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.

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.

Discussion and Analysis of Operating Results

Fiscal Year Ended December 31, 2006 Compared to the Fiscal Year Ended December 31, 2005

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 2006 fiscal year decreased by $17,529,586, representing a decrease of approximately 85.8%, to $2,889,436, as compared to $20,419,022 for the same period of the prior year. The decrease was mainly due to (1) the significant decline of products sales to non-related and related third parties and (2) the serious negative effect on our advertising services imposed by China's more strict national ruling on advertisement services adopted in 2006. The market for mobile phones in China is also 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 2006 fiscal year decreased by $5,725,793, representing a decrease of approximately 99.1%, to $ 49, 276 as compared to $5,775,069 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 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 and 2006, the sales mark-up of the Nokia mobile phones to our customers dropped significantly. As a result, the management of the Company continued to cease the mobile phone distribution business in December 2006. The continued cease of the said business also contributed to the significant decline of our product sales.

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. Revenue from product sales to related third parties for our 2006 fiscal year decreased by $ 9,894,763, representing a decrease of approximately 93.2%, to $ 713,524 as compared to $10,608,287 for the prior year. Accounts receivable includes $nil and $1,583,512 due from Shantian as of December 31, 2006 and 2005 respectively. The decrease was also mainly due to market factors. The market for mobile phones in China is becoming saturated along with intensified competition developing among mobile phone distributors.

There were no mobile phone sales to Tianci Industry and Tianci Group during the year ended December 31, 2005 and During the year ended December 31, 2006.

Information Service Revenue, Net

Total information service revenue net of related business tax and service fee for the 2006 fiscal year increased by $517,724, representing a increase of approximately 40.6%, to $1,791,792 compared to $1,274,068 for the the prior year.

Advertising Service Revenue, Net

Revenue from advertisement services, net of related business tax and service fee, for our 2006 fiscal year decreased by $ 2,426,754, representing a decrease of approximately 87.9%, to $ 334,844 as compared to $2,761,598 for the prior year. The decrease was mainly because there was no service fee received from Tianci Real Estate during the year ended December 31, 2006 as the Advertisement Agency Contract between Tianci Real Estate and Sifang Media was terminated in November 2005.The decrease was mainly due to the introduction of the policies and measures adopted by China's Ministry of Information Industry in 2006 that set very strict rules on the provisions of information services provided by value-added service providers.

In 2005, We launched a new digital media project to move into the media market. 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 also 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. We believed 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 2006 fiscal year, TCH rendered advertisement designing and producing services to Tianci Real Estate, a related party, for publicity and promoting its apartment.

However, in the third quarter of 2006, the Ministry of Information Industry of the People's Republic of China initiated a nation-wide management specific plan as well as introduced a series of policies and measures to regulate the SP market. These policies and measures set very strict rules on the provisions of information services provided by value-added service providers and started to show their effects on the industry in December 2006. Our advertising service business was seriously affected. We generated very little revenue from the above mentioned projects we launched in 2005. We also determined that future undiscounted cash flows associated with the assets involved in the advertisement services provided to Tianci Real Estate were uncertain, and may not be sufficient to recover their carrying values and so these assets were written down to zero as of December 31, 2006.

Cost of Goods Sold

The cost of goods sold for the 20065 fiscal year decreased by $15,061,459 to $963,500, compared to $16,024,959 for the prior year, representing a decrease of approximately 94%. 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.

The cost of service for the 2005 fiscal year increased by $519,724 to $1,342,902 compared to $823,178 for the prior year, representing a increase of approximately 63.1%. The increase was mainly due to the increase of information fees paid to content providers for the value-added service. During the 2006 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.

Gross Profit

After taking into account the cost of goods sold and cost of service, our gross profit for the 2006 fiscal year decreased by $2,987,851 to $583,034, representing a decrease of approximately 83.7%, compared to gross profit of $3,570,885 for the prior year. The decrease in gross profit was primarily attributable to the continuing decline in mobile phone sales to non-related and related parties and decline in advertising services during the 2006 fiscal year.

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

                                                                        Advertising    Sales of       Mobile       Beep
                                                                            service      mobile        phone     pagers
2006                                                                        revenue      phones      service    service      Corporate          Total

Revenue, net                                                           $    334,844 $   762,800 $  1,430,252 $  361,540 $            - $    2,889,436
Cost of revenue                                                             110,876     963,500    1,043,204    188,822              -      2,306,402
Gross profit                                                                223,968   (200,700)      387,048    172,718              -        583,034
Gross Profit Ratio
Depreciation                                                                      -           -      110,924          -         78,442        189,366
Interest expense                                                                  -           -            -          -              -              -
Net income (loss)                                                           224,745   (509,518)      102,293   (45,895)   (10,349,043)   (10,577,418)
Total assets                                                                      -           -            -               (4,464,612)      4,464,612
Expenditure for long-lived assets                                                 -           -            -          -              -              -

Sales and Marketing Expenses

Sales and marketing expenses for the 2006 fiscal year increased by $20,088 to $154,727 compared to $134,639 the prior year, representing a increase of approximately 14.9%. The increase was primarily due to the increase in commission fees paid to the salesmen for mobile phones and advertising expenses.

General and Administrative Expenses

General and administrative expenses for the 2006 fiscal year decreased by $283, 209 to $967,957 compared to $1,251,166 for the same period of the prior year, representing a 22.6% decrease.

Impairment Costs

In 2006, during the course of our strategic review of the assets involved in the mobile phone sales and information service operations, we determined that future undiscounted cash flows associated with these assets were uncertain and may not be sufficient to recover their carrying values and so these assets were written down to zero as of December 31, 2006. Also in 2006, we decided not to pursue the acquisition of Kena under a series of agreements signed in 2005. All the agreements in connection with the Kena acquisition were terminated by TCH and Kena. We also reviewed the future economic value of the deposit for the anticipated business acquisition of Kena and determined that future undiscounted cash flows associated with this deposit were uncertain and may not be sufficient to recover their carrying values and so was fully written down as of December 31, 2006. As the result, the total amount of impairment costs of $7,114,047 for Fiscal 2006 was charged to the statement of operations, which included $ 856,457 for property and equipment and $ 6,257,590 for deposit for business acquisition.

Due From Related Parties

The amount due from Sifang Information and Sifang Media as of December 31, 2006 are trade related and relating to the mobile phone distribution business.

During January 2006, the Company entered into an agreement with Sifang Information for the establishment of a new joint venture entity with a third party. The purpose of the joint venture entity is to act as a sole advertising agent of TCH. The Company advanced a total of $2,499,969 to Sifang Information to contribute to the joint venture. This, together with the trade receivables related to the mobile phone distribution business, made up a total balance of $6,446,275 receivable from Sifang Information as of December 31, 2006. As of December 31, 2006, the Company decided to provide a provision of $3,000,000 for
1) the full amount advance to the joint venture and 2) the long outstanding portion of the receivable from Sifang Information.

Governmental subsidy

During the year ended December 31, 2006, the Company received a general government subsidy from the local bureau, which is equivalent to 3.5% of the taxable income of TCH throughout the period from January 2005 to December 2005. The subsidy is non-recurring and subject to government approval. The amount of such government subsidy for the years ended December 31, 2006 and 2005 was $118,262 and $108,476 respectively.

Interest income (expense)

During our 2006 fiscal year, the interest income derived from bank deposits was $ 5,135.

Income Tax

The Company's PRC 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 both years ended December 31, 2006 and 2005. 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.

The total income tax for our fiscal 2006 was $ 36,633, compared to $481,743 for the same period of the prior year

Comprehensive Income (Loss)

We recorded comprehensive loss of $ 9,825,415 for the 2006 fiscal year, a $11,921,918 decrease compared to comprehensive income of $2,096,503 for the prior year, representing a decrease of approximately 568.7%. The comprehensive loss was attributable to (i) the decrease in the gross profit generated in the 2006 fiscal year, (ii) the impairment cost in 2006 (iii) the appreciation of Chinese RMB to US dollars.

Net Earning (Loss) Per Share

We recorded a net loss per share in 2006 fiscal year. The net loss per share for the 2006 fiscal year was $ 0.62, a $ 0.73 decrease compared to the $0.11 net earning per share for the prior year. The loss was attributable to (i) the decrease in the gross profit generated in the 2006 fiscal year, (ii) the impairment cost in 2006 (iii) the appreciation of Chinese RMB to US dollars.

Liquidity and Capital Resources

Our cash balance decreased from $3,578,367 as of December 31, 2005 to $252,000 as of December 31, 2006. This decrease in cash and cash equivalents was primarily due to the decrease in the collection of accounts receivable. At December 31, 2006 and 2005, our net working capital was $9,877,040 and $3,346,637 respectively.

Net cash used in operating activities was $ 4,079,333 during our 2006 fiscal year, compared to net cash generated from operating activities of $ 5,290,767 during the prior year. The loss of net cash flow from operating activities was due mainly to the adjustment of $ 10,577,418 to reconcile net earnings to net cash from operating activities and the non-collection of $ 3,351,306 due from related parties in 2006 fiscal year.

Net cash generated in investing activities for the 2006 fiscal year decreased to $963, compared to net cash used in investing activities of $3,551,569 for the same period of the prior year.

Net cash provided by financing activities for the 2006 fiscal year was $ 0 compared to $1,500,000 for the same period of the prior year. We did not generate any cash from financing activities in 2006 fiscal year.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), which replaces Accounting Principles Board Opinions No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting changes in Interim Financial Statements-An Amendment of APB Opinion No. 28". SFAS 154 provides guidance on the accounting for and reporting of accounting changes. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement did not have a material effect on the Company's financial position or results of operations.

In September 2005, the FASB's Emerging Issues Task Force ("EITF") reached a final consensus on Issue 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty" ("EITF 04-13"). EITF 04-13 requires that two or more legally separate exchange transactions with the same counterparty be combined and considered a single arrangement for purposes of applying APB Opinion No. 29, "Accounting for Nonmonetary Transactions", when the transactions are entered into in contemplation of one another. EITF 04-13 is effective for new arrangements entered into, or modifications or renewals of existing arrangements, in interim or annual periods beginning after March 15, 2006. The Company does not expect that the adoption of this statement would have a material effect on the Company's financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Instruments-an amendment of FASB Statements 133 and 140", which is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The statement improves financial reporting by eliminating the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. The Statement also improves financial reporting by allowing a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized have to bifurcated, if the holder elects to account for the whole instrument-by-instrument basis, in cases in which a derivative would otherwise have to bifurcated, if the holder elects to account for the whole instrument on a fair value basis. The Company does not expect that the adoption of this statement would have a material effect on the Company's financial position or results of operations.

In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109", which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its consolidated financial statements.

In September 2006, the SEC released SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108 provides interpretive guidance on the SEC's views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provision of SAB 108 is effective for the Company in the current fiscal year ended December 31, 2006. The Company is currently evaluating the impact of SAB 108 but does not believe that the application of SAB 108 would have a material effect on its financial position, cash flows nor results of operations.

In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company starting January 1, 2008. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of SFAS 157 on its consolidated financial position, cash flows and results of operations.

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.