China is the world’s largest mobile telecommunications market with approximately 330 million mobile phone users as of November 30, 2004, according to China’s Ministry of Information Industry. In comparison, there were approximately 87 million Internet users and 36 million personal computers in China as of July 2004, according to the China Internet Network Information Center, a state-run organization that focuses on the Internet in China. Accordingly, a large number of mobile phone users may not have regular access to content and applications provided over fixed-line Internet. Despite its large mobile phone user base, China’s mobile phone penetration rate of approximately 25% remains low compared to many other countries. According to Norson, the number of mobile phone users in China is expected to grow rapidly, reaching approximately 570 million by 2008.

According to Norson, the wireless value-added services market in China has grown rapidly in recent years, generating total revenues of approximately $2.7 billion in 2003, including approximately $2.1 billion generated by mobile operators and approximately $565 million generated by service providers. Despite such growth, revenues from wireless value-added services contributed approximately 8% to the revenues of mobile operators in China in 2003, a percentage significantly lower than that experienced in other countries with more developed wireless value-added services markets. For example, revenues generated from wireless value-added services contributed approximately 25% and 20% to the revenues of mobile operators in Japan and Korea, respectively, according to Norson. It is believed that the wireless value-added services market in China will grow, similar to that in Japan and Korea due to similar lifestyles, consumer behavior patterns, cultural similarities, and the presence of dominant mobile operators. In particular, wireless value-added service providers are expected to benefit from this growth. According to Norson, total revenues generated by wireless value-added service providers in China will grow from approximately $565 million in 2003 to approximately $1.9 billion in 2008, representing a compound annual growth rate of 27.1%.

The Company offers its 2.5G services through China Unicom’s network and, since the acquisition of Beijing Enterprise, through China Mobile’s network. Substantially all of the Company’s 2.5G services are WAP services, which are now rapidly achieving a critical mass of users. As 2.5G technologies are relatively new, the Company intends to closely monitor the development of this market and tailor its 2.5G services to address the evolving trends and user preferences in China.

In addition to the Company’s WAP services, the Company’s 2.5G services include games that utilize Java™ technology.

The Company prices its 2.5G services on either a subscription basis or per-use basis. Most of the Company’s revenues from China Unicom is currently subscription-based. Historically, Beijing Network’s revenues were derived from 2.5G services that were provided on a per-use basis.

2.5G services are primarily available on the mobile operators’ WAP portals. For China Unicom, the WAP site is Uni-Info, and for China Mobile, MonternetTM.

Revenues from 2.5G services increased significantly to $19.2 million for the nine months ended September 30, 2004 from $2.0 million for the nine months ended September 30, 2003.

Gross profits increased 161.0% to $20.3 million for the nine months ended September 30, 2004 from $7.8 million for the same period in 2003.

Operating expenses increased 61.9% to $8.1 million for the nine months ended September 30, 2004 from $5.0 million for the same period in 2003.

Income from operations increased significantly to $12.2 million for the nine months ended September 30, 2004 from $2.8 million for the same period in 2003.