for the same period of the
prior year, representing a 24.5% decrease. The higher expenses in 2004 were
mainly due to one time non-cash compensation of $1,014,423 related to the
reverse merger that was generated at the parent level, consisting of 167,895
shares issued to a consultant in lieu of a cash payment at a fair market value
of $604,000 and the issuance of 166,667 redeemable shares pursuant to a stock
purchase agreement resulting in a charge of $410,000 representing the premium
between the trading price ($3.60 per share) and the pre-negotiated stock
purchase price ($1.14 per share) of the shares.

General and administrative expenses incurred at the TCH level in the
2005 fiscal year increased slightly from $456,445 to $512,844, representing a
12.4% increase, which is mainly due to the increase of staff welfare expenses.

In June 2005, we signed a Consulting Agreement with HNZ Bearings Point
Inc., a firm that helps companies with fund raising and arranging investor
conferences. Under this agreement, we paid $45,000 for consulting fees for the
first three months of service. The remaining $45,000 has not been paid as the
consulting service is deferred. Also in June 2005, we entered an agreement with
Insight Communication Inc., and paid $130,000 for its management consulting and
advisory services for 2005.

The other cash-based expenses incurred at the parent level in the 2005
fiscal year of $557,760 represented payments for audit fees, retainer fees and
other consultancy fees.

Governmental subsidy

During our 2005 fiscal year, we received a general government subsidy
from the local bureau, which is equivalent to 7% of the taxable income of TCH
throughout the period from September 2004 to December 2004. The subsidy is
non-recurring and subject to government approval. It represented a 100% increase
from nil to $108,476.

Interest income (expense)

During our 2005 fiscal year, the interest income derived from bank
deposits increased by $535 to $2,490, compared to $1,955 for the prior year.

During our 2005 fiscal year, finance expense incurred in discounting
bank drafts net of interest income from bank deposit increased by $1,739 to
$11,583, compared to $9,844 for the prior year.

Income tax

The Company's Chinese subsidiary TCH is registered at Pudong District
in Shanghai and is subject to a favorable income tax rate of 15% compared to a
normal income tax rate of 33% (30% for the central government and 3% for the
local government) under current PRC tax laws. The income tax provisions
presented in the Company's financial statements are based on the historical
actual income tax rates of TCH at 15% for the year ended December 31, 2005. The
income tax provision presented for the year ended December 31, 2004 was based on
7.5% for the months of January to June and 15% for the months of July to
December. In the 2004 and 2005 fiscal years, income tax expense was $369,971 and
$481,743, respectively, based on pretax income of $1,964,600 (which included the
stock compensation of $1,014,423 incurred in the U.S.) and $2,292,850,

respectively. Because the loss of approximately $1,014,423 incurred in the U.S.
did not offset the taxable income in China, the income tax expense of $369,971
incurred in China was based on the taxable income of $2,979,023 during our 2004
fiscal year.

Comprehensive income

We recorded comprehensive income of $2,096,503 for the 2005 fiscal
year, a $501,611 increase in comprehensive income compared to comprehensive
income of $1,594,892 for the prior year, representing an increase of
approximately 31.4%. The increase in comprehensive income was attributable to
(i) the non-cash expenses that offset the net profit generated in the 2004
fiscal year, (ii) the contribution of our new advertising business that was
initiated in the 2005 fiscal year, and (iii) the appreciation of Chinese RMB to
US dollars. These factors offset the declines in gross profit from sales of
mobile phones and information services.

Earnings per share

The earnings per share for the 2005 fiscal year increased by $0.01 to
$0.11 compared to $0.10 for the prior year. The increase was due mainly to the
increase in our net income which was partially offset by the increase in the
weighted average number of shares of common stock outstanding for the 2005
fiscal year, compared with the weighted average number of shares of common stock
outstanding for the prior year.

Liquidity and Capital Resources

Our cash balance increased from $75,511 as of December 31, 2004 to
$3,578,367 as of December 31, 2005. This increase in cash and cash equivalents
was primarily due to the increase in accounts payable and the collection of
accounts receivable. At December 31, 2005 and 2004, our net working capital was
$5,808,706 and $9,877,040, respectively, reflecting current ratios of 4.2:1 and
7.2:1, respectively, at such dates.

Net cash provided by operating activities was $5,290,767 during our
2005 fiscal year, compared to net cash provided by operating activities of
$2,953,773 during the prior year. The increase of cash provided by operating
activities was due mainly to the increase of $3,778,282 in cash from the
collection of accounts receivable and the increase of $825,379 in accounts
payable, partially offset by the change in deferred revenue of $586,096 and
increase in amounts due from related parties of $929,345.

Net cash used in investing activities for the 2005 fiscal year
decreased to $3,551,569 compared to $4,874,843 for the same period of the prior
year, representing a $1,323,274 decrease. The change in cash used in investing
activities was due mainly to the increase of $3,435,258 in the change in the
amounts due from related parties. As of December 31, 2005, the amounts due from
Tianci Real Estate and Sifang Information represented $929,345 and $8,423,214
(including the deposit paid to Sifang Information for business acquisition
amount of $6,257,590), respectively.

Net cash provided by financing activities for the 2005 fiscal year was
$1,500,000 compared to $282,570 for the same period of the prior year. The
$1,500,000 relates to proceeds for shares that were issued in fiscal 2004 but
were held in escrow until we filed a Registration Statement on Form SB-2 with
the SEC in March 2005. We treated the proceeds held in escrow as a current asset
as the entire amount was released from escrow in March 2005 and paid to us.

We believe that current cash balance and cash flows from operations, if
any, will be sufficient to meet present growth strategies and related working
capital. In regards to the capital expenditures, we have sufficient funds to
expand our operations. We plan to utilize a combination of internally generated
funds from operations with potential debt and/or equity financings to fund our
longer-term growth over a period of two to five years. The availability of
future financings will depend on market conditions. There is no assurance that
the future funding will be available.

The forecast of the period of time through which our financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 151, Inventory Costs, which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material. SFAS No. 151 will be effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We do not believe the adoption of
SFAS No. 151 will have a material impact on our consolidated financial
statements.

In December 2004, the FASB issued SFAS No. 123-R, Share Based Payments,
which requires that the compensation cost relating to share-based payment
transactions (including the cost of all employee stock options) be recognized in
the financial statements. The cost will be measured based on the estimated fair
value of the equity or liability instruments issued. SFAS No. 123-R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Management believes the adoption of this
pronouncement will not have a material effect on our consolidated financial
statements.

In December 2004, the FASB also issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions". The amendments made by SFAS No. 153 are based on the
principle that the exchange of nonmonetary assets should be measured using the
estimated fair market value of the assets exchanged. SFAS No. 153 eliminates the
narrow exception for nonmonetary exchanges of similar productive assets, and
replaces it with a broader exception for exchanges of nonmonetary assets 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 transaction. This pronouncement is effective for monetary
exchanges in fiscal periods beginning after June 15, 2005. Management believes
the adoption of this pronouncement will not have a material effect on our
consolidated financial statements.

"retrospective application" of an accounting principle and the "restatement" of
financial statements to reflect the correction of an error. SFAS No. 154 applies
to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. Management believes the adoption of this
statement will not have an immediate material impact on our consolidated
financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47 ("FIN 47"),
"Accounting for Conditional Asset Retirement Obligations". FIN 47 clarifies that
the term "conditional asset retirement obligation," which as used in SFAS No.
143, "Accounting for Asset Retirement Obligations", refers to a legal obligation
to perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The entity must record a liability for a "conditional"
asset retirement obligation if the fair value of the obligation can be
reasonably estimated. FIN 47 also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement
obligation. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of this statement does not have an
immediate material impact on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including
its Emerging Issues Task Force), the AICPA, and the SEC did not or are not
believed by management to have a material impact on our present or future
consolidated financial statements.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements of China Digital Wireless, Inc.
and its subsidiaries including the notes thereto, together with the report
thereon of Grobstein, Horwath & Company, LLP are presented beginning at page
F-1.

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

None

ITEM 8A. CONTROLS AND PROCEDURES

Prior to the conclusion of the period covered by this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to us (including our consolidated
subsidiary) required to be included in our periodic SEC filings.

There were no changes in our internal controls over financial reporting
that materially affected, or are reasonably likely to materially affect our
internal control over financial reporting during the fiscal quarter ended
December 31, 2005.

ITEM 8B. OTHER INFORMATION

Not applicable

PART III

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

The following table provides information about our executive officers
and directors and their respective ages and positions as of March 1, 2006. The
directors listed below will serve until the next annual meeting of the China
Digital shareholders:

Name Age Title
--------------- ------- ------------------------------------------
Tai Caihua 49 Director, President, Chairman of the Board
Huang Tianqi 34 Director, Chief Technology Officer
Jing Weiping 42 Director
Mao Ming 44 Director
Song Jing 30 Director
Fu Sixing 45 Director, Chief Executive Officer
Yu Ruijie 43 Director
Zhang Xiaodong 38 Director
Huang Wei 43 Director
Qian Fang 47 Chief Financial Officer
Jiang Hong Ming 51 Director
Mao Wenxing 38 Director
Zhang Xinpeng 30 Director

Tai Caihua has served as our president, chairman of our board of
directors and a member of our board of directors since June 23, 2004. Mr. Tai
has been (i) the president and sole director of our wholly owned subsidiary,
Sifang Holdings, since February 2004; (ii) chairman of the board of directors of
Sifang Holdings' wholly owned subsidiary, TCH, since our inception in May 2004;
(iii) director and general manager of Shanghai Tianci Industry (Group) Co.,
Ltd., one of our affiliates, since January 1994 and (iv) a director of Sifang
Information, one of our affiliates, since December 2001. Mr. Tai holds a Masters
of Business Administration from the Macau University of Science and Technology.

Huang Tianqi has served as our chief technology officer since June 23,
2004 and a member of our board of directors since June 24, 2004. Mr. Huang has
served as chief technology officer of Sifang Holdings and vice-general manager,
chief technology officer and a director of TCH since their inception in February
2004 and May 2004, respectively. Mr. Huang also serves as the vice-general
manager and a member of the board of directors of Sifang Information. Before
becoming vice-general manager, Mr. Huang was the chief technology officer at
Sifang Information for seven years. Mr. Huang graduated from Nanjing University
of Posts and Telecommunications with a Bachelors Degree and from Shanghai Jiao
Tong University with a Masters of Science Degree.

Jing Weiping has served as a member of our board of directors since
June 24, 2004. Mr. Jing has served as a member of the board of directors of TCH
since our inception in May 2004 and as a Director of Sifang Information since
2001. Mr. Jing has served as the manager of the technology assurance department
of Sifang Information for the past nine years. Mr. Jing received his Bachelors
Degree from Dong Hua University.

Mao Ming serves as a member of our board of directors. He was elected
to our board of directors June 24, 2004. He has been (i) the general manager and
a member of the board of directors of TCH since our inception in May 2004; and
(ii) the general manager and a director of Sifang Information since January
1998. Mr. Mao graduated from China PLA Measurement College with a Bachelors
Degree and from the Macau University of Science and Technology with a Masters of
Business Administration.

Song Jing has served as a member of our board of directors since June
24, 2004. Mr. Song has served as vice-general manager and a member of the board
of directors of TCH since our inception in May 2004 and as general manager of
Shanghai Shan Tian Telecommunication Co., Ltd., an affiliate of ours, since
November 2003. Previously, Mr. Song served as director and general manager of
Shanghai Zhong Si Hua Hao Co., Ltd. for one year and assistant general manager
of both Shanghai Hua Si Trading Co., Ltd. and Shanghai Qi Shi Trading Co., Ltd
for five years. Mr. Song holds a Masters of Business Administration from Joseph
L. Rotman School of Management, University of Toronto.

Fu Sixing has served as our chief executive officer since June 23, 2004
and a member of our board of directors since June 24, 2004. Mr. Fu has served as
executive manager of Sifang Holdings and as the head of the research and
development department and a director of TCH since their inception in February
2004 and May 2004, respectively. During the past seven years, Mr. Fu has served
as (i) the assistant to general manager of Shanghai Tianci Industry (Group) Co.,
Ltd.; (ii) a director and the general manager of Shanghai Sifang Health
Technology Co., Ltd. and (iii) directorate secretary of Sifang Information. Mr.
Fu received a Bachelors of Science in Physics from Nanjing University, a Masters
of Social Science in Economics from Huadong Normal University and a Doctorate of
Business Administration from the University of Southern California.

Yu Ruijie has served as a member of our board of directors since June
24, 2004. Mr. Yu has served (i) as head of the Systems Department and a director
of TCH since our inception in May 2004 and (ii) as the head of the Systems
Department of Sifang Information since January 1994. Mr. Yu received a Bachelors
Degree in Computer Science from Shanghai University of Engineering Science.

Zhang Xiaodong has served as a member of our board of directors since
June 24, 2004. Mr. Zhang has served as the head of the projection department of
TCH since our inception in May 2004. Mr. Zhang also serves as a director and the
head of the projection department of Sifang Information. For the past nine
years, Mr. Zhang has served as head of the wireless engineering department at
Sifang Information. Mr. Zhang graduated from Shanghai Jiao Tong University with
a Bachelors Degree and received a Masters Degree from the Macao University of
Science and Technology.

Huang Wei has served as a member of our board of directors since June
24, 2004. Mr. Huang has served as (i) the vice-general manager of TCH since our
inception in May 2004 and (ii) vice-general manager and a director of Sifang
Information since 1993. Mr. Huang graduated from Nanjing University of Air Force
and Politics with a Bachelors Degree in Logistics.

Qian Fang has served as our Chief Financial Officer since January 1,
2005. Ms. Fang has served as Manager of Accounting of TCH since 1999. Ms. Fang
graduated from China Cable-TV University with a Bachelors Degree in Accounting
and is a Certified Public Accountant.

Jiang Hong Ming has served as a member of our board of directors and a
member of the audit committee of the board of directors since April 2005. Mr.
Jiang worked as a certified public accountant at Shanghai Hua Cheng Certified
Public Accountants from 1998 to 2003 and has been a director at Shanghai Hua
Cheng Certified Public Accountants since 2003. Mr. Jiang received a Bachelors
Degree from Shanghai TV Cable University.

Mao Wenxing has served as an independent director of our board of
directors and a member of the audit committee of the board of directors since
January 2006. Mr. Mao has served as manager of Zhongfang Real Estate Exchange
Co. since November 1999. Mr. Mao earned a Masters Degree in Economics from
Shanghai Finance & Economics University.

Zhang Xinpeng has served as an independent director of our board of
directors and a member of the audit committee of the board of directors since
January 2006. Mr. Zhang has worked as the assistant to the CEO of Shanghai Kena
Technology Co., Ltd. since July 2002. Mr. Zhang earned a Masters Degree from
Shanghai Jiaotong University in June 2002.

Family Relationships

Except as set forth herein, there are no family relationships among our
directors or officers. The spouse of Mr. Tai Caihua (the President and Chairman
of our Board of Directors), Ms. Shi Ying, is a sibling of Huang Wei, a member of
our Board of Directors.

Audit Committee and Audit Committee Financial Expert

Our board of directors established our audit committee in April 2005.
The audit committee consists of three independent members, Jiang Hong Ming, Mao
Wenxing and Zhang Xinpeng, who are independent within the meaning of the Nasdaq
listing standards. At least one member of the audit committee, Jiang Hong Ming,
is financial expert, as that term is used under Item 401(e) of Regulation S-B,
and is independent, as that term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Exchange Act. The audit committee reviews and recommends to the
directors the independent auditors to be selected to audit our financial
statements; meets with the independent auditors and financial management to
review the scope of the proposed audit procedures to be utilized; reviews with
the independent auditors, internal auditor, and our financial and accounting
personnel, the internal accounting and financial controls, and elicits any
recommendations for the improvement thereof; reviews our financial statements
and reports the results of the annual audit to the board of directors.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and certain other shareholders to file reports of ownership

and changes in ownership with the Securities and Exchange Commission. Officers,
directors and certain other shareholders are required by regulation to furnish
us with copies of all Section 16(a) forms they file. During 2005, three of our
directors, Jiang Hong Ming, Yan Feng, and Juchen Li, didnot file Forms 3, and
our President and Chairman Tai Caihua inadvertently filed a Form 4 late.

Code of Ethics

In September 2005, we adopted an amended and restated corporate code of
ethics. We believe our code of ethics is reasonably designed to deter wrongdoing
and promote honest and ethical conduct; provide full, fair, accurate, timely and
understandable disclosure in public reports; comply with applicable laws; ensure
prompt internal reporting of code violations; and provide accountability for
adherence to the code. A copy of our corporate code of ethics is filed as an
exhibit to this annual report. The Company will provide to any person without
charge, upon request, a copy of the corporate code of ethics. Any person wishing
a copy should write to Ms. Maria Liu, China Digital Wireless, Inc., 429
Guangdong Road, Shanghai, China, 200001.

ITEM 10. EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth all cash
compensation paid to our chief executive officer for services rendered in all
capacities to the company during the noted periods. No other executive officers
received salary and bonus compensation in excess of $100,000 during the 2005
fiscal year.

Summary Compensation Table
Annual Compensation
-----------------------
Securities
All Other Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options
--------------------------- ---- ---------- --------- ---------------- ----------

Fu Sixing(1) 2005 $5,536 -- -- --
Chief Executive Officer and 2004 1,795
Director
Timothy P. Halter (2) 2004 -- -- -- 131,722 (3)
Chief Executive Officer and
Director
Glenn Little ((4)) 2004 -- -- -- --
Chief Executive Officer and 2003 -- -- -- --
Director

------------------------
(1) Appointed Chief Executive Officer and a director of the Company in June
2004.
(2) Appointed Chief Executive Officer in March 2004 and resigned as an
officer and director of the Company in June 2004.
(3) On February 23, 2004, the company sold 987,915 shares of restricted
common stock for gross proceeds of $300,000, pursuant to a subscription
agreement, to Halter Financial Group, Inc., an entity owned by Timothy
P. Halter, a former member of the Board of Directors and the Company's
former Chief Executive Officer. Additionally, in consideration for
agreeing to serve as an officer and director of the Company, Timothy P.
Halter was granted a warrant to purchase up to 131,722 shares of common
stock of the company (as adjusted for stock splits).
(4) Resigned as Chief Executive Officer and a director of the Company in
March 2004.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

The following table sets forth, as of March 1, 2006, the number and
percentage of our 17,147,268 outstanding shares of common stock that were
beneficially owned by (i) each director and executive officer of China Digital,
(ii) each person known to China Digital to be the beneficial owner of five

percent or more of the outstanding shares of common stock of China Digital, and
(iii) all directors and officers of China Digital as a group. Unless otherwise
indicated, the person or entity listed in the table is the beneficial owner of,
and has sole voting and investment power with respect to, the shares indicated.

Amount and Nature of Beneficial Ownership
Number Percent of
Name and Address of Shares (1) Voting Stock (2)
---------------- ------------- ---------------------

Tai Caihua (3) 10,430,963 60.8%
Shi Ying 1,791,743 10.5%
Mao Ming 413,480 2.4%
Song Jing 413,480 2.4%
Huang Tianqi 275,652 1.6%
Jing Weiping 275,652 1.6%
Fu Sixing 275,652 1.6%
Yu Ruijie 275,652 1.6%
Zhang Xiaodong 275,652 1.6%
Huang Wei 275,652 1.6%
Jiang Hong Ming 0 --
Mao Wenxing 0 --
Zhang Xinpeng 0 --
Qian Fang 0 --

Directors and executive officers as a group 12,911,835 75.2%
(13 persons) (3)

(1) Under applicable rules promulgated by the SEC pursuant to the
Securities Exchange Act of 1934, as amended, or the Exchange Act, a
person is deemed the "beneficial owner" of a security with regard to
which the person, directly or indirectly, has or shares (a) the voting
power, which includes the power to vote or direct the voting of the
security, or (b) the investment power, which includes the power to
dispose or direct the disposition of the security, in each case
irrespective of the person's economic interest in the security. Under
these SEC rules, a person is deemed to beneficially own securities
which the person has the right to acquire within 60 days through (x)
the exercise of any option or warrant or (y) the conversion of another
security.
(2) In determining the percent of our common stock owned by a person (a)
the numerator is the number of shares of our common stock beneficially
owned by the person, including shares the beneficial ownership of which
may be acquired within 60 days upon the exercise of options or warrants
or conversion of convertible securities, and (b) the denominator is the
total of (i) the 17,147,268 shares of our common stock outstanding on
March 1, 2006 and (ii) any shares of our common stock which the person
has the right to acquire within 60 days upon the exercise of options or
warrants or conversion of convertible securities. Neither the numerator
nor the denominator include shares which may be issued upon the
exercise of any other options or warrants or the conversion of any
other convertible securities.
(3) Includes 1,791,743 shares held by Mr. Tai's wife, Shi Ying. Mr. Tai
disclaims beneficial ownership of those shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended December 31, 2005, there were no purchases from
related parties. During the year ended December 31, 2004, TCH purchased local
brand mobile phones from Sifang Telecom valued at $390,340, and all these mobile
phones were sold to retailers in 2004.

During the year ended December 31, 2005, TCH sold Samsung GSM mobile
phones valued at $10,608,287 at a gross profit margin of 4% to Shantian,
compared to $9,178,674 at gross profit margin of 4% for the prior year. Accounts
receivable includes $1,583,512 and nil due from Shantian, for 2004 and 2005,
respectively. During the year ended December 31, 2004, TCH also sold mobile
phones to other related parties, which included Tianci Industy and Tianci Group
for $136,310 and $576,707 at gross profit margins of 14% and 14% respectively.
There were no mobile phones sold to Tianci Industry and Tianci Group during the
year ended December 31, 2005.

On July 16, 2004, the Tianci Group entered into an agency agreement
with TCH to sell CDMA mobile phones owned by China Unicom. TCH obtains the same
commission structure that Tianci Group earns from China Unicom. For each phone
sold, TCH receives $15.70 per unit and a sales commission of $3.62 per SIM card.
TCH recognized commission income of $204,214 in the year ended December 31, 2004
from the Tianci Group, which is recorded in service revenues, net on the income
statement. There was no agency income in the year ended December 31, 2005.

In accordance with terms contained in signed service agreements between
TCH and Sifang Information giving TCH the right to use Sifang Information's
facility (which may not be owned by foreign investors at the present time) to
transmit the reformatted information, the Company paid service fees annually in
each of the years ended December 31, 2004 and 2005. The service agreements are
in effect for ten years and became effective on June 1, 2004. The annual
payments for the services have declined from approximately $567,000 to
approximately $366,000 since January 1, 2005. During the year ended December 31,
2005, Sifang Information also provided other management support and marketing
services to TCH for $61,352, compared to $36,462 for the prior year. TCH earned
information service revenues net of costs from China Mobile / China Unicom that
were passed through from Sifang Information and are recorded in Service revenue,
net on the income statement. For the year ended December 31, 2005, the total
revenue generated was $634,728 and the total cost of services was $410,898,
compared to $2,592,392 of total revenue generated and $498,194 of total cost of
services for the prior year. TCH earned paging service revenues net of costs
that were passed through from Sifang Information and are recorded in service
revenue, net on the income statement. For the year ended December 31, 2005, the
total revenue generated was $639,340 and the total cost of services was $368,614
compared to $979,469 of total revenue generated and $547,799 of total cost of
services for the prior year. TCH launched a smart card project as a joint
cooperation project with Sifang Information in June 2004. However, the project
was abandoned in the fourth quarter of 2004 due to government regulations. No
revenue was generated from the project in either 2004 or 2005 fiscal years.

In January 2005, Sifang Media and TCH entered into the "Bank Digital
TV's Cooperation Agreement", where TCH will assist in the promotion of TV ads
for various customers, including Tianci Real Estate. TCH received a net fee of
$1,879,965 for providing the service during the year ended December 31, 2005.
There was an "Advertisement Agency Contract" between Tianci Real Estate and
Sifang Media, which expired in November 2005. In June and September 2005, Sifang
Media, TCH and two unrelated customers, entered into certain agreements, where
TCH will assist in the promotion of TV ads for these customers. TCH received a
fee of $881,633 for providing the service via Sifang Media during the fiscal
year of 2005.

Sifang signed a leasing agreement with the Tianci Real Estate for
leasing its apartment for office use, which was assumed by TCH as a part of the
carve-out transaction. The original leasing term was from May 1, 2003 to April
30, 2008. The original lease agreement was terminated on September 30, 2004, but
was reinstated on January 1, 2005, for an additional term from January 1, 2005
to December 31, 2005. The related rental expense for the year ended December 31,
2005 was $49,565, compared to $30,810 for the prior year.

Cash collections received and payments made to Sifang Information on
behalf of TCH, resulted in a net receivable of $2,165,624 due from Sifang
Information at December 31, 2005. The amount due from related party also
consists of $122,677 relating to the value added information services provided
to Sifang Information and sold to China Unicom and another $664,722 relating to
the paging revenues that are collected by Sifang Information on behalf of TCH.
In January and February 2006, TCH collected $247,825 from Sifang Information.
The Company's management believes that the collection of the remaining balance
from Sifang Information is reasonably assured and accordingly, no allowance has
been recorded as of December 31, 2005. The Company also advanced $1,205,000 to
provide Sifang Information's needs for working capital in order to complete
spin-off procedures in the PRC. The outstanding balance was fully collected in
March 2005.

In December 2005, TCH entered into a series of agreements to purchase
(i) 95% of the equity interests of Shanghai Kena Energy Saving Electric Co Ltd
("Kena") for an aggregate purchase price of RMB 28,500,000 (approximately
$3,532,000); (ii) a related patent from one of the shareholders of Kena for RMB
11,000,000 (approximately $1,363,000); and (iii) related rights to make a patent
application from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000). The purchase price for both the equity interests in
Kena and the consideration for purchase of the patent and the right to apply for
registration of the patent shall be paid by Sifang Information on behalf of TCH.
It is expected the transaction will be closed upon the completion of the
business registration in April 2006.

On February 23, 2004, we sold 987,915 shares of restricted common stock
for gross proceeds of $300,000, pursuant to a subscription agreement, to Halter
Financial Group, Inc., an entity owned by Timothy P. Halter, a former member of
the Board of Directors and the Company's former Chief Executive Officer.
Additionally, in consideration for agreeing to serve as an officer and director
of the Company, Timothy P. Halter was granted a warrant to purchase up to
131,722 shares of common stock of the Company. The warrant was exercised on June
14, 2004, and we received gross proceeds of $40,000 upon exercise.

On February 23, 2004, we agreed to pay Little and Company Investment
Securities, an entity owned by Glenn A. Little, our former controlling
shareholder, officer and director, $30,000 in consulting fees related to the
transaction discussed in the previous paragraph and in consideration for
maintaining the corporate entity. To formalize this obligation, we issued a
$30,000 non-interest bearing promissory note maturing on February 23, 2005.
Concurrent with the transaction discussed in the previous paragraph, we and
Little and Company Investment Securities executed an Exchange Agreement whereby
we issued 98,792 shares of common stock in satisfaction of the outstanding
promissory note.

On June 23, 2004, we entered into a Stock Purchase Agreement with
Halter Financial Group, Inc. pursuant to which we sold 166,667 shares of common
stock of the Company in exchange for $190,000. Timothy P. Halter is the sole
shareholder and President of Halter Financial Group, Inc. Pursuant to the Stock
Purchase Agreement, we granted to Halter Financial Group, Inc. an option to

require the Company to purchase up to 166,667 shares of common stock of the
Company at a price of $1.14 per share, such option being exercisable at any time
after the date that is six months after the Company files a registration
statement on Form SB-2 with the SEC, registering the shares purchased by Halter
Financial Group, Inc., up to and including the earlier of (i) the date that such
registration statement is declared effective by the SEC or (ii) Halter Financial
Group, Inc.'s shares are eligible for resale under Rule 144 under the Securities
Act of 1933.

ITEM 13. EXHIBITS

Exhibit
Number Description

3.1 Articles of Incorporation of the Registrant. (1)

3.2 Second Amended and Restated Bylaws of the Registrant. (2)

4.1 Common Stock Specimen. (4)

10.1 Securities Exchange Agreement by and among Boulder
Acquisitions, Inc., Sifang Holdings Co., Ltd. and the
stockholders of Sifang Holdings Co., Ltd. dated effective
as of June 23, 2004. (2)

10.2 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd. and
Shanghai TCH Data Technology Co. Ltd. dated as of June 1,
2004. (3)

10.3 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd. and
Shanghai TCH Data Technology Co. Ltd. dated as of June 1,
2004. (3)

10.4 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd., Shanghai
Chengao Industrial Co. Ltd. and Shanghai TCH Data
Technology Co. Ltd. dated as of June 1, 2004. (3)

10.5 Information Service and Cooperation Agreement by and among
Shanghai Tianci Industrial (Group), Co. Ltd. and Shanghai
TCH Data Technology Co. Ltd. dated as of June 1, 2004. (3)

10.6 Business and Related Assets Transfer Agreement between
Shanghai Sifang Information Technology Co. Ltd. and
Shanghai TCH Data Technology Co. Ltd. dated as of May 26,
2004. (3)

10.7 Stock Purchase Agreement by and between Halter Financial
Group, Inc. and Boulder Acquisitions, Inc. dated as of
June 23, 2004. (2)

10.8 Stock Purchase Agreement by and between Chinamerica Fund,
LP and Boulder Acquisitions, Inc. dated as of June 28,
2004. (2)

10.9 Stock Purchase Agreement by and between Chinamerica
Acquisition, LLC and Boulder Acquisitions, Inc. dated as
of June 28, 2004. (2)

10.10 Stock Purchase Agreement by and between Gary Evans and
Boulder Acquisitions, Inc. dated as of June 28, 2004. (2)

10.11 Selling Stockholders Agreement by and among Boulder
Acquisitions, Inc. and the Selling Stockholders listed on
Schedule A thereto dated as of June 28, 2004. (5)

10.12 English Summary of the Equity Transfer Termsheet for
Shanghai Kena Energy Saving Electric Co., Ltd. by and
among Shanghai TCH Data Technology Co. Ltd., Mr. Zhang
Naiyao, Mr. Tai Yi, and Ms. Zheng Chang dated as of
December 29, 2005. (6)

10.13 English Summary of the Agreement relating to the
assignment of debt under the Equity Transfer Agreement by
and among Shanghai TCH Data Technology Co. Ltd., Mr. Zhang
Naiyao, Mr. Tai Yi, Ms. Zheng Chang and Shanghai Sifang
Information Technology Co. Ltd. dated as of December 29,
2005. (6)

10.14 English Summary of an Agreement relating to transfer of
patent ownership by and between Shanghai TCH Data
Technology Co. Ltd. and Mr. Zhang Naiyao dated as of
December 29, 2005. (6)

10.15 English Summary of an Agreement relating to transfer of
right to make patent application by and between Shanghai
TCH Data Technology Co. Ltd. and Mr. Zhang Naiyao dated as
of December 29, 2005. (6)

10.16 English Summary of an Agreement in relation to assignment
of debt under the Agreements for the transfer of patent
rights by and among Shanghai TCH Data Technology Co. Ltd.,
Mr. Zhang Naiyao and Shanghai Sifang Information
Technology Co. Ltd. dated as of December 29, 2005 (as
amended by the parties on February 10, 2006). (6)

14 Code of Ethics.

21.1 Subsidiaries of the Registrant. (4)

31.1 Chief Executive Officer Certification furnished pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Chief Financial Officer Certification furnished pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Chief Executive Officer Certification furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Chief Financial Officer Certification furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

-----------------------------------------
(1) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2001, which was
filed with the Commission on January 28, 2002, and which is
incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K dated July 8, 2004, and which is incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-QSB for the period ended June 30, 2004 as filed with the
Commission on August 23, 2004, and which is incorporated herein by
reference.

(4) Previously filed as an exhibit to the Registrant's Registration
Statement on Form SB-2 as filed with the Commission on November 12,
2004, and which is incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Post-Effective
Amendment No. 1 on Form SB-2 as filed with the Commission on September
12, 2005, and which is incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K dated February 17, 2006, and which is incorporated herein by
reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Paid to Independent Public Accountants for 2005 and 2004

Audit Fees

The aggregate audit fees for 2005 were $236,267. The amounts include
fees for professional services rendered by Grobstein, Horwath & Company, LLP in
connection with the audit of our consolidated financial statements for the 2004
fiscal year and reviews of our unaudited consolidated interim financial
statements for the first, second and third quarters of 2005.

The aggregate audit fees for 2004 were $160,695. The amounts include
fees of $56,483 for professional services rendered by Grobstein, Horwath &
Company, LLP in connection with the audit of our consolidated financial
statements as of and for the 2004 fiscal year and fees of $110,212 for
professional services rendered by BDO Shanghai Zhonghua in connection with
reviews of our unaudited consolidated interim financial statements for the third
quarter of 2004.

Audit-Related Fees

There were no audit-related fees billed by Grobstein, Horwath &
Company, LLP or BDO Shanghai Zhonghua for other services rendered to the Company
for the 2004 or 2005 fiscal years.

Tax Fees

There were no fees for tax services billed by Grobstein, Horwath &
Company, LLP or BDO Shanghai Zhonghua for other services rendered to the Company
for the 2004 or 2005 fiscal years.

All Other Fees

There were no additional aggregate fees billed by Grobstein, Horwath &
Company, LLP and BDO Shanghai Zhonghua for other services rendered to the
Company for the 2004 or 2005 fiscal years.

Policy on audit committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors

The audit committee pre-approves all audit and non-audit services
provided by the independent auditors prior to the engagement of the independent
auditors with respect to such services. The Company's independent auditors may
be engaged to provide non-audit services only after the audit committee has
first considered the proposed engagement and has determined in each instance
that the proposed services are not prohibited by applicable regulations and the
auditors' independence will not be materially impaired as a result of having

provided these services. In making this determination, the audit committee takes
into consideration whether a reasonable investor, knowing all relevant facts and
circumstances, would conclude that the auditors' exercise of objective and
impartial judgment on all issues encompassed within the auditors' engagement
would be materially impaired. The audit committee may delegate its approval
authority to pre-approve services provided by the independent auditors to one or
more of the members of the audit committee, provided that any such approvals are
presented to the audit committee at its next scheduled meeting.

SIGNATURES

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

By: /s/ Tai Caihua Date: April 4, 2006
-----------------------------------------
Tai Caihua, President and Chairman of the Board
(Principal Executive Officer)

By: /s/ Qian Fang Date: April 4, 2006
-----------------------------------------
Qian Fang, Chief Financial Officer
(Principal Financial and Accounting Officer)

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date stated.

By: : /s/ Tai Caihua Date: April 4, 2006
---------------------------------------
Tai Caihua, Director

By: /s/ Huang Tianqi Date: April 4, 2006
-----------------------------------------
Huang Tianqi , Director

By: /s/ Jing Weiping Date: April 4, 2006
-----------------------------------------
Jing Weiping, Director

By: /s/ Mao Ming Date: April 4, 2006
-----------------------------------------
Mao Ming, Director

By: /s/ Song Jing Date: April 4, 2006
-----------------------------------------
Song Jing, Director

By: /s/ Fu Sixing Date: April 4, 2006
-----------------------------------------
Fu Sixing, Director

By: /s/ Yu Ruijie Date: April 4, 2006
-----------------------------------------
Yu Ruijie, Director

By: /s/ Zhang Xiaodong Date: April 4, 2006
-----------------------------------------
Zhang Xiaodong, Director

By: /s/ Huang Wei Date: April 4, 2006
-----------------------------------------
Huang Wei, Director

By: /s/ Jiang Hong Ming Date: April 4, 2006
-----------------------------------------
Jiang Hong Ming, Director

By: /s/ Mao Wenxing Date: April 4, 2006
-----------------------------------------
Mao Wenxing, Director

By: /s/ Zhang Xinpeng Date: April 4, 2006
-----------------------------------------
Zhang Xinpeng, Director

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Shareholders and Board of Directors
China Digital Wireless, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of China Digital
Wireless, Inc. and Subsidiary (the "Company") as of December 31, 2004 and 2005
and the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for each of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal controls over financial reporting. Our audits included consideration of
internal controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of China
Digital Wireless, Inc. and Subsidiary as of December 31, 2004 and 2005, and the
consolidated results of their operations and cash flows for each of the years
then ended in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 5 to the consolidated financial statements, the Company has
had numerous significant transactions with businesses controlled by, and with
people who are related to, the officers and directors of the Company.

GROBSTEIN, HORWATH & COMPANY LLP

Sherman Oaks, California
March 31, 2006

F-1

CHINA DIGITAL WIRELESS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, December 31,
2004 2005
------------ ------------

ASSETS

Current assets:
Cash and cash equivalents $ 75,511 $ 3,578,367
Accounts receivable, net of allowance for doubtful accounts
of $47,922 and $44,472 4,619,809 844,977
Inventories 101,696 62,386
Deferred tax assets 28,772 12,846
Common stock proceeds held in escrow 1,500,000 --
Amounts due from related parties 4,987,956 3,094,969
Advances and deposits to suppliers 150,412 19,970
------------ ------------

Total current assets 11,464,156 7,613,515
------------ ------------

Property and equipment, net 1,198,509 1,105,756
Deposit for business acquisition -- 6,257,590
------------ ------------

Total assets $ 12,662,665 $ 14,976,861
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 55,839 $ 881,218
Advance from customers -- 6,399
Deferred revenue 617,694 31,598
VAT payable 213,535 92,649
Income tax payable 312,763 193,586
Amounts due to related parties 100,260 223,399
Other current liabilities 287,025 375,960
------------ ------------

Total current liabilities 1,587,116 1,804,809
------------ ------------

Shareholders' equity:
Common stock - $0.001 par value, 100,000 000 shares
authorized, 17,147,268 (2004 - 17,018,692) shares issued
and outstanding 17,019 17,148
Additional paid-in capital 4,229,974 4,229,845
Retained earnings 6,828,281 8,084,922
Restricted reserves -- 554,466
Accumulated other comprehensive income 275 285,671
------------ ------------

Total shareholders' equity 11,075,549 13,172,052
------------ ------------

Total liabilities and shareholders' equity $ 12,662,665 $ 14,976,861
============ ============

See accompanying notes to consolidated financial statements

F-2

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

Years Ended December 31,
---------------------------
2004 2005
------------ ------------

Revenues:
Product sales $ 11,057,398 $ 5,775,069
Product sales to related parties 9,891,691 10,608,287
Information service revenue, net 3,571,861 1,274,068
Advertising service revenue, net -- 2,761,598
------------ ------------

Total revenue 24,520,950 20,419,022
------------ ------------

Cost of goods sold 10,196,443 5,800,878
Cost of goods sold to related parties 9,412,389 10,224,081
Cost of information service 1,045,993 681,624
Cost of advertising service -- 141,554
------------ ------------

Total cost of goods sold 20,654,825 16,848,137
------------ ------------

Gross profit 3,866,125 3,570,885
------------ ------------

Operating expenses:
Sales and marketing 246,639 134,639
General and administrative 1,656,841 1,251,166
------------ ------------

Total operating expenses 1,903,480 1,385,805
------------ ------------

Income from operations 1,962,645 2,185,080

Other revenue -- 8,387
Governmental subsidy -- 108,476
Interest income (expense) 1,955 (9,093)
------------ ------------

Income before income taxes 1,964,600 2,292,850

Income tax provision 369,971 481,743
------------ ------------

Net income $ 1,594,629 $ 1,811,107
============ ============

Other comprehensive income
Translation adjustments $ 263 $ 285,396

Comprehensive income $ 1,594,892 $ 2,096,503
============ ============

Basic and diluted earnings per share $ 0.10 $ 0.11

Weighted average shares of common stock outstanding 15,458,000 17,054,368

See accompanying notes to consolidated financial statements.

F-3

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In U.S. dollars, except share data)

Other
Common Stock Additional Comprehensive Total
Paid-in Retained Restricted Income Shareholders'
Shares Amount Capital Earnings Reserves (Loss) Equity
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance at December 31, 13,782,636 $ 13,783 $ 1,436,217 $ 5,233,652 $ -- $ 12 $ 6,683,664
2003

Recapitalization and
reorganization 1,585,705 1,586 308,465 -- -- -- 310,051

Shares issued for
consulting services 167,895 168 604,254 -- -- -- 604,422

Shares issued for proceeds
of $190,000 and consulting
services 166,667 167 599,834 -- -- -- 600,001

Shares issued for net
proceeds of $1.5 million 1,315,789 1,315 1,498,685 -- -- -- 1,500,000

Offset by issuing cost -- -- (217,481) -- -- -- (217,481)

Net income -- -- -- 1,594,629 -- -- 1,594,629

Foreign currency
translation adjustment -- -- -- -- -- 263 263
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance at December 31,
2004 17,018,692 $ 17,019 $ 4,229,974 $ 6,828,281 $ -- $ 275 $ 11,075,549

Issuance of common stock in
exchange for lock up
agreements 128,576 129 (129) -- -- -- --

Net income -- -- -- 1,811,107 -- -- 1,811,107

Transfer from retained
earnings to restricted
reserves (note 11) -- -- -- (554,466) 554,466 -- --

Foreign currency
translation adjustment -- -- -- -- -- 285,396 285,396
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance at December 31,
2005 17,147,268 $ 17,148 $ 4,229,845 $ 8,084,922 $ 554,466 $ 285,671 $ 13,172,052
============ ============ ============ ============ ============ ============ ============

See accompanying notes to consolidated financial statements.

F-4

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
--------------------------
2004 2005
----------- -----------

Cash flows from operating activities:
Net income $ 1,594,629 $ 1,811,107
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 287,232 239,716
Bad debt expenses 19,764 (3,450)
Issuance of common stock to consultants for services 1,014,423 --
Deferred taxes (23,817) 15,926
(Gain) loss on disposal of fixed assets 652 (8,914)
Changes in assets and liabilities:
Accounts receivable (2,276,245) 3,778,282
Inventories 1,489,527 39,310
Amounts due from related parties -- (929,345)
Other current assets 25,438 130,442
Accounts payable (55,730) 825,379
Advance from customers -- 6,399
Deferred revenue 80,648 (586,096)
VAT payable 213,535 (120,886)
Income tax payable 312,763 (119,177)
Amounts due to related parties 79,720 123,139
Other current liabilities 191,234 88,935
----------- -----------

Net cash provided by operating activities 2,953,773 5,290,767
----------- -----------

Cash flows from investing activities:
Purchase of property and equipment (132,155) (425,525)
Proceeds on disposal of property and equipment -- 309,214
Amounts due from related parties (4,742,688) (3,435,258)
----------- -----------
Net cash used in investing activities (4,874,843) (3,551,569)
----------- -----------

Cash flows from financing activities:

Recapitalization and reorganization 310,051 --
Proceeds from issuing common stock 1,690,000 --
Common stock proceeds held in escrow (1,500,000) 1,500,000
Issuing cost (217,481) --
----------- -----------

Net cash provided by financing activities 282,570 1,500,000
----------- -----------

Foreign currency translation 263 263,658
----------- -----------

Net increase (decrease) in cash and cash equivalents (1,638,237) 3,502,856

Cash and cash equivalents, beginning of the year 1,713,748 75,511
----------- -----------

Cash and cash equivalents, end of the year $ 75,511 $ 3,578,367
=========== ===========

Supplemental disclosure of cash flow information:
Cash paid during the yearfor:
Interest $ -- $ --
Income taxes $ 76,339 $ 590,481

Non-cash investing and financing activities:
Deposit for business acquisition in exchange for reduction in accounts
receivable $ -- $ 6,257,590
=========== ===========

Issuance of common stock to consultants for consulting services $ 1,014,423 $ --
=========== ===========

See accompanying notes to consolidated financial statements.

F-5

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS BACKGROUND

China Digital Wireless, Inc. ("CDW," formerly known as Boulder Acquisitions,
Inc.) through its subsidiary sells mobile phones to retailers, distributors, and
related parties, provides advertising services and provides information services
to users of mobile phones and pagers. Substantially all operations are conducted
in Shanghai, People's Republic of China ("PRC").

In order to meet ownership requirements under Chinese law that restrict a
foreign company, from operating in certain industries such as value-added
telecommunication and Internet services, CDW's subsidiary has entered into
information service and cooperation agreements with two of CDW's affiliates that
are incorporated in China: Shanghai Sifang Information Technology Co. ("Sifang
Information") and Shanghai Tianci Industry Co. Ltd ("Tianci Industry"). CDW
holds no ownership interest in Sifang Information or Tianci Industry. Sifang
Information and Tianci Industry contract with China Mobile Communications
Corporation, or China Mobile, and China United Telecommunications Corporation,
or China Unicom, respectively, to provide wireless value-added information
services to wireless receiver customers in China via China Mobile and China
Unicom. Sifang Information transmits those services to customers of China Mobile
and China Unicom on behalf of itself and Tianci Industry pursuant to a signed
agreement between Sifang Information and Tianci Industry.

Recapitalization and Reorganization

On June 23, 2004, Boulder Acquisitions, Inc. ("Boulder Acquisitions") entered
into a stock exchange agreement with Sifang Holdings Co. Ltd. ("Sifang
Holdings") and certain shareholders. Pursuant to the stock exchange agreement,
Boulder Acquisitions issued 13,782,636 shares of its common stock in exchange
for a 100% equity interest in Sifang Holdings, making Sifang Holdings a wholly
owned subsidiary of Boulder Acquisitions.

Boulder Acquisitions was incorporated under the laws of the State of Colorado on
May 8, 1980 as Boulder Brewing Company ("Boulder Brewing"). Boulder Brewing was
the successor to a general partnership formed in 1979. From the initial
inception of the original partnership through 1990, Boulder Brewing was in the
business of operating a microbrewery in Boulder, Colorado. During 1990, as a
result of various debt defaults, Boulder Brewing's assets were foreclosed upon
and all business operations were ceased. Boulder Brewing has effectively had no
operations, assets or liabilities since its fiscal year ended December 31, 1990.

In September 2001, Boulder Brewing changed its state of incorporation from
Colorado to Nevada by means of a merger with and into Boulder Acquisitions, a
Nevada corporation formed on September 6, 2001 solely for the purpose of
effecting the reincorporation. The Articles of Incorporation and Bylaws of the
Nevada corporation are the Articles of Incorporation and Bylaws of the surviving
corporation. Such Articles of Incorporation eliminated the provision for Boulder
Acquisitions to issue preferred stock.

The above stock exchange transaction resulted in those shareholders of Sifang
Holdings obtaining a majority voting interest in Boulder Acquisitions. Generally
accepted accounting principles in the United States of America require that the
company whose shareholders retain the majority interest in a combined business
be treated as the acquirer for accounting purposes. Consequently, the stock
exchange transaction has been accounted for as a recapitalization of Sifang
Holdings as Sifang Holdings acquired a controlling equity interest in Boulder
Acquisitions, as of June 23, 2004. The reverse acquisition process utilizes the
capital structure of Boulder Acquisitions and the assets and liabilities of
Sifang Holdings recorded at historical cost.

F-6

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sifang Holdings is the continuing operating entity for financial reporting
purposes, and the financial statements prior to June 23, 2004 represent Sifang
Holdings' financial position and results of operations. As of June 23, 2004,
Boulder Acquisitions had only cash of $310,051, and shareholders' equity of
$310,051 with 1,585,705 shares of common stock outstanding, all of which were
included in the consolidated financial statements of Sifang Holdings. See the
shareholders' equity statements for the period from January 1, 2004 to December
31, 2005. Although Sifang Holdings is deemed to be the acquiring corporation for
financial accounting and reporting purposes, the legal status of Boulder
Acquisitions as the surviving corporation did not change. Subsequent to June 30,
2004, Boulder Acquisitions changed its name to China Digital Wireless, Inc.

Business History

CDW's business is primarily conducted through its wholly-owned subsidiary Sifang
Holdings and its wholly-owned subsidiary TCH Data Technology Co., Ltd. ("TCH"),
that collectively with CDW are referred to as the "Company". Sifang Holdings was
established under the laws of the Cayman Islands on February 9, 2004 for the
purpose of holding a 100% equity interest in TCH. TCH was established as a
foreign investment enterprise in Shanghai under the laws of the PRC on May 25,
2004, with registered capital of $7.2 million.

CDW's current operations were originally a business division of Sifang
Information. Sifang Information is a Shanghai-based privately owned enterprise
established under the laws of the PRC on August 14, 1998. Sifang Information is
engaged in the business of pager and mobile phone distribution and provides
value added information services to the customers in the Shanghai metropolitan
area. In March 2004, Sifang Information spun off its mobile phone distribution
business and the majority of its value added information services business to
TCH. As the acquiring entity under common control, TCH initially recognized all
the assets and liabilities transferred at their carrying amounts in the accounts
of Sifang Information at the date of transfer under the guidance of Statements
of Financial Accounting Standards ("SFAS") No. 141, Appendix D.

On May 26, 2004, Sifang Information exchanged 100% of the equity interest in TCH
for 100% of the equity interest in Sifang Holdings. Since the ultimate owners of
the three entities were the same owners and the three entities remained under
common control, the ownership exchange transaction was accounted for at
historical costs under the guidance of SFAS No. 141, Appendix D. Prior to May
26, 2004, there were no activities in Sifang Holdings. As a result of the
exchange of ownership between TCH and Sifang Holdings, TCH's historical
financial statements became the historical financial statements of Sifang
Holdings.

As a result of the spin-off, the Company engages in the business of mobile phone
distribution and provides pager and mobile phone users with access to certain
value-added information reformatted by TCH. TCH purchases mobile phones from
first tier distributors and sells them to retailers and distributors with a
mark-up. In the process of providing value-added information services through
entering into monthly subscription agreements with various users, TCH purchases
trading activity information from stock exchanges, comments and analysis on PRC
stock markets provided by certain reputable security and investment companies,
lottery information, weather forecast, and other value-added products and
reformats the aforementioned information through decoding and recoding and then
has the reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The value-added information is constantly saved on
TCH's server in order for mobile phone users to dial in via China Mobile or
China Unicom. By signing a monthly subscription agreement, wireless receiver
users agree to make advance payments for its services for either three or
six-month subscription periods.

F-7

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the spin-off process, the cost of sales included in the Company's financial
statements is directly related to the product revenue and the cost of services
is directly related to different types of service. The business taxes (similar
to sales taxes in the U.S.) are related only to service revenue at a tax rate of
approximately 3.3%. The selling expenses are allocated based on the relationship
between expense and revenue (such as commission) and payroll records. The
general and administrative expenses are allocated based on management hours
spent and payroll records. The income tax provision has been calculated on a
separate company basis and is in line with the historical actual income tax
provision at the Sifang Information level assuming that all income taxes had
been paid by Sifang Information and no income tax liability was in existence in
the periods reported in the accompanying financial statements. Management
believes that the costs, operating expenses, interest expense, and income tax
provision included in the Company's financial statements are a reasonable
representation of the costs and expenses that would have been incurred if the
Company had performed these functions as a stand-alone company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") and pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") for annual financial statements. The consolidated
financial statements, in the opinion of management, include all adjustments
necessary for a fair statement of the consolidated results of operations,
financial position and cash flows for each period presented.

The Company's consolidated financial statements for the year ended December 31,
2004 have been derived from the historical financial statements and accounting
records of Sifang Information using the historical operating results and the
historical basis of the assets and liabilities transferred to the Company in
accordance with GAAP. Management believes that the assumptions underlying the
accompanying financial statements are reasonable. However, the financial
statements that are derived from Sifang Information's financial records may not
necessarily reflect the Company's results of operations and cash flows had the
Company been a stand-alone company.

Principles of Consolidation

The consolidated financial statements include the accounts CDW, its wholly owned
subsidiary, Sifang Holdings, and its wholly owned subsidiary TCH. Substantially
all of the Company's revenues are derived from the operations of TCH, which
represents substantially all of the Company's consolidated assets and
liabilities. All significant intercompany accounts and transactions have been
eliminated.

Foreign Currency Translations and Transactions

The Renminbi ("RMB"), the national currency of the PRC, is the primary currency
of the economic environment in which the operations of the Company are
conducted. The Company uses the United States dollar ("U.S. dollars") for
financial reporting purposes.

The Company translates its financial statements into U.S. dollars in accordance
with SFAS No. 52, "Foreign Currency Translation." All asset and liability
accounts have been translated using the rate of exchange prevailing at the
balance sheet date (at December 31, 2005, the prevailing exchange rate of the US
dollar against the RMB was 8.0702), and the statement of income is translated at
average rates during the reporting period. Equity items are translated at
historical rates. Adjustments resulting from the translation of the Company's

F-8

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

financial statements from RMB into U.S. dollars are recorded in shareholders'
equity as part of accumulated comprehensive income. Gains or losses resulting
from transactions in currencies other than RMB are reflected in the statement of
income for the reporting periods.

Revenue Recognition

The Company derives revenues from the sale of mobile phones, advertisement
designing services and the provision of wireless information services that are
used on mobile phones, pagers and prepaid phone cards. The Company additionally
earns commission income ("Agency Income") from the sale of CDMA mobile phones on
the behalf of a related party. The Company recognizes its revenue net of related
business taxes and value added taxes.

Mobile Phone Sales:

Revenues generated from the sale of mobile phones are recognized when the
products are shipped to the distributor or retailer and when persuasive evidence
of an arrangement exists, delivery of the products has occurred, customer
acceptance has been obtained, which means the significant risks and rewards of
ownership have been transferred to the customer, the price is fixed or
determinable and collectibility is reasonably assured.

Advertising Servicing Revenue, Net:

Advertising revenues are derived from advertisement designing, masterminding and
producing services. The Company recognizes service revenue over the term of the
noted agreement at the time of completion of the services. The Company records
the revenue from Shanghai Sifang Media Co., Ltd. ("Sifang Media") on a net basis
in accordance with EITF 99-19, "Reporting Revenue Gross as a Principle versus
Net as an Agent" because the Company is not the primary obligor in the
arrangements, receives a fixed fee from Sifang Media, and has no latitude in
determining prices.

Information Services:

The Company recognizes service revenues over the term of the noted agreement
and/or when the services have been provided to the end user.

i) Information Services - TCH:

By signing a subscription agreement, wireless receiver users agree to make
payments for three to six-month subscriptions in advance. TCH records the
proceeds as deferred revenue and amortizes the deferred revenue over the
subscription period. When customers buy a pre-charged service card, the Company
records the proceeds as deferred revenue. When a customer starts to use this
card to access to the Company's server and starts to use a pager to access the
aforementioned information, the Company identifies the subscription period and
amortizes the deferred revenue over the subscription period.

ii) Information Services - Installing Agent:

In response to a retailer's request, the Company has an installing agent install
the Company's software on mobile phones, which are owned by the retailer. The
retailer sells these phones for a premium covering a fee to be paid to the
installing agent and pre-charged six-month subscription fees to be paid to the
Company. After a customer using such a phone dials into the server to access the
desired information, the server records a unique identification number installed
on the mobile phone, which indicates that a specific phone user starts his or
her subscription period. After the Company receives a detailed list from the
installing agent regarding the number of phones that have been installed with

F-9

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the Company's software, the Company matches this information with a detailed
list from the retailer setting forth how many such phones have been sold. Based
on the number of such phones sold, the Company records accounts receivable and
deferred revenue correspondingly. At the date on which a customer starts to dial
into the server, the six-month subscription period begins and the Company
amortizes deferred revenue accordingly.

iii) Information Services - China Mobile and/or Unicom:

The Company's affiliates, Sifang Information and Shanghai Tianci Industrial
Group Co., Ltd. ("Tianci Group"), contract with China Mobile and/or China Unicom
(collectively, "Mobile Operators") for the transmission of the Company's
value-added information services. The Mobile Operators bill and collect from
customers and then pass those fees (net of billing and collection service fees
charged by the Mobile Operators) to Sifang Information and Tianci Group who in
turn pass those fees to the Company. The Company recognizes net revenues based
on the total amount paid by its customers, for which the Mobile Operators bill
and collect on behalf of the Company. There is a time lag ranging from 10 days
to 45 days between the end of the service period and the date the Mobile
Operators send out their billing statements due to the segregated billing
systems of each of the provincial subsidiaries of the Mobile Operators. The
Company has not recognized service revenue based on the records provided by its
own server but has performed a reconciliation on a monthly basis of the revenues
recognized by the Company's server to the Mobile Operator's billing statement.
In addition, the Mobile Operators charge a network usage fee based on a fixed
per message fee multiplied by the excess of messages sent over messages
received. (This type of service is not covered by a monthly service subscription
and the Company has no control over whether it will occur or not.) Network usage
fees charged by the Mobile Operators are reduced for messages received by the
Company because the Mobile Operators separately charge the sender a fee for
these transmissions.

The Company records the revenue from the Mobile Operators on a net basis in
compliance with EITF 99-19, "Reporting Revenues Gross as a Principle versus Net
as an Agent" because the Company:

o Is not the primary obligor in the arrangement, as it relies on Sifang
Information to transmit the information services to the end user,
o Has limited ability to adjust the cost of services by adjusting the
design or marketing of the service,
o Has limited ability to determine prices, the Company must follow the
price policy within ranges prescribed by Mobile Operators, and
o Has limited ability to assume risk of non-payment by customers.

The Company's dependence on the substance and timing of the billing systems of
the mobile telecommunications operators may require us to estimate portions of
their reported revenue for information services from time to time. As a result,
subsequent adjustments may be made to our information service revenue in our
consolidated financial statements. As we do not bill their information services
users directly, we depend on the billing systems and records of the mobile
telecommunications operators to record the volume of their information services
provided, to charge our users through mobile telephone bills, to collect
payments from our users, and to pay us.

F-10

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents. The Company maintains its cash accounts
at credit worthy financial institutions.

Accounts Receivable and Concentration of Credit Risk

During the normal course of business, the Company extends unsecured credit to
retailers and distributors who are mainly located in the Shanghai metropolitan
area. Typically, for mobile phone distributors, credit terms require payment to
be made within 30 days of the sale. The Company does not require collateral from
its customers. The Company's policy is to provide for an allowance for doubtful
accounts that is based on 5% of total trade accounts receivable less amounts due
from related parties and from the installing agent.

The Company regularly evaluates and monitors the creditworthiness of each
customer on a case-by-case basis. The Company includes any account balances that
are determined to be uncollectible in the overall allowance for doubtful
accounts. After all attempts to collect a receivable have failed, the receivable
is written off against the allowance. The Company believes that its allowance
for doubtful accounts was adequate as of December 31, 2004 and 2005. However,
actual write-offs might exceed the recorded allowance.

The following table presents activities in the allowance for doubtful accounts.

December 31
-----------------------
2004 2005
---------- ----------

Beginning balance $ 28,158 $ 47,922
Additions charged to expense 19,764 --
Recovered -- (3,450)
Actual write off -- --
---------- ----------
Ending balance $ 47,922 $ 44,472
========== ==========

Inventories

Inventories consist principally of mobile phones manufactured by name brand
manufacturers with various features and are stated at the lower of cost
(weighted-average) or market.

Rebates and Credits Receivable

In 2004, the Company's major vendor began providing rebates and credits if the
Company meets certain sales volume levels prescribed by the vendor. As a result,
the Company is entitled to receive certain rebates and credits for the inventory
held and sold by the Company within the specified period of time as defined by
its vendor through submitting the necessary application forms. In general, once
the vendor approves these applications the amounts of these rebates and credits
will be deducted from the Company's accounts payable to its vendor and decrease
the cost of goods sold or inventory held correspondingly.

Capitalization of Software Costs

The Company's software is developed by an independent third party to enable
pager users to accept certain recoded information which is transmitted by the
Company, through affiliates, and enables mobile phone users to dial into the
Company's server. The software is for internal use and gives the Company the

F-11

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ability to provide value added information services. In accordance with SOP 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," the Company capitalizes the external cost incurred to develop
this internal-use software by an engineering company at the application
development stage and amortizes that cost over the estimated economic life of
the software (two or three years) which is consistent with the expected life of
a particular type of mobile phone.

Property and equipment

Property and equipment are recorded at cost and are stated net of accumulated
depreciation. Depreciation expense is determined using the straight-line method
over the estimated useful lives of the assets as follows:

Buildings 20 years
Software 2-3 years
Vehicles and other equipment 2-5 years

Maintenance and repairs are charged directly to expense as incurred, whereas
betterment and renewals are generally capitalized in their respective property
accounts. When an item is retired or otherwise disposed of, the cost and
applicable accumulated depreciation are removed and the resulting gain or loss
is recognized and reflected as an item before operating income.

Impairment of Long-Lived Assets

The Company applies the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", issued by the Financial Accounting
Standards Board ("FASB"). SFAS No. 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable through the
estimated undiscounted cash flows expected to result from the use and eventual
disposition of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value exceeds the
fair value. There was no impairment of long-lived assets in the years ended
December 31, 2004 and 2005.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, advances
and deposits to suppliers, accounts payable and other current liabilities are
reasonable estimates of their fair value because of the short maturity of these
items.

Advertising Expenses:

Advertising expenses are expensed in the period incurred. Advertising expenses
for the years ended December 31, 2004 and 2005 were $60,092 and $17,468,
respectively.

F-12

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation

The Company utilizes SFAS No. 123 "Accounting for Stock-Based Compensation",
when accounting for stock based compensation and recognizes the fair value
impact of the compensation granted to employees and consultants as a charge to
net income in the period that the services associated with the compensation are
provided. The Company does not currently have a stock option plan.

Value Added Tax

TCH is subject to value added tax ("VAT") imposed by the PRC on TCH's domestic
product sales. The output VAT is charged to customers who purchase mobile phones
from TCH and the input VAT is paid when TCH purchases mobile phones from its
vendors. The VAT rate applied for TCH is 17%. The input VAT can be offset
against the output VAT.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No 109,
"Accounting for Income Taxes". SFAS No. 109 requires an entity to recognize
deferred tax liabilities and assets. Deferred tax assets and liabilities are
recognized for the future tax consequence attributable to the difference between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are measured using the
enacted tax rate expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company establishes a
valuation when it is more likely than not that that the assets will not be
recovered.

The Company's Chinese subsidiary, TCH, is registered at Pudong District in
Shanghai and subject to a favorable income tax rate of 15% compared to a normal
income tax rate of 33% (30% for the central government and 3% for the local
government) under current PRC tax laws. Sifang Information is registered in the
Shanghai downtown area and has been treated by the Shanghai Municipal
Administration of Labor as an enterprise that provides unemployed and
handicapped people with jobs. Accordingly, Sifang Information is also entitled
to a favorable income tax rate of 15% and qualified for an income tax exemption
for three years from January 1, 2000 to December 31, 2002, and a 50% income tax
reduction for three years from January 1, 2003 to December 31, 2005. The income
tax provisions presented in the Company's financial statements are based on the
actual income tax rates of TCH at 15% for the year ended December 31, 2005. The
income tax provision presented for the year ended December 31, 2004 is based on
7.5% for the months of January to June and 15% for the months of July to
December. The deferred tax assets are determined based on the income tax rates
applicable at the TCH level.

There is no income tax for companies domiciled in the Cayman Islands.
Accordingly, the Company's consolidated financial statements do not present any
income tax provisions related to Cayman Islands tax jurisdiction.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ materially from those estimates.

F-13

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income", issued by
the FASB. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has chosen to report comprehensive income in
the statements of income and comprehensive income. Comprehensive income is
comprised of net income and all changes to shareholders' equity except those due
to investments by shareholders and distributions to shareholders.

Earnings Per Share

The Company presents earnings per share in accordance with the SFAS No. 128,
"Earnings per Share". Basic earnings per share includes no dilution and is
computed by dividing net income available to common shareholders by the weighted
average number of shares outstanding during the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the
earnings of an entity if they were converted. The Company did not have any
potentially dilutive common share equivalents as of December 31, 2004 or 2005.

Reclassifications

Certain amounts included in the prior year's consolidated financial statements
have been reclassified to conform to the current year presentation. Such
reclassifications did not have any effect on reported net income and are
immaterial to the consolidated financial statements as a whole.

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which clarifies
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. SFAS No. 151 will be effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. We do not believe
the adoption of SFAS No. 151 will have a material impact on our consolidated
financial statements.

In December 2004, the FASB issued SFAS No. 123-R, Share Based Payments, which
requires that the compensation cost relating to share-based payment transactions
(including the cost of all employee stock options) be recognized in the
financial statements. The cost will be measured based on the estimate fair value
of the equity or liability instruments issued. SFAS No. 123-R covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Management believes the adoption of this
pronouncement will not have a material effect on our consolidated financial
statements.

F-14

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

future cash flows of the entity are expected to change significantly as a result
of the transaction. This pronouncement is effective for monetary exchanges in
fiscal periods beginning after June 15, 2005. Management believes the adoption
of this pronouncement will not have a material effect on our consolidated
financial statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement requires entities that voluntarily make a change in
accounting principle to apply that change retrospectively to prior periods'
financial statements, unless this would be impracticable. SFAS No. 154
supersedes APB Opinion No. 20, "Accounting Changes", which previously required
that most voluntary changes in accounting principle be recognized by including
in the current period's net income the cumulative effect of changing to the new
accounting principle. SFAS No. 154 also makes a distinction between
"retrospective application" of an accounting principle and the "restatement" of
financial statements to reflect the correction of an error. SFAS No. 154 applies
to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. Management believes the adoption of this
statement will not have an immediate material impact on the consolidated
financial statements of the Company.

Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed
by management to have a material impact on the Company's present or future
consolidated financial statements.

NOTE 3 - EQUITY TRANSACTIONS

On June 23, 2004, the Company issued 167,895 shares of its common stock to a
consultant for services relating to the reverse merger that was completed in
fiscal 2004. The trading price of the Company's common stock on June 23, 2004
was $3.60 per share, accordingly, the fair value of 167,895 shares was $604,422.

On June 23, 2004, the Company issued 166,667 shares of its common stock in
exchange for services performed by an existing major shareholder of Boulder
Acquisitions for his consulting services involved with the reverse merge. The
common stock was issued at a price of $1.14 per share in exchange for gross
proceeds of $190,000 based on a stock purchase agreement. The $1.14 per share
price was pre-negotiated between the Company and the shareholder before the
reverse merger had been completed. Pursuant to the stock purchase agreement, the
Company granted the existing shareholder an option which required the Company to
purchase up to the aforementioned 166,667 shares of common stock at a price of
$1.14 per share, such option being exercisable at any time after the date that
is nine months after the Company files a registration statement on Form SB-2
with the SEC, registering the shares purchased by the existing shareholder, up
to and including the earlier of the date that such registration statement is
declared effective by the SEC or the existing shareholder's shares are eligible
for resale under Rule 144 under the Securities Act of 1933. According to Topic

F-15

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

D-98 from the SEC, "Classification and Measurement of Redeemable Securities,"
these shares should be presented outside the permanent equity section. However,
on November 12, 2004, the Company filed a Registration Statement on Form SB-2
with the SEC, for registration of these securities to be sold to the public by
small business issuers. On February 8, 2005, the SEC approved the registration
filing and accordingly, the Company has recorded these shares in shareholders'
equity as the contingency surrounding these shares expired as of February 8,
2005. On June 23, 2004, the trading price of the Company's stock at the end of
the day was $3.60 per share. Due to the relationship between the parties, the
difference between the price of $1.14 per share and the price of $3.60 per share
was recorded as compensation by presenting $410,001 in additional paid-in
capital and in general and administrative expenses.

On June 28, 2004, the Company issued, in aggregate, 1,315,789 shares of its
common stock to three investors at a price of $1.14 per share in exchange for
gross proceeds of $1,500,000 based on a stock purchase agreement. The $1.14 per
share price was pre-negotiated between the Company and the investors before the
reverse merger had been completed. Pursuant to the signed stock purchase
agreement, the Company granted to each of the three investors an option which
requires the Company to purchase up to the aforementioned 1,315,789 shares, in
aggregate, of common stock at a price of $1.14 per share, such option being
exercisable at any time after the date that is nine months after the Company
files a Registration Statement on Form SB-2 with the SEC, registering the shares
purchased by the existing shareholder, up to and including the earlier of the
date that such registration statement is declared effective by the SEC or the
existing shareholder's shares are eligible for resale under Rule 144 under the
Securities Act of 1933. As of December 31, 2004, the proceeds of $1.5 million
were held in an escrow account with an agent who is related to a shareholder. As
of December 31, 2004, the Company has treated the proceeds held in escrow as a
current asset as the entire amount was released from escrow in March 2005 and
paid to the Company. According to Topic D-98 from SEC, "Classification and
Measurement of Redeemable Securities," these shares should be presented outside
the permanent equity section. However, on November 12, 2004, the Company filed a
Registration Statement on Form SB-2 with the SEC, for registration of these
securities to be sold to the public by small business issuers. On February 8,
2005, the SEC declared the registration statement effective. Accordingly, the
Company has recorded these shares in shareholders' equity as the contingency
surrounding these shares expired as of February 8, 2005.

In connection with the June 28, 2004 issuance of common stock, the Company
incurred share issue costs of $217,481 and accounted for it as a reduction of
additional paid-in capital.

On August 9, 2005, the Company announced its intent to apply for listing on the
American Stock Exchange ("AMEX"). In connection with the AMEX application,
certain persons who hold more than 200,000 shares of the Company's common stock
entered into lockup agreements with the Company where they generally agreed to
not offer, sell, assign or otherwise transfer a portion of their shares or other
equity securities of the Company without prior written consent of the Company
until the earlier of (i) 180 days after the date of the lockup agreements or
(ii) the date that AMEX has approved the Company's listing application. The
lockup agreements became effective on September 21, 2005, and were executed by
ten of the Company's officers and directors and three additional shareholders.
Under the lockup agreements with the non-officer/director shareholders, the
Company issued an aggregate of 128,576 shares of common stock in consideration
thereof.

F-16

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PROPERTY AND EQUIPMENT

A summary of property and equipment at cost is as follows:

December 31,
--------------------------
2004 2005
----------- -----------

Buildings $ 943,391 $ 967,507
Software 489,103 568,704
Vehicles 65,485 89,229
Other equipment 455,453 488,984
----------- -----------
1,953,432 2,114,424
Accumulated depreciation (754,923) (1,008,668)
----------- -----------

$ 1,198,509 $ 1,105,756
=========== ===========

Depreciation expense for the years ended December 31, 2004 and 2005 was $287,232
and $239,716, respectively.

As of December 31, 2005, in accordance with the "Business and Related Assets
Transfer Agreement" signed by TCH and Sifang Information, the ownership of the
building suite and two motor vehicles, (collectively known as "Assets") are
recorded on TCH's books of record. The net book value of the pledged assets was
$829,637. The property is pledged as security for a $2.5 million line of credit
held under the credit facility agreement between Sifang Information and the
bank. The line of credit is recorded on Sifang Information's books and has a
balance of $2,478,253 as of December 31, 2005. However, the two parties have
declared that the ownership of the "Assets" should be TCH's as of the balance
sheet date and have signed a legal agreement, as noted above. Sifang Information
is expected to pay off the line of credit balance in April 2008 and at that
point they will transfer the legal title of the property and the motor vehicles
within one week after the pledge is to be released by the bank.

NOTE 5 - RELATED PARTY TRANSACTIONS

Related Party Relationships

The following related parties are related through common ownership with the
major shareholder of the Company:
--------------------------------------------------------------------------------

Shanghai Sifang Information Technology Co. ("Sifang Information")
Shanghai Tianci Industry Co. Ltd. ("Tianci Industry")
Shanghai Tianci Industry Group Co. Ltd. ("Tianci Group")
Shanghai Shantian Telecommunication Co. Ltd. ("Shantian")
Shanghai Sifang Telecommunication Co. Ltd. ("Sifang Telecom")
Shanghai Tianci Real Estate Co. Ltd. ("Tianci Real Estate")
Shanghai Sifang Media Co., Ltd. ("Sifang Media")

F-17

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Merchandise Sold to Related Parties

Years Ended December 31,
-------------------------
2004 2005
----------- -----------

Shantian $ 9,178,674 $10,608,287
Tianci Group 136,310 --
Tianci Industry 576,707 --
----------- -----------
$ 9,891,691 $10,608,287
=========== ===========

During the year ended December 31, 2005, TCH sold Samsung GSM mobile phones
valued at $10,608,287 at a gross profit margin of 4% or $382,371 to Shantian,
compared to $9,178,674 at a gross profit margin of 4% or $378,061 for the same
period of the prior year. Accounts receivable includes $1,583,512 and nil due
from Shantian, for 2004 and 2005, respectively. During the year ended December
31, 2004, TCH also sold mobile phones to other related parties, which included
Tianci Industy and Tianci Group for $136,310 and $576,707 at gross profit
margins of 14% or $18,587 and 14% or $82,654, respectively. There were no mobile
phones sold to Tianci Industry and Tianci Group during the year ended December
31, 2005.

Agency Income from a Related Party

The Tianci Group entered into an agency agreement on July 16, 2004 with TCH to
sell CDMA mobile phones owned by China Unicom. TCH obtains the same commission
structure that Tianci Group earns from China Unicom. For each phone sold, TCH
receives $15.70 per unit and a sales commission of $3.62 per SIM card. TCH
recognized commission income of $204,214 in the year ended December 31, 2004
from the Tianci Group, which was recorded in information service revenue, net on
the income statement. There was no agency income in the year ended December 31,
2005.

Purchase from Related Party

Years Ended December 31,
2004 2005
----------- -----------

Sifang Telecom $ 390,340 $ --

During the year ended December 31, 2004, TCH purchased local brand mobile phones
from Sifang Telecom valued at $390,340, and all these mobile phones were sold to
retailers in 2004. There were no purchases from related parties during the year
ended December 31, 2005.

Advertising Services Rendered to Related Party

Years Ended December 31,
2004 2005
----------- -----------
Tianci Real Estate $ -- $ 1,879,965

F-18

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$1,879,965 for providing the service during the year ended December 31, 2005.
There was an "Advertisement Agency Contract" between Tianci Real Estate and
Sifang Media, which terminated in November 2005. In June and September 2005,
Sifang Media, TCH and two unrelated customers, entered into certain agreements,
where TCH will assist in the promotion of TV ads for these customers. TCH
received a net fee of $881,633 for providing the service via Sifang Media during
the fiscal year of 2005.

Service Provided by Related Party

Years Ended December 31,
2004 2005
----------- -----------

Sifang Information $ 604,314 $ 426,009

During the year ended December 31, 2005, Sifang Information also provided other
management support and marketing services to TCH for $61,352, compared to
$36,462 for the year ended December 31, 2004.

Leasing from Related Parties

Sifang Information signed a leasing agreement with the Tianci Real Estate for
leasing its apartment for office use, which was assumed by TCH as a part of the
carve-out transaction. The original leasing term was from May 1, 2003 to April
30, 2008. The original lease agreement was terminated on September 30, 2004, but
was reinstated on January 1, 2005, for an additional leasing term from January
1, 2005 to December 31, 2005. The related rental expense for the year ended
December 31, 2005 was $49,565, compared to $30,810 for the prior year.

Amounts Due from Related Parties

Years Ended December 31,
2004 2005
----------- -----------

Sifang Information $ 4,987,956 $ 2,165,624
Sifang Media -- 929,345
----------- -----------
$ 4,987,956 $ 3,094,969
=========== ===========

F-19

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In order to develop the Company's mobile phone distribution business, the
Company applied to become Nokia's distributor (on the provincial level) of
mobile phones. On March 20, 2005, TCH signed an agreement with Sifang
Information to cooperate with respect to the distribution of Nokia mobile phones
and under which TCH would act as an agent to sell Nokia phones on Sifang
Information's behalf. In May 2005, the final approval from Nokia was received by
Sifang Information. As of December 31, 2005, TCH had outstanding advances of
$2,165,624 to Sifang Information for working capital to assist Sifang
Information in this business.

In addition, as of December 31, 2005, Sifang Media has collected $929,345 from
TCH's advertising customers on its behalf.

Deposit for Business Acquisition

In December 2005, TCH entered into a series of agreements to purchase (i) 95% of
the equity interests of Shanghai Kena Energy Saving Electric Co Ltd ("Kena") for
an aggregate purchase price of RMB 28,500,000 (approximately $3,532,000); (ii) a
related patent from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000); and (iii) related rights to make a patent
application from one of the shareholders of Kena for RMB 11,000,000
(approximately $1,363,000). The purchase price for both the equity interests in
Kena and the consideration for purchase of the patent and the right to apply for
registration of the patent shall be paid by Sifang Information on behalf of TCH.
(Note 13)

Due to Related Parties

Years Ended December 31,
2004 2005
----------- -----------

Tianci Real Estate $ 51,350 $ 123,467
Shantian -- 99,932
Tianci Group 48,910 --
----------- -----------
$ 100,260 $ 223,399
=========== ===========

The balance owed to Tianci Real Estate represented rental payments for 2004 and
the expenses paid by Tianci Real Estate on behalf of the Company during the year
ended December 31, 2005. The rental agreement was cancelled as of September 30,
2004. The balance owed to Tianci Group represents cash paid in advance for
mobile phone purchases. The balance owed to Shantian represents the advances
received from Shantian for mobile phone sales. All of the above amounts due to
related parties are unsecured, non-interest bearing and due on demand.

F-20

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - INCOME TAXES

The income (loss) generated in the Cayman Islands and China before income taxes
in 2004 and 2005, respectively, was as follows:

Years Ended December 31,
2004 2005
----------- -----------

Loss in Cayman Islands before income taxes $(1,199,738) $ (737,758)
Income in China before income taxes 3,164,338 3,030,608
----------- -----------

$ 1,964,600 $ 2,292,850
=========== ===========

The income tax provision was as follows:

Years Ended December 31,
2004 2005
----------- -----------
Current:
Cayman Islands $ -- $ --
China 389,102 465,343
----------- -----------
Deferred:
Cayman Islands -- --
China (19,131) 16,400
----------- -----------
$ 369,971 $ 481,743
=========== ===========

The difference between the effective income tax rate and the expected statutory
rate was as follows:

Year ended Year ended
December 31, December 31,
2004 2005
------------ ------------

Statutory rate 33.0% 33.0%
Income tax holiday (21.9) (18.0)
Permanent differences 7.7 6.0
Change in valuation allowance -- --

------------ ------------
Effective income tax rate 18.8% 21.0%
============ ============

The primary components of temporary differences which give rise to the Company's
deferred tax assets are as follows:

F-21

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,
2004 2005
----------- -----------
Allowance for receivables $ 7,188 $ 6,671
Accrued liabilities 21,584 6,176
----------- -----------
28,772 12,847
Valuation allowance -- --
----------- -----------

Net deferred tax assets $ 28,772 $ 12,847
=========== ===========

NOTE 7 - SEGMENT REPORTING

The Company currently operates in four principal business segments. Management
believes that the following table presents useful information to the chief
operation decision makers for measuring business performance and financing needs
and preparing the corporate budget, etc. As most of the Company's customers are
located in the Shanghai metropolitan area and the Company's revenues are
generated in Shanghai, the PRC, no geographical segment information is
presented.

Advertising
Service Mobile Phone Beep Pagers
Revenue Phone Sales Service Service Corporate Total
------------ ------------ ------------ ------------ ------------ ------------

2004
Revenue $ -- $ 20,949,089 $ 2,592,392 $ 979,469 $ -- $ 24,520,950
Gross profit -- 1,340,257 2,094,198 431,670 -- 3,866,125
Depreciation -- -- 229,979 -- 57,253 287,232
Interest expense -- -- -- -- 1,955 1,955
Net income -- 802,854 1,436,835 176,742 821,801 1,594,629
Total assets -- 2,721,741 2,443,657 -- 7,497,267 12,662,665
Expenditures for -- -- 132,155 -- -- 132,155
long-lived assets

2005
Revenue $ 2,761,598 $ 16,383,356 $ 634,728 $ 639,340 $ -- $ 20,419,022
Gross profit 2,620,044 358,397 223,830 368,614 -- 3,570,885
Depreciation -- -- 191,773 -- 47,943 239,716
Interest income (expenses) -- -- -- -- (9,093) (9,093)
Net income 1,940,596 154,136 47,843 162,207 (493,675) 1,811,107
Total assets -- 913,957 139,055 -- 13,923,849 14,976,861
Expenditures for -- -- 71,542 -- 353,983 425,525
long-lived assets

F-22

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - GOVERNMENTAL SUBSIDY

During the year ended December 31, 2005, the Company received a general
government subsidy from the local bureau, which is equivalent to 7% of the
taxable income of TCH throughout the period from September 2004 to December
2004. The subsidy is non-recurring and subject to government approval.

NOTE 9 - CONCENTRATION OF CUSTOMERS AND VENDORS

Customers and vendors who account for 10% or more of revenues, accounts
receivable, purchases and accounts payable are presented as follows:

Customer Revenues Accounts Receivable
2004 2005 2004 2005

A (Shantian, a related party) 37% 52% 34% -
B 11% 3% 7% 27%
C 8% 3% 46% -
D 6% 12% - -
E - 2% - 64%
---- ---- ---- ----
67% 72% 94% 91%

Vendor Purchases Accounts Payable
2004 2005 2004 2005

A 33% 34% 96% -
B - 8% - 12%
C 32% 9% 4% 87%
D 17% 31% - -%
--- --- ---- ----
82% 82% 100% 99%

NOTE 10 - EMPLOYEE WELFARE AND RETIREMENT BENEFITS

The PRC has been undergoing significant reforms with regard to its employee
welfare and fringe benefits administration. Any enterprise operating in the PRC
is subject to government-mandated employee welfare and retirement benefit
contributions. In accordance with PRC laws and regulations, TCH participates in
a multi-employer defined contribution plan pursuant to which TCH is required to
provide employees with certain retirement, medical and other fringe benefits.
PRC regulations require TCH to pay the local labor administration bureau a
monthly contribution at a stated contribution rate based on the monthly basic
compensation of qualified employees. The local labor administration bureau,
which manages various investment funds, will take care of employee retirement,
medical and other fringe benefits. TCH has no further commitments beyond its
monthly contribution. TCH contributed a total of $39,391 and $54,430 to these
funds as part of selling, general and administrative expenses for the years
ended December 31, 2004 and 2005, respectively.

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CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - RESTRICTED RESERVES

The Company's PRC subsidiary, TCH, is required to make appropriations to three
restricted reserve funds, comprised of the surplus fund, the staff bonus and
welfare fund, and the company expansion fund, based on after-tax net income
determined in accordance with generally accepted accounting principles of the
People's Republic of China (the "PRC GAAP"). Appropriation to the surplus fund
should be at least 10% of the after tax net income determined in accordance with
the PRC GAAP. Appropriations to the surplus fund and the staff bonus and welfare
fund are made at the discretion of the Board of Directors. The company expansion
fund is established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation. Appropriations to the reserves are suspended when the accumulated
balances of the funds reach 50% of the registered capital of TCH.

During 2005 and 2004, the Company appropriated $554,466 and nil, respectively,
to the restricted reserves based on its net income under PRC GAAP.
Appropriations to the staff and welfare fund for the years ended December 31,
2005 and 2004 amounted to $142,288 and $64,174, respectively, and were charged
to general and administrative expense.

NOTE 12 - COMMITMENTS

The Company has entered into commitments for consulting services amounting to a
total of $450,000 to be rendered in 2005 and 2006. As of December 31, 2005, the
Company has paid $200,000 and, therefore, has outstanding commitments of
$250,000 for consulting services in 2006.

NOTE 13 - SUBSEQUENT EVENT

During the first quarter of 2006 the Company began to reduce its reliance on
related party transactions and establish more sustainable non-related party
lines of business. Management anticipates significantly less revenue during the
first quarter of 2006 as a result of the reduction in revenue from related
parties, increased competition and a continuing saturation of the mobile phone
distribution business. In response, management is seeking to align or acquire
new partners to take advantage of the expected increase in demand for value
added and other next generation services.

TCH entered into a series of agreements to purchase (i) 95% of the equity
interests of Kena for an aggregate purchase price of RMB 28,500,000
(approximately $3,532,000); (ii) a related patent from one of the shareholders
of Kena for RMB 11,000,000 (approximately $1,363,000); and (iii) related rights
to make a patent application from one of the shareholders of Kena for RMB
11,000,000 (approximately $1,363,000).

On February 10, 2006, these agreements were amended to impose an additional
condition on Zhang Naiyao, the transferor of the patent and holder of the right
to make the patent application, that if he fails to provide the necessary
technical assistance services to enable TCH to use the patented technology in
producing products on a large scale that meet the standards set by the Company
within one year, TCH shall have the right to demand the return of the relevant
payment received by him in full and to terminate the agreement for the
assignment of the patent and the right to apply for registration of the patent.
The amendments also set forth the arrangement for payment of the purchase price
between TCH and Sifang Information. The purchase price for both the equity
interests in Kena and the consideration for purchase of the patent and the right
to apply for registration of the patent shall be paid by Sifang Information on
behalf of TCH. According to the amended agreements, the amount of the purchase
consideration paid by Sifang Information on behalf of TCH will be applied to
offset the advances owed to TCH by Sifang Information.

F-24

CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kena was established on April 26, 2005 and it specializes in the research,
development and manufacture of energy-saving products, as well as illumination
projects in China. The patent and patent application mentioned above relate to a
"three phase transformer" which is used in connection with a power supply system
and utilizes technology that allows manufacturers to produce transformers with
high energy transfer efficiency at a low cost. This technology is expected to
be available for mass production within one year.

The transactions are subject to regulatory approval in the PRC.

F-25