China’s gross domestic product has increased rapidly in recent years. According to the National Bureau of Statistics of China, China’s gross domestic product was RMB 11,725.2 billion in 2003, RMB 13,651.5 billion in 2004 and RMB 18,232.1 billion (US$2,259.2 billion) in 2005, representing a year-on-year growth rate of 9.3% in 2003, 9.5% in 2004 and 9.9% in 2005. Domestic investments in China, including investments in the telecommunication industry, have also grown significantly. According to the 2005 Communication Industry Development Statistics published by MII in February 2006, or the MII Statistics, total revenues of the PRC telecommunication industry in 2005 increased by 11.7% over 2004 to reach RMB 579.9 billion. According to the MII Statistics, total domestic investments in the telecommunication industry in China amounted to RMB 203.3 billion in 2005.

According to the the MII Statistics, total revenues of the wireless communication industry in China in 2004 reached approximately RMB 262.1 billion, representing approximately 45% of the PRC telecommunication industry. In addition, according to the MII Statistics, the number of mobile phone subscribers in mainland China reached 393 million as of December 31, 2005. A number of factors have contributed to this growth, including increased affordability of mobile phones and pagers, wider coverage of wireless networks, availability of more services at affordable prices, improved transmission quality, and relatively low penetration of wireline telecommunication services compared to many Western countries.

The rapid and sustained growth of the wireless communication industry in China has resulted in the over-utilization of existing radio frequency bandwidths and the requirement for additional capacity. 3G wireless communication, the latest technological advancement in wireless networks, has not yet been released in China. The industry standard for 3G is called International Mobile Telecommunications-2000 (IMT-2000), and consists of five operating modes, including three based on Code Division Multiple Access (CDMA) technology.

The Company uses its wireless coverage products in three principal function areas: indoor distribution, outdoor coverage and base station coverage extension. The Company provides a customized solution for each project, taking into account factors such as existing coverage of the base stations, target coverage requirements, unique geographic and topographic features of the vicinity and other project-specific conditions.

In addition to the provision of wireless coverage products and services, the Company also sells RF parts and components and RF-based wireless access products. The majority of the RF parts and components the Company produces are used in its own wireless coverage products. RF parts and components are essential building blocks for all forms of wireless communication products. They provide the fundamental channel for transmitting and receiving radio signals. RF parts and components can be classified into active and passive modules. Active modules contain electronic components such as transistors and diodes and require external power to operate. Their principal functions are to amplify and alter radio signals. Passive modules do not contain any electronic components. They rely on a combination of integrated circuits and magnetic fields emitted by their components to function.

The Company’s active modules include high-linear RF power amplifiers, low-noise amplifiers, frequency-hopping modules and high-stability/low-phase noise vibrators. The Company has developed over 80 models of active modules. The Company’s passive modules include filters, duplexers, multi-frequency splitters and combiners and couplers. Based on various applications of its wireless communication products and in response to the requirements of different projects, the Company has developed over 50 models of passive modules.

The Company also develops and produces RF-based wireless access products, including W-LAN products and 5.8 GHz wireless access products. W-LAN products are used in small local area networks, such as offices, hotels, airports, other public areas and residential areas. In general, W-LAN products enable public users within a local area to gain wireless access to broadband networks and communicate with each other.

Cost of revenues increased by RMB 86.1 million (US$10.7 million) or 35.6% to RMB 328.1 million (US$40.7 million) for the year ended December 31, 2005 from RMB 241.9 million for the year ended December 31, 2004.

Gross profit increased by 19.6% to RMB 388.2 million (US$48.1 million) for the year ended December 31, 2005 from RMB 324.6 million for the year ended December 31, 2004.

Interest income decreased to RMB 3.2 million (US$0.4 million) for the year ended December 31, 2005 from RMB 4.0 million for the year ended December 31, 2004.

Net income increased by 23.7% to RMB 181.4 million (US$22.5 million) for the year ended December 31, 2005 from RMB 146.6 million for the year ended December 31, 2004.