Critical Accounting Policies and Estimates

Management's discussion and analysis of results of operations and financial condition are based upon the Company's consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies rely upon assumptions, judgments and estimates and were used in the preparation of the Company's consolidated financial statements:

Revenue Recognition

Revenues are recognized (i) with respect to services, at the time a project (or a milestone thereof) is completed and accepted by the customer, and (ii) with respect to products, at the time products are delivered to customers and collectability for such sales is reasonably assured. We have adopted Staff Accounting Bulletin No.101, Revenue Recognition ("SAB 101") in our financial statements. SAB 101 provides in part further interpretive guidance for public companies on the recognition, presentation, and disclosure of revenues in financial statements. The adoption of SAB 101 did not have a material impact on our revenue recognition practices.

Accounts Receivable

We typically extend credit to our customers. From time to time, e-commerce solution services are provided under fixed-price contracts where the revenues and the payment of related receivable balances are due upon the achievement of certain milestones. Management estimates the probability of collection of the receivable balances and provides an allowance for doubtful accounts based upon its judgment in assessing the realization of these receivable balances taking into account aging, historical experience, the customer's financial condition and general economic conditions.

Long-lived assets and goodwill

The Company periodically evaluates the carrying value of long-lived assets held or used whenever events and circumstances indicate that the carrying value of the asset may no longer be recoverable. An impairment loss, measured on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying value of the assets.

We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets". Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted cash flows approach. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.

Overview

We believe that the People's Republic of China represents an exciting emerging world market whose role in the global economy is increasing steadily. China's economic growth rate, measured by its gross domestic product, has consistently been higher than 7% over the past 10 years. This economic growth is attributable to many factors, including investment in the country's infrastructure, increased privatization of businesses and an abundant source of labor. Currently, we offer products and services to businesses and consumers located primarily in China. Our plan is to take advantage of China's economic growth to expand our existing businesses and, possibly, in the future, to sell our products and services outside of China. We also have begun to acquire diverse businesses that are not dependent on, or directly related to, each other. We believe that diversification is a good hedge against the collapse of a single industry, such as the global collapse of the technology industry that occurred in 2000. We expect that any acquisitions we make will improve our financial condition, although we cannot guarantee any such result.

Currently over half of our revenues are generated by our subsidiary, Leader Palace International Ltd., which provide VOIP services. The balance of our revenues are generated primarily by our subsidiaries, ChinaE and ChinaE Tech both of which distributes licenses for Chinese language translation software and offer web design and hosting services.

In response to the economic recovery, we began to diversify our business, so that we will no longer be dependent on one market for revenue. Generally, the issuance of our common stock represents some or all of the purchase price we pay for an acquired business. We believe that the continued active trading of our common stock will be important to the principals of target companies and future acquisitions may be dependent on the active trading of our common stock. However, our common stock has not been actively traded and, if our common stock continues to trade with limited volume and at current levels we may not be able to make acquisitions as planned.

During the fiscal year ended June 30, 2007 we incurred a net operating loss of $8,598,057, including a goodwill impairment of $3,119,872, impairment of associated company of $3,454,693 and impairment of deposit of investment $1,217,475. Our auditor, Albert Wong & Co., CPA has issued a "going concern" opinion for our financial statements at June 30, 2007.

Results of Operations

Following is summary financial information reflecting our operations for the periods indicated.

                                                          Year Ended June 30,
                                                         2006             2007
                                                                       (Restated)
    Net revenues                                     $ 12,319,459     $  4,680,532
    Cost of revenues                                   (9,445,712 )     (4,608,566 )
    Gross profit                                        2,873,747           71,966
    Selling, general and administrative                (1,137,716 )     (1,016,653 )
    Exchange difference                                         -           (6,413 )
    Amortization on intangible assets                     (99,005 )         (5,459 )
    Impairment of goodwill                               (563,323 )     (3,119,872 )
    Impairment of associated company                            -       (3,454,693 )
    Impairment of deposit of investment                         -       (1,217,475 )
    Written off of loan receivables                             -          (49,818 )
    Interest income                                        44,772           83,861
    Investment income                                     168,395          102,230
    Profit/(Loss) from operations                       1,286,870       (8,612,326 )
    Share of profit/(loss) of associated Companies         27,684           (3,398 )
    Other income, net                                       3,551              458
    Profit/(Loss) before taxation                       1,318,105       (8,615,266 )
    Taxation                                             (427,809 )              -
    Profit/(Loss) before minority interest                890,296       (8,615,266 )
    Minority interests                                 (1,192,791 )         17,209
    Profit (loss) before extra ordinary item             (302,495 )     (8,598,057 )
    Loss on disposal of an associated company          (1,814,705 )              -
    Net profit/(loss)                                $ (2,117,200 )   $ (8,598,057 )

Year Ended June 30, 2007 Compared to Year Ended June 30, 2006

Net revenues.

Net revenues for the year ended June 30, 2007 decreased by $7,639K 1 , or 62%, to $4,681K from $12,319K for the year ended June 30, 2006.

Net revenues during fiscal 2007 were derived principally from e-commerce solutions, sales of photographic equipment and VOIP services. Net revenues during fiscal 2006 were derived principally from e-commerce solutions, sales of photographic equipment, sales of digital security system and consultancy fee income. The term "e-commerce solutions" includes web site design and development and web hosting.

The following table reflects the total net revenues and percentage of net revenues by major category for the periods indicated:

                                                Total Net Revenues             Percent of Total Net Revenues
                                               Year Ended June 30,                  Year Ended June 30,
                                               2006            2007              2006                 2007
                                               US$              US$
E-commerce solutions
  - Web site design and development             172,051          80,285               1.40 %               1.72 %
Sales of photographic equipment                  96,215           1,628               0.78 %               0.03 %
Sales of digital security system             12,052,118               -              97.83 %                  - %
VOIP services                                         -       4,598,619                  - %              98.25 %
Consultancy fee income                             (925 )             -              -0.01 %                  - %
  Total                                      12,319,459       4,680,532             100.00 %             100.00 %

Total revenues derived from e-commerce solutions decreased by $92K, or 53%, to $80K in fiscal 2007 as compared to $172K in fiscal 2006. Sales of photographic equipment decreased by $94K, or 98%, to $2K in fiscal 2007 as compared to $96K in fiscal 2006. Sales of digital security systems decreased by $12,052K, or 100%, to $0K in fiscal 2007 as compared to $12,052K in fiscal 2006 because the share holdings in this business has been decreased to 49%. Sales of VOIP services was newly developed in fiscal 2007 and got revenues of $4,599K.

The decrease in total net revenues and the character of those sales was primarily attributable to management's decision to revise the Company's plan of operation to develop our business beyond the market for Internet products and services as well as to the recovery of the economy of China, as well as the sale during 2007 of a portion of our majority ownership interest in Golden Anke resulting in cessation of consolidation of Golden Anke's revenue.

We believe that the expansion of the Chinese economy will continue, and that by diversifying our business we will be able to better capitalize on this expansion by being in different markets. Although we have no revenue generated during the year using the trading platform for the trading of private equity exchange centre in China, we believe that our technology for the design and operation of the trading platform will have additional source of revenue for the Company in the fiscal 2007. Even though the businesses we have acquired are diverse from our core business, we believe that our technological expertise can be used to enhance the products and services that we now offer or that we will offer in the future.

Costs of Revenues.

Costs of revenues consist principally of salaries for computer network technicians, costs of photographic equipment, costs of digital security systems, depreciation, and other costs including travel, employee benefits, office expenses and related expenses allocated to the engineering and technician staff.

The following table reflects the principal components of costs of revenues and the percentage of net revenues represented by each component for the periods indicated:

                                             Total Cost of Revenues             Percent of Total Net Revenues
                                               Year Ended June 30,                   Year Ended June 30,
                                              2006            2007              2006                    2007
                                               US$             US$
Engineers/technician salaries                  111,884         116,879                0.91 %                  2.50 %
Cost of digital security system              9,181,851               -               74.53 %                     - %
Cost of photographic equipment                  90,203           1,798                0.73 %                  0.04 %
VOIP services                                        -       4,427,016                   - %                 94.58 %
Depreciation                                     3,981          17,835                0.03 %                  0.38 %
Other                                           57,793          45,038                0.47 %                  0.96 %
 Total                                       9,445,712       4,608,566               76.67 %                 98.55 %

Compared to the 2006 fiscal year, the total costs of revenues for the 2007 fiscal year decreased by $4,837K, or 51%, to $4,609K. The decrease in costs of revenues was due to the exclusion of cost from digital security system, cost containment effort implemented by management and a deadline in sales. The increase in salaries was due to the increase of engineer and technician to develop the equity platform in the PRC. The principal components of costs of revenues during the 2007 fiscal year were costs associated with support of the engineering and technician staff, engineer and technician salaries, and depreciation of equipment utilized in connection with services.

Selling, General and Administrative Expense.

Selling, general and administrative expense ("SG&A") consists principally of (1)
sales commissions, advertising, trade show and seminar expenses, and
direct-field sales expense, (2) salaries for administrative and sales staff, (3)
corporate overhead, and (4) allowances for bad and doubtful accounts. The
following table reflects the principal components of SG&A and the percentage of
net revenues represented by each component for the periods indicated:

                                                                                    Percent of Total
                                                       Total SG&A                     Net Revenues
                                                   Year Ended June 30,             Year Ended June 30,
                                                  2006            2007            2006             2007
                                                   US$             US$

Sales and marketing salaries and commissions        81,521          55,887            0.66 %          1.19 %
Other sales and marketing                          115,129          52,510            0.93 %          1.12 %
Rent obligation                                     74,652          75,856            0.61 %          1.62 %
Administrative salaries                            170,054         166,209            1.38 %          3.55 %
Corporate overhead                                 695,178         666,191            5.64 %         14.23 %
Bad and doubtful debt - account receivables          1,182               -            0.01 %          0.00 %
 Total                                           1,137,716       1,016,653            9.23 %         21.71 %

The principal components of SG&A during the 2007 year were sales and marketing salaries and commissions, other marketing expenditures, administrative salaries and benefits, and other corporate expenses, which includes legal and professional fees, general office expenses, traveling expenses, general employee benefit expense, depreciation consultancy fees.

For the 2007 fiscal year, SG&A decreased by $121K, or 10%, to $1,017K as compared to $1,138K for the 2006 fiscal year. Sales and marketing salaries and commissions decreased 31% during the 2007 fiscal year, to $56K, as compared to $81K for the 2006 fiscal year. During the 2007 fiscal year, administrative salaries decreased by $4K or 2% to $166K during the 2007 fiscal year, as compared to $170K in the 2006 fiscal year. Other corporate expense decreased during the 2007 fiscal year, by $29K or 4% to $666K, as compared to $695K in the 2006 fiscal year.

Minority Interest.

We reported a minority interest in our losses of $17K for the 2007 fiscal year, reflecting the proportionate interest in the losses of Shanghai Newray, and Hainan Concord owned by other parties as compared to a minority interest in an earnings of $1,193K for the 2006 fiscal year, reflecting the ownership of third parties in Shanghai Newray, Golden Anke and Hainan Concord.

Liquidity and Capital Resources

To date, we have funded our operations with cash from our operating activities, sales of our securities and by using our common stock to make acquisitions and purchases.

At June 30, 2007 we had cash and cash equivalents of $530K and working capital of $2,553K as compared to $693K of cash and cash equivalents and $10,632K of working capital at June 30, 2006.

Net cash used in operating activities totaled $1,848K during the 2007 fiscal year as compared to $970K of cash in operating activities used during the 2006 fiscal year. Cash generated from operating activities was partially offset by non-cash charges, including depreciation expense in the amount of $27K and amortization of intangible assets in the amount of $5K, impairment of goodwill of $3,120, impairment of associated company of $3,454,693 and impairment of deposit of investment $1,217,475.

Net cash used in investing activities was $1,390K for the 2007 fiscal year while net cash provided by investing activities was $823K for the 2006 fiscal year. Funds used in investing activities consisted of addition of office equipment, addition of intangible assets, increased in short-term investment and short-term loan.

Net cash provided by financing activities was $2,174K for the 2007 fiscal year while net cash used in financing activities was $2,548K for the 2006 fiscal year. Funds provided by financing activity were the net proceeds from the issuance of common stock during fiscals 2007 and 2006.

We had no long term debt as of June 30, 2007. Except as otherwise described herein, we have no plans to make any major capital expenditures during the next 12 months and we are not aware of any trends or uncertainties that could affect sales of our products. We do not have any off balance sheet arrangements.

We have implemented various cost management measures to reduce our overhead. We are also evaluating various opportunities to accelerate the path to, and attain, profitability. The investment in Shanghai Newray, and Leader Palace are the part of our plan to invest in or acquire businesses that are not dependent on the Internet market. The investment in Hainan Concord and Hi-Tech Exchange are part of a plan to develop and expand our investment in Equity Exchange in the PRC. However, there can be no assurance that the cash provided by our current operations will be sufficient to meet our cash needs in the 2007 fiscal year. The Company will likely need to borrow money or obtain additional equity financing in order to sustain operations. At present, we have no commitments for funding and there is no assurance that funding will be available to us, or that any such funding would be on acceptable terms. If we need financing and cannot obtain it, we may be required to severely curtail, or even cease, our operations.

Our operating results have been, and will continue to be, affected by a wide variety of factors that could have a material adverse effect on revenues and profitability during any particular period. Some of these factors include:

· Our ability to successfully implement our business plan;

· Whether or not we will be able to obtain the additional capital necessary to support our operations;

· Whether or not we will find joint venture prospects or acquisition prospects with which to enhance our business;

· Whether or not we can successfully integrate acquisitions that we make into our business;

· The level and rate of acceptance of our products and services by the Chinese people;

· Continued growth in the use of the Internet in China;

· Entry of new competition (including established companies from outside China and companies with substantially greater resources) into our market;

· Fluctuations in the level of orders for services delivered in a quarter;

· Rescheduling or cancellation of orders by customers;

· Competitive pressures on selling prices;

· Changes in product, service or customer mix;

· Rapid changes in technology, which result in our technology becoming obsolete;

· Availability and cost of computer technicians;

· Loss of any strategic relationships;

· Loss of our largest customers;

· Our ability to introduce new products and services on a timely basis;

· New product and service introductions by our competitors;

· Fluctuations in exchange rates, and

· Adverse changes in the general economic, social or political conditions in the People's Republic of China.