UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

(Amendment No. 1)

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005.

Commission file number: 000-30134

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Event requiring this shell company report             

CDC Corporation

(Exact name of Registrant as specified in its charter)

Cayman Islands

(Jurisdiction of incorporation or organization)

33/F Citicorp Centre

18 Whitfield Road

Causeway Bay, Hong Kong

011-852-2893-8200

e-mail: investor_relations@cdccorporation.net

(Address of principal executive offices)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Class A common shares

Indicate the number of outstanding shares of each of the Issuer’s class of capital or common stock as of the close of the period covered by this Annual Report:

Class of shares	Number outstanding as of March 31, 2006
Class A common shares	111,655,585
Preferred Shares	Nil

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18 x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

TABLE OF CONTENTS

	Page
Explanatory Note	1
Part I.
Item 3. Key Information	3
Item 4. Information on the Company	40
Item 5. Operating and Financial Review and Prospects	74
Item 8. Financial Information	102
Part II.
Item 15. Controls and Procedures	102
Part III.
Item 18. Financial Statements	104
Item 19. Exhibits	105
Signatures	110
Index to Consolidated Financial Statements	F-1 to F-70
Equity Pacific Limited Index to Consolidated Financial Statements	FF-1 to FF-20

Index to Exhibits

Exhibit 12.1	Certification of CEO required by Rule 13a-14(a)
Exhibit 12.2	Certification of CFO required by Rule 13a-14(a)
Exhibit 13.(a).1	Certification of CEO pursuant to Section 906
Exhibit 13.(a).2	Certification of CFO pursuant to Section 906
Exhibit 15.(a).4	Consent of Deloitte Touche Tohmatsu dated July 2, 2007
Exhibit 15.(a).5	Consent of Ernst & Young dated July 2, 2007
Exhibit 15.(a).6	Consent of PricewaterhouseCoopers LLP dated July 2, 2007
Exhibit 15.(a).7	Consent of Deloitte Touche Tohmatsu dated June 29, 2007

-i-

EXPLANATORY NOTE

The purpose of this Amendment No. 1 on Form 20-F/A (“Amendment No. 1”) to the annual report on Form 20-F (the “Annual Report”) of CDC Corporation (the “Company”) for the year ended December 31, 2005, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 21, 2006 (the “Annual Report Filing Date”) is to: (i) restate the Company’s consolidated financial statements and notes related thereto for the three years ended December 31, 2005 (the “Restatement”), as more fully described below and herein; and (ii) provide separate financial statements and notes related thereto of Equity Pacific Limited, its subsidiaries and its variable interest entity (collectively, “17game Group”), including separate consolidated balance sheets for 17game Group as of December 31, 2004 and 2005 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2005 and for the five month period from August 1 to December 31, 2004 and the accompanying audit report of Deloitte Touche Tohmatsu CPA Ltd. (“Deloitte”) (collectively, the “17game Group Financial Statements”), as more fully described below under the caption “Inclusion of 17game Group Financial Statements.”

The following items have been amended or added in this Amendment No. 1 as a result of the Restatement and the Inclusion of 17game Group Financial Statements:

Part I – Item 3 – Key Information

Part I – Item 4 – Information on the Company

Part I – Item 5 – Operating and Financial Review and Prospects

Part I – Item 8 – Financial Information

Part II – Item 15 – Controls and Procedures

Part III – Item 18 – Financial Statements

Part III – Item 19 – Exhibits

“Item 19. Exhibits,” has been amended to include the consents of each of Deloitte, Ernst & Young (E&Y) and PricewaterhouseCoopers LLP, the Company’s current and previous independent registered public accounting firms, as well as currently dated certifications by the Company’s Chief Executive Officer and Chief Financial Officer.

Restatement of 2003, 2004 and 2005 Financial Statements

After the Company filed the Annual Report, and as a result of review processes undertaken in connection with certain capital markets initiatives, management of the Company concluded, and the Audit Committee of the Company’s Board of Directors concurred, after consultation with the Company’s current and previous independent registered public accounting firms, that certain of the Company’s previously issued consolidated financial statements contained errors and would need to be restated.

The more significant of the identified errors, which prompted the Restatement, relates to the application of Statement of Financial Accounting Standard (“SFAS”) 109, “Accounting for Income Taxes,” in the Company’s purchase business combinations in 2004 and 2005. Additional errors were identified in the Company’s assessment of the appropriate application of US GAAP, and the Company has elected to adjust its consolidated financial statements for the three years ended December 31, 2005 for other items that management had previously evaluated as immaterial, individually and in the aggregate. Such additional items relate to certain foreign currency translation transactions, the accounting for a lease acquired in a business combination, and the presentation of pension liabilities, amortization expense related to acquired developed technologies, inter-company interest income, restructuring costs and other items.

A description of the accounting errors and the related impact of the Restatement on the Company’s consolidated financial statements is set forth in Note 2, “Restatement of Financial Statements”, in the notes to the Company’s consolidated financial statements included in this Amendment No. 1

The changes made in connection with the Restatement have resulted, in the aggregate, in increases in the Company’s net income by approximately $0.2 million, $3.4 million and $0.2 million in 2003, 2004 and 2005, respectively.

Additionally, in connection with the Restatement as well as the identification of the accounting errors referenced above, the Company has identified material weaknesses in its internal control over financial reporting as of December 31, 2005, and has reported those to its Audit Committee. For additional information, please see Part II, Item 15, “Controls and

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Procedures,” which has been amended and restated in this Amendment No. 1 to provide a description of these matters and certain remediation measures that the Company has implemented, or plans to implement, in order to strengthen its internal control over financial reporting.

Inclusion of 17game Group Financial Statements

The Company has also amended “Item 8. Financial Information” and “Item 18. Financial Statements” of the Annual Report to provide the 17game Group Financial Statements.

This 17game Group Financial Statements are being provided in response to comments of the staff of the SEC received in connection with its review of the Annual Report.

The Company’s holdings in 17game Group met a significance test under Rule 3-09 of Regulation S-X and, as a result, the financial statements of 17game Group for 2005 and 2004 are required to be filed. The 17game Group Financial Statements begin on page FF-1 hereof. The 17game Group Financial Statements have been prepared by, and are the responsibility of, 17game Group and its management.

Other than as set forth herein, the Company has not modified or updated any other disclosures in the Annual Report. The Company has made no changes to the Items in the Annual Report other than those described herein, and accordingly, it has omitted all such unchanged information.

Other than expressly set forth herein, this Amendment No. 1 does not reflect events occurring after the Annual Report Filing Date or modify or update those disclosures affected by subsequent events. Rather, except as described above, information is unchanged and reflects the disclosures made at the time of the Annual Report Filing Date. Accordingly, this Amendment No. 1 should be read in conjunction with the Annual Report and the Company’s filings made subsequent thereto, including any amendments to those filings. The filing of this Amendment No. 1 shall not be deemed an admission that the Annual Report when made included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.

The Company has not amended, and does not anticipate amending, any of its Annual Reports on Form 20-F for any of the years prior to the year ended December 31, 2005. The information that has been previously filed or otherwise reported for those periods is superseded by the information in this Amendment No. 1. Accordingly, and as a result of the Restatement, the Company believes that its previously issued consolidated financial statements and corresponding reports of independent registered public accountants and press releases containing its financial information for the years ended December 31, 2003, 2004 and 2005 should no longer be relied upon.

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PART I.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected consolidated financial data of CDC and its subsidiaries should be read in conjunction with the consolidated balance sheets as of December 31, 2003, 2004 and 2005 and the related consolidated statements of operations, cash flows and shareholders’ equity for the years then ended and the notes thereto, together referred to as the Consolidated Financial Statements, included in Item 18, Financial Statements, and the information included in Item 5, Operating and Financial Review and Prospects. The selected consolidated financial data of CDC for 2001 and 2002 have been derived from our audited Consolidated Financial Statements. The Consolidated Financial Statements have been prepared and presented in accordance with US GAAP.

We report operating results in four business segments, “Software,” “Business Services,” “Mobile Services and Applications” and “Internet and Media”. During 2005 the Company reorganized these segments into two core business units, CDC Software and China.com Inc. The operations of Software and Business Services is included in the CDC Software business unit and the operations of Mobile Services and Applications and Internet and Media is included in the China.com Inc business unit. See “Note 28 – Segment Information” in Item 18 Financial Statements for additional disclosure of segment information.

In 2004, we reported operating results in five business segments, “Software,” “Business Services,” “Mobile Services and Applications,” “Advertising/Marketing” and “Others”. These segments were based primarily on the different production, manufacturing and other value-added processes that we performed with respect to our products and services and, to lesser extend, the differing nature of the ultimate end use of our products and services. Prior to 2004, we reported operating results in “Software and Consulting Services”, “Mobile Services and Applications”, “Advertising and Marketing Activities” and “Others”. Except for the operating results of the “Others” segment, all amounts in this Annual Report on Form 20-F reflect the reclassification of the pre-2005 segments so that they are comparable with the current year presentation. Operating results from the “Others” segment are nil in 2005 due to the discontinued operations in this segment in 2004 and earlier.

In addition, CDC discontinued the operations of certain subsidiaries. The operating results of the discontinued operating units were retroactively reclassified as a Loss from operations of discontinued subsidiaries, net of tax, in all periods presented in this Annual Report on Form 20-F.

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INCOME STATEMENT DATA:

	Year ended December 31, (in thousands, except share and per share data)
	2001			2002			2003			2004			2005
							(Restated)(7)			(Restated)(7)			(Restated)(7)
Revenues:
CDC Software		17,806			16,332			53,368			150,575			201,490
China.com		11,904			6,468			24,483			31,877			43,384
		29,710			22,800			77,851			182,452			244,874
Cost of Revenues:
CDC Software		(12,077	)		(6,828	)		(32,899	)		(74,801	)		(95,238	)
China.com		(5,636	)		(4,197	)		(6,209	)		(7,916	)		(18,711	)
		(17,713	)		(11,025	)		(39,108	)		(82,717	)		(113,949	)
Gross profit		11,997			11,775			38,743			99,735			130,925
Selling, general and administrative expenses		(69,949	)		(22,307	)		(31,606	)		(80,326	)		(100,549	)
Research and development expenses		—			—			—			(13,825	)		(22,605	)
Depreciation and amortization expenses		(19,007	)		(9,015	)		(6,829	)		(8,919	)		(9,937	)
Restructuring expensess		(21,908	)		—			—			(3,760	)		(1,667	)
Total operating expenses		(110,864	)		(31,322	)		(38,435	)		(106,830	)		(134,758	)
Operating gain (loss)		(98,867	)		(19,547	)		308			(7,095	)		(3,833	)
Interest income		26,491			23,631			13,412			9,653			8,156
Interest expense		(1,266	)		(2,461	)		(1,070	)		(1,895	)		(1,257	)
Loss arising from share issuance of a subsidiary		(55	)		—			—			—			—
Gain (loss) on disposal of available-for-sale securities		4,411			(163	)		4,599			167			525
Gain (loss) on disposal of subsidiaries and cost investments		(1,915	)		(66	)		(1,263	)		892			483
Other non-operating gains		—			508			934			—			—
Other non-operating losses		(927	)		(288	)		(143	)		—			—
Impairment of cost investments and available-for-sale securities		(12,260	)		(5,351	)		—			(1,362	)		—
Share of income (losses) in equity investees(1)		(2,592	)		682			(124	)		(467	)		(1,172	)
Total other income		11,887			16,492			16,345			6,988			6,735
Income (loss) before income taxes		(86,980	)		(3,055	)		16,653			(107	)		2,902
Income tax benefit (expenses)		(65	)		162			448			(3,375	)		(4,957	)
Income (loss) before minority interests		(87,045	)		(2,893	)		17,101			(3,482	)		(2,055	)
Minority interests in losses (income) of consolidated subsidiaries		3,162			248			(2,257	)		(925	)		(1,409	)
Income (loss) from continuing operations		(83,883	)		(2,645	)		14,844			(4,407	)		(3,464	)
Discontinued operations:
Loss from operations of discontinued subsidiaries, net of tax		(40,502	)		(16,131	)		(1,203	)		(610	)		(47	)
Gain (loss) on disposal/dissolution of discontinued subsidiaries, net		—			545			2,127			(950	)		(3	)
Net income (loss)		(124,385	)		(18,231	)		15,768			(5,967	)		(3,514	)
Basic and diluted earnings (loss) per share from continuing operations(2)	$	(0.82	)	$	(0.03	)	$	0.15		$	(0.04	)	$	(0.03	)
Basic and diluted earnings (loss) per share(2)	$	(1.21	)	$	(0.18	)	$	0.16		$	(0.06	)	$	(0.03	)
Weighted average number of shares:
Basic		102,589,760			102,269,735			100,532,594			105,898,392			111,085,657
Diluted		102,589,760			102,269,735			103,199,421			105,898,392			111,085,657

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The following selected consolidated financial data of CDC and its subsidiaries are derived from our audited financial data, after adjustment for the reclassification of discontinued operations and segment reporting.

BALANCE SHEET DATA:

	As of December 31, (in thousands, except share and per share data)
	2001	2002	2003	2004	2005
			(Restated)(7)	(Restated)(7)	(Restated)(7)
Cash and cash equivalents	20,820	33,153	55,508	110,206	93,719
Restricted cash	1,274	109	238	3,886	1,886
Available-for-sale debt securities(3)	346,980	320,056	282,145	104,159	115,881
Restricted available-for-sale debt securities(4)	134,960	151,123	19,803	75,780	32,270
Available-for-sale equity securities	2,064	2,050	—	527	659
Bank loans(5)	118,455	127,384	26,826	63,781	26,249
Working capital(6)	359,412	340,476	270,451	177,602	75,447
Total assets	596,494	580,957	553,074	693,871	633,032
Common stock	26	25	25	28	28
Total shareholders’ equity	389,861	377,700	395,701	449,976	446,498

(1) The term “equity investees” refers to CDC’s investments in which it has the ability to exercise significant influence (generally 20% to 50% owned investments).

(2) The computation of diluted earnings (loss) per share did not assume the conversion of the Company’s warrants for 2001, 2002 and 2003 and its stock options for 2001, 2002, 2004 and 2005 because their inclusion would have been antidilutive.

(3) Available-for-sale debt securities includes short and long-term available-for-sale debt securities.

(4) Restricted available-for-sale debt securities include short and long-term restricted debt securities.

(5) Bank loans include short and long-term bank loans.

(6) Working capital represents current assets less current liabilities.

(7) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which is included in this Amendment No.1.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Relating to our Overall Business

Because our business model and strategy have evolved, we lack experience and have a limited operating history in our new markets and cannot assure you that we will be successful in meeting the needs of customers in these markets. Our operating results could fall below expectations, resulting in a decrease in our stock price.

We began in June 1997 as a pan-Asian integrated Internet company. Our business model and strategy has evolved with a new focus and goal to be a global company focused on enterprise software, through our CDC Software business unit, and on mobile applications and online games through our China.com Inc. business unit. You will not be able to evaluate our prospects solely by reviewing our past businesses and results, but should consider our prospects in light of the changes in our business focus. Each of our targeted markets is rapidly changing, and we cannot assure you that we can successfully address the challenges in our new lines of business or adapt our business model and strategy to meet the needs of customers in these markets. If we fail to modify our business model or strategy to adapt to these markets, our business could suffer.

We have incurred losses in prior periods, may incur losses in the future and cannot provide any assurance that we can achieve or sustain profitability.

5

We have incurred operating losses and net losses in each of our last 5 fiscal years (except for fiscal year 2003) as follows:

	Year ended December 31, (in Thousands)
	2001			2002			2003		2004			2005
							(Restated)(1)		(Restated)(1)			(Restated)(1)
Operating Gain/(loss)	$	(98,867	)	$	(19,547	)	$	308	$	(7,095	)	$	(3,833	)
Net income Gain/(loss)	$	(124,385	)	$	(18,231	)	$	15,768	$	(5,967	)	$	(3,514	)

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which is included in this Amendment No.1.

Our operating losses and net losses may increase in the future, and we may never regain or sustain operating profitability or net profitability. We may continue to incur operating losses and post net losses in the future due to several factors, including:

• planned acquisition activities related to the growth and development of both of our core business units, CDC Software and China.com Inc.;

• continuing effects of acquisition-related adjustments including intangible asset amortization, stock compensation and deferred tax expense;

• a high level of planned operating expenditures, including costs we expect to incur as a result of our ongoing efforts to comply with the regulations promulgated under the Sarbanes-Oxley Act of 2002;

• increased investment activities related to our new businesses as we seek to achieve organic growth, which may include;

• increased sales and marketing costs;

• greater levels of product development expenses;

In addition, while we experienced sequential quarterly increases in revenues in 2005 (except for the third quarter), we cannot be certain that revenue growth will continue in the future. We may see a reversal of the recent sequential growth in quarterly revenues due to several factors, including:

• any decisions to dispose of business units or subsidiaries which we no longer believe to be central to our new business model and strategy, which would shrink our revenue base;

• a substantial portion of our software license revenue is recognized in the last month of a quarter, and often in the last weeks or days of a quarter, which may result in increased volatility in quarterly revenues if customers decide to defer or cancel orders or implementations, particularly large orders or implementations, from one quarter to the next;

• delay of new software product releases which can result in a customer’s decision to delay execution of a contract or, for contracts that include the new software release as an element of the contract, will result in deferral of revenue recognition until such release;

• the imposition of penalties, such as a temporary suspension of service, for violation of current or future Chinese laws, rules or regulations regarding Internet related services and telecom related activities, such as that experienced by our Go2joy subsidiary during 2004;

• the potential or actual loss of key clients and key personnel;

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• decisions to discontinue products and services which would shrink our revenue base;

• our failure to increase market awareness of our company, our brands and our products and services; and

• a slowdown in the U.S., European, Asian and other economic markets.

These factors could also adversely affect our ability to regain or sustain profitability. We cannot assure you that we will generate sufficient revenue to regain or sustain profitability, or that we can regain, sustain or increase profitability on a quarterly or annual basis. Even though our revenue is difficult to predict, we base our decisions regarding our operating expenses on anticipated revenue trends. Many of our expenses are relatively fixed, and we cannot quickly reduce spending in response to the lower revenue growth than expected. As a result, revenue shortfalls could result in significantly lower income or result in a greater loss than anticipated for any given period, which could result in a decrease in our stock price. If revenue does not meet our expectations, or if operating expenses exceed what we anticipate or cannot be reduced accordingly, our business, results of operations and financial condition will be materially and adversely affected.

As part of our 2005 reorganization into two core business units, we may incur future restructuring costs and increase our potential liabilities as we continue to transition financial and administrative functions to our business units.

During 2005 we reorganized our business into two core business units, CDC Software and China.com Inc. As part of this reorganization we initiated a series of restructurings of our operations involving, among other things, the reduction of overlapping personnel predominately from our Hong Kong office in financial and administrative functions and the transition of those financial and administrative functions to our two business units. As we continue with this transition, we need to ensure that all operational, managerial and financial controls, procedures and policies are fully and completely transitioned. Significant risks relating to this transition could cause us to continue to incur costs and potential liability which may outweigh the benefits of these restructurings. The failure to successfully transition our financial and administrative functions to our business units could materially and adversely affect our business and financial condition.

Further, as a result of this transition, we have ceased to use certain of our leased facilities and, accordingly, we are negotiating certain lease terminations and/or subleases of our facilities. We cannot predict when or if we will be successful in negotiating lease terminations and/or subleases of our facilities on terms acceptable to us. If we are not successful at negotiating terms acceptable to us, or at all, we may be required to increase our restructuring and related expenses in future periods.

As part of our 2005 strategic review, we have discovered certain instances of possible corporate misconduct by some of our former executive which may result in the company filing suits against such former executives which could be expensive and divert management’s attention away from the operations.

As part of our 2005 strategic review, we have discovered certain instances of possible corporate misconduct by some of our former executives. On January 19, 2006, we filed suit in the High Court of Hong Kong against a former officer in our Hong Kong office for breach of fiduciary duties and failure to comply with our corporate governance and compliance policies. The former executive has denied the allegations and has indicated his intention to defend against the suit and potentially file a cross-claim against us. The proceeding is at its preliminary stages. Our discovery of such instances of possible corporate misconduct, may identify possible weaknesses in our internal controls. Although our internal testing, as well as our independent registered accounting firm’s report, identified no material weaknesses in our internal controls, certain weaknesses may be discovered in relation to such corporate misconduct that will require remediation. This remediation may require implementing additional controls, the costs of which could have an adverse effect on our operating results. Subsequently, we have identified material weaknesses in our internal controls over financial reporting which are discussed further in “Item 15, Controls and Procedures” herein. Further, should we determine to continue our claims against such former officers for identified instances of alleged corporate misconduct, we could incur substantial costs associated with the litigations, increase the risk of cross claims by such officers against us and divert our managements’ attention from our operations. We cannot estimate the possible costs associated with these current or future litigations at this time.

Our strategy of expansion through acquisitions or investments has been and will continue to be costly and may not be effective, and we may realize losses on our investments.

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As a key component of our business and growth strategy, we have acquired and invested in, and intend to continue to acquire and invest in, companies and assets that we believe will enhance our business model, revenue base, operations and profitability, particularly relating to our strategy in enterprise software, outsourced software development and mobile services. Our acquisitions and investments have resulted in, and will continue to result in, the use of significant amounts of cash, dilutive issuances of our common shares and amortization expenses related to certain intangible assets, each of which could materially and adversely affect our business, results of operations and financial condition.

Our continued international acquisitions and investments may expose us to additional regulatory and political risks, and could negatively impact our business prospects.

Our expansion throughout international markets exposes us to the following risks, any of which could negatively impact our business prospects:

• adverse changes in regulatory requirements, including export restrictions or controls;

• potentially adverse tax and regulatory consequences;

• differences in accounting practices;

• different cultures which may be relatively less accepting of our business;

• difficulties in staffing and managing operations;

• greater legal uncertainty;

• tariffs and other trade barriers;

• changes in the general economic and investment climate affecting valuations and perception of our business sectors;

• political instability and fluctuations in currency exchange rates; and

• different seasonal trends in business activities.

During each of 2003 and 2004, we were dependent on acquisitions for our increase in revenues rather than organic growth of our businesses.

During each of 2003 and 2004, we acquired several businesses material to our results for those years.

• During 2003, our material acquisitions included the acquisition of Praxa, an Australian information technology outsourcing and professional services organization; the acquisition of Palmweb Inc. which operates Newpalm, a provider of mobile services and applications in China; and the acquisition of IMI, an international provider of software to the supply chain management sector principally in Europe and the United States.

• During 2004, our material acquisitions included the acquisition of Pivotal Corporation (“Pivotal”), a customer relationship management (CRM) company focused on mid-sized enterprises; the acquisition of Group Team Investments Limited, which holds Beijing He He Technology Co. Ltd. which operates Go2joy, a mobile services and applications provider based in Beijing, China; and the acquisition of Ross Systems, Inc. (“Ross”), an ERP company focused on the food and beverage, life sciences, chemicals, metals and natural products industries.

• During 2005 we did not have any material acquisitions.

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Between 2003 and 2004, our consolidated net revenues increased 134%, or approximately $104.6 million, from $77.9 million in 2003 to $182.5 million in 2004 primarily due to the acquisitions of Ross, Pivotal, and Go2joy, as well as the inclusion of a full year of results from acquisitions made in 2003. Between 2004 and 2005, our consolidated net revenues increased 34%, or approximately $62.4 million, from $182.5 million in 2004 to $244.9 million in 2005 primarily from the inclusion of Ross, Pivotal and Go2joy for the full year in 2005 and increased sales volumes in certain key products as discussed under section “Results of Operations” in Item 5, Operating Financial Review and Prospects.

We have been expanding our business through acquisitions and may lose our investment if we do not successfully integrate the businesses we acquire.

During 2004 we expanded our operations rapidly, both in size and scope, through acquisitions, and during 2005 and in the future need to integrate, manage and protect our interests in the businesses we acquire. We may experience difficulties in integrating, assimilating and managing the operations, technologies, intellectual property, products and personnel of our acquired businesses individually and cumulatively, and may need to reorganize or restructure our operations to achieve our operating goals. This may include creating or retaining separate units or entities within each of our operating segments. Our failure to integrate and manage our acquired businesses successfully could delay the contribution to profit that we anticipate from these acquisitions, and could have a material adverse effect on our business, results of operations and financial condition.

Integration related to our past and future acquisitions requires us to implement controls, procedures and policies which divert management’s attention and may increase the costs of our acquisitions, reduce employee morale and impact the operating results of our businesses.

Our acquisitions divert management’s attention from our operations in order to focus upon integrating our acquired businesses. In addition, to realize the benefits of our acquisitions, we need to conform the operational, managerial and financial controls, procedures and policies between our corporate headquarters and the businesses we have acquired, which may divert management’s attention further, increase transaction costs, and reduce employee morale. Significant risks relating to our past and future acquisitions which could cause us to continue to incur transaction costs that may outweigh the benefits of the acquisitions, include:

• the difficulty and cost in combining the operations, technology and personnel of acquired businesses with our operations and personnel;

• retaining and integrating key employees and managing employee morale;

• integrating or combining different corporate cultures;

• effectively integrating products, research and development, sales, marketing and support operations;

• maintaining focus on our day-to-day operations;

• impairing relationships with key customers of the acquired businesses due to changes in ownership;

• facing potential claims filed by terminated employees and contractors; and

• geographic complexity and adapting to local market conditions and business practices.

Any one of these challenges could strain our management resources. Our failure to integrate and manage our acquired businesses successfully could delay the contribution to profit that we anticipate from these acquisitions, and could have a material adverse effect on our business, results of operations and financial condition.

Several of our products and services are quite disparate, and it is difficult to discern significant synergies which limits the amount of integration, cost savings and cross-selling we may be able to achieve among our business segments.

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We are a global company focused on enterprise software, through our CDC Software business unit, and on mobile applications and online games through our China.com Inc. business unit. Several of our products and services are quite disparate, and it is difficult to discern significant synergies among some of our business segments although we are attempting to realize synergies within our individual business segments. For example, our Software segment focuses on delivering enterprise software applications and related services around the world for enterprise resource planning, supply chain management, customer relationship management, order management systems, human resource management and business intelligence. Our Mobile Services and Applications segment focuses upon providing popular news and mobile applications services targeting the consumer market in China through wireless services such as short message service, multimedia message service, wireless application protocol and interactive voice response. Because our segments are quite distinct, there may be limits to the amount of integration, cost savings and cross-selling we may be able to achieve among our business segments.

We may not be able to realize the anticipated cost savings, synergies or revenue enhancements from integrating acquired businesses into our operations, and we may incur significant integration costs to achieve these cost savings, synergies or revenue enhancements, which have and could continue to adversely affect our results of operations.

Our ability to realize cost savings, synergies or revenue enhancements may be affected by the extent, timing and efficiency with which we can consolidate operations, reduce overlapping personnel while avoiding labor disputes and achieve compatibility or integrate acquired technology, all of which are difficult to predict. We may not be able to realize cost savings, synergies or revenue enhancements from such integration, and we may not be able to realize such benefits within a reasonable time frame. Realizing these benefits is difficult because historically most of the companies we have acquired have been in poor financial condition.

In addition, our expected cost savings, synergies or revenue enhancements, may be reduced by unexpected costs in connection with our integration efforts or a slowdown in revenue growth or collection of accounts receivable, increased operating losses related to acquired businesses, or accounting charges and adjustments we are required to make as a result of our acquisitions. For example, during 2004 and 2005, our net income was adversely affected because we were required to record certain acquisition-related expenses, including the following:

• amortization of acquired intangibles;

• write-off of acquired deferred revenue;

• restructuring charges;

• stock compensation expenses;

• deferred tax expenses; and

A number of these non-cash acquisition-related expenses such as amortization of acquired intangibles, deferred tax expense, and stock compensation will continue to adversely affect our results of operations in 2006 and beyond. We will continue to review our assumptions made in accounting for the acquisition of subsidiaries and will make adjustments if required. See Item 5.A. — “Operating and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates – Goodwill and Intangible Assets”, “– Business Combinations”, and “– Deferred Tax Valuation Allowance”.

While we have cash and cash equivalents of $93.7 million and total debt securities of $148.2 million as of December 31, 2005, much of this balance is held at our China.com subsidiary, and we have limited ability to use these funds at, or for the benefit of, the CDC Corporation parent or our other subsidiaries outside of the China.com chain of subsidiaries.

While we have cash and cash equivalents of $93.7 million and total debt securities of $148.2 million as of December 31, 2005, $49.4 million of the cash and cash equivalents and $80.7 million of the total debt securities are held at China.com (formerly, hongkong.com Corporation), as of April 2006, an 77% owned subsidiary listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. Although we have the ability to appoint a majority of the board of directors of China.com, the board of directors of China.com owes fiduciary duties to the shareholders of China.com to act in

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the best interests of and use the assets of China.com, including the cash and cash equivalents balance and debt securities, for the benefit of such shareholders. As a result, aside from the board of directors of China.com declaring a dividend to its shareholders for which we would receive a pro rata portion as an 77% shareholder of China.com or a related party inter-company loan or similar transaction from China.com which would likely require the approval of the minority shareholders of China.com, we have limited ability to transfer or move the cash, cash equivalents and debt securities balance to CDC Corporation at the parent entity level, or to use the amounts of cash, cash equivalents and securities balance for the benefit of non-China.com and its subsidiaries.

We have significant fixed operating expenses, which may be difficult to adjust in response to unanticipated fluctuations in revenues, and therefore could have a material adverse effect on our operations.

A significant part of our operating expenses, particularly personnel, rent, depreciation and amortization, are fixed in advance of any particular quarter. As a result, an unanticipated decrease in the number or average size of, or an unanticipated delay in the scheduling for, our engagements may cause significant variations in operating results in any particular quarter and could have a material adverse effect on operations for that quarter. In the near-term, we believe our costs and operating expenses may increase in certain areas as we fund new initiatives and continue to pay for costs related to compliance with the Sarbanes-Oxley Act of 2002. While we will strive to keep our costs and operating expenses in the near-term to be at a level that is in line with our expected revenue, we may not be able to increase our revenue sufficiently to keep pace with any growth in expenditures. As a result, we may be unable to return to profitability in future periods.

Because we rely on local management for many of our localized CDC Software and China.com Inc. businesses, our business may be adversely affected if we cannot effectively manage local officers or prevent them from acting in a manner contrary to our interests or failing to act at our direction.

In connection with our strategy to develop our enterprise software products and services, through our CDC Software business unit, and on mobile applications and online games through our China.com Inc subsidiary, we have interests in companies in local markets where we have limited experience with operating assets and businesses in such jurisdictions, including enterprise software companies in the United States, Canada and Europe, business services companies in Australia, Korea and the U.S. and mobile services and applications companies in the PRC. As a result, we rely on our local management with limited oversight. If we cannot effectively manage our local officers and management, or prevent them from acting in a manner contrary to our interests or failing to act at our direction, these problems could have a material adverse effect on our business, financial condition, results of operations and share price.

We are exposed to potential risks of noncompliance with rules and regulations under Section 404 of the Sarbanes-Oxley Act of 2002.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish an internal controls report of management’s assessment of the design and effectiveness of our internal controls as part of our Annual Report on Form 20-F beginning with the fiscal year ending on or after July 15, 2006. Our independent registered accounting firm is then required to attest to, and report on, management’s assessment.

Under the supervision and with the participation of our management, we are evaluating our internal controls in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls, as required by Section 404. We are performing the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. As a result, we have incurred, and will continue to incur, additional expenses and a diversion of management’s time. If we are not able to meet the requirements of Section 404, we might be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission or NASDAQ. In addition, as a result of the evaluation of our internal controls, we may be required to report internal control material weaknesses. Subsequently, we have identified material weaknesses in our internal controls over financial reporting which are discussed further in “Item 15, Controls and Procedures” herein. Either of the foregoing could adversely affect our financial results and the market price of our common shares.

While we will seek to grow our businesses, including the businesses we have acquired, organically in the future, we cannot assure you that we will be successful in increasing revenues through organic growth.

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Our ability to achieve organic growth in our businesses is subject to numerous risks and uncertainties, including the following:

• We may face difficulties in integrating, assimilating and managing the operations, technologies, intellectual property, products and personnel of our acquired businesses individually and cumulatively;

• We will be making additional new investments, including increasing sales and marketing efforts, developing new products and providing additional training in order to generate organic growth, none of which may ultimately prove successful in generating such growth;

• We may not be successful in introducing products and services we acquire to new markets. For example, one of our strategies in our enterprise software business is to target the markets in Japan and China for enterprise application software. Starting in late 2004 and continuing through 2005 and 2006, we are emphasizing the growth of CDC Software Asia Pacific which was formed in 2004 to sell our entire range of enterprise application software products in the Asia Pacific region, including Australia and New Zealand. However, we cannot assure you that we will be successful in this strategy; and

• While with the completion of our acquisitions of Pivotal and Ross, we have added an additional approximate 3,200 customers to our customer base which on a combined basis totals approximately 4,000 customers which have licensed our enterprise software products worldwide as of December 31, 2005 (which does not include the addition of more than 1,000 customers added as a result of our acquisition of c360 Solutions in April 2006), we may not be successful in our strategy of leveraging upon cross-selling opportunities with respect to our expanded customer base. In addition to our customers not finding our other enterprise software products attractive, it has also been our experience that the revenues which can be generated in a sale of additional products made through a cross-sale is often less than the amount of revenues which would have been generated if the sale had been made by an independent third party software supplier. This is because often the customer views the purchase of the cross-sold software product as only a module to their existing enterprise software solution, rather than a complete standalone software product, and therefore are less willing to pay the full market price for the product than if the sale had been made by an independent third party.

Our inability to achieve organic growth in our businesses will have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to our CDC Software Business Unit

The market for enterprise software application products and services is highly competitive. We have entered this market recently, and if we fail to compete effectively, our failure could have a material adverse effect on our business, financial condition and results of operations.

The business information systems industry in general and the enterprise software industry in particular are very competitive and subject to rapid technological change. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition, larger technical staffs and a larger installed customer base than we do. A number of companies offer products that are similar to our products and that target the same markets. In addition, many of these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, and to devote greater resources to the development, promotion and sale of their products than we can. Furthermore, because there are relatively low barriers to entry in the software industry, we expect additional competition from other established and emerging companies. Such competitors may develop products and services that compete with our products and services or may acquire companies, businesses and product lines that compete with us. It is also possible that competitors may create alliances and rapidly acquire significant market share. Accordingly, we cannot assure you that our current or potential competitors will not develop or acquire products or services comparable or superior to those that we develop, combine or merge to form significant competitors or adapt more quickly than we can to new technologies, evolving industry trends and changing customer requirements. Competition could cause price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our strategy in this market, and affect our business, operating results and financial condition.

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Our major competitors include:

• enterprise resource planning (“ERP”) providers, including Sage Group, Epicor, Infor Global Solutions, Microsoft Corporation, Oracle/Peoplesoft, QAD, Inc., SAP AG, SSA Global Technologies, Inc., and various local providers in the Greater China market such as FlexSystem Holdings Ltd., Kingdee International Software Group Company Limited and UFIDA Software Co. Ltd.;

• customer relationship management (“CRM”) providers, including Chordiant Software, Inc., SSA Global Technologies, Inc., Microsoft Corporation, Onyx Software Corporation, Oracle/Peoplesoft, Salesforce.com, SalesLogix (part of Best Software/Sage Group plc), SAP AG and Siebel Systems, Inc.;

• supply chain management (“SCM”) providers, including Aspen Technologies, i2 Technologies, Inc., Manhattan Associates, Manugistics Group, Inc., Logility Inc., and Infor Global Solutions;

• human resource management (“HRM”) providers, including Oracle/Peoplesoft, SAP AG, and various local providers in the Greater China market, including Cityray Technology (China) Ltd., UFIDA Software Co. Ltd., BenQ Group, Vanguard Software Corporation, Strategy Software Systems Co., Ltd, Shanghai Kayang Information System Co., Ltd. and Kingdee International Software Group Co., Ltd;

• business intelligence (“BI”) providers, including Business Objects SA, Cognos, Inc., Hyperion, Inc. and SAS Institute, Inc.; and

• information technology consulting and outsourcing service providers including Accenture Ltd., Cambridge Technology Partners Inc., Cap Gemini, Electronic Data Systems Corporation, IBM Global Services, Infosys Technologies, Wipro Ltd., and various niche local service providers specializing in IT outsourcing services.

Many of these companies are well funded with long operating histories of profitable performance. They possess a number of tangible strengths and advantages, including high quality client lists and high numbers of highly qualified staff, complemented by extensive operating infrastructures. The principal competitive factors in the market for enterprise software application software include product reputation, product functionality, performance, quality of customer support, size of installed base, financial stability, corporate viability, hardware and software platforms supported, price, and timeliness of installation.

As we pursue our strategy of developing our enterprise software business, we are exposed to a variety of risks in this market that may affect our ability to generate revenues from the sale of enterprise application software and related support services.

As we pursue our strategy of developing our enterprise software business, we anticipate that we will continue to generate a significant portion of our revenues in the future from the sale of various enterprise software application packages and related services. Accordingly, any factor that adversely affects fees derived from the sale of such applications would have a material adverse affect on our business, results of operations and performance. For example, in 2001 and continuing through most of 2003, the market for enterprise software application products continued to be negatively impacted by challenging economic conditions in the United States, Europe and Asia. While the market has stabilized, there can be no assurances that this will continue. In addition, while we are committed to the enterprise application software market, if we are not successful in communicating our commitment or a clear strategy, and offering a vision with respect to our product roadmap and technology platforms going forward, customers and potential customers may be less inclined to make significant investments in our enterprise software products. Other such factors which could affect our enterprise software strategy may include:

• competition from other products;

• flaws in our products;

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• incompatibility with third party hardware or software products;

• negative publicity or valuation of our products and services;

• obsolescence of the hardware platforms or software environments on which our products run;

• our ability to increasingly move software development capabilities to places like India and China where costs are generally lower, but subjects us to additional risks including competition to hire qualified programmers (and a resultant upward pressure on remuneration costs), turnover risk, language barriers, and challenges to remotely manage staff due to time zone differences and distance; and

• continuing low level expenditures in the enterprise software market.

Our enterprise software revenues fluctuate significantly from quarter to quarter which may cause volatility in our share price.

A sale of a new license generally requires a customer to make a purchase decision that involves a significant commitment of capital. Many factors have caused and may in the future cause our enterprise software revenue to fluctuate significantly. Some of these factors are:

• the timing of significant orders, delivery and implementation of products;

• the gain or loss of any significant customer;

• the number, timing and significance of new product announcements and releases by us or our competitors;

• our ability to acquire or develop (independently or through strategic relationships with third parties), introduce and market new and enhanced versions of our products on a timely basis;

• possible delays in the shipment of new or enhanced products and purchasing delays of current products as our customers anticipate new product releases;

• order cancellations and shipment rescheduling or delays;

• reductions in the rate at which opportunities in our pipeline convert into license agreements,

• patterns of capital spending and changes in budgeting cycles by our customers;

• market acceptance of new and enhanced versions of our products;

• changes in the pricing and the mix of products and services we sell;

• seasonal variations in our sales cycle;

• the level of product and price competition;

• exchange rate fluctuations; and

• changes in personnel and related costs.

In addition, we expect that a substantial portion of our enterprise software revenues will continue to be derived from renewals of maintenance contracts from customers of our software applications. These maintenance contracts typically expire on an annual basis, if not renewed, and the timing of cash collections from related revenues varies from quarter to quarter.

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Some customers are reluctant to make large purchases before they have had the opportunity to observe how our software performs in their organization, and have opted instead to make their planned purchase in stages or subject to conditions. Additional purchases, if any, may follow only if the software performs as expected. To the extent the number of customers who opt to purchase in stages or subject to conditions increases, it could adversely affect our revenue.

Our failure to successfully introduce, market and sell new products and technologies, enhance and improve existing products in a timely manner, and properly position or price our products, as well as undetected errors or delays in new products or new versions of a product or the failure of anticipated market growth could individually and/or collectively have a material adverse effect on our business, results of operations or financial position.

Our enterprise software products compete in a market characterized by rapid technological advances in hardware and software development, evolving standards in computer hardware and software technology and frequent new product introductions and enhancements. We continually seek to expand and refresh our product offerings to include newer features or products, and enter into agreements allowing integration of third-party technology into our products. The introduction of new products or updated versions of continuing products has inherent risks, including, but not limited to:

• product quality, including the possibility of software defects, which could result in claims against us or the inability to sell our software products;

• the fit of the new products and features with the customer’s needs, which could result in the customer seeking the product elsewhere;

• educating our sales, marketing and consulting personnel to work with the new products and features, which may strain our resources and lengthen sales cycles;

• competition from earlier and more established entrants that may have more significant resources than us;

• market acceptance of initial product releases;

• marketing effectiveness; and

• the accuracy of research or assumptions about the nature of customer demand, whereas actual demand could be limited or non-existent.

As we or our competition introduce new or enhanced products, the market’s demand for our older products and older versions of such products declines. Declining demand reduces revenue from additional licenses and reduces maintenance revenue from past purchasers of our software. We must continually upgrade our older products in order for our customers to continue to see value in our maintenance services. If we are unable to provide continued improvements in functionality or move customers with our older products to our newer products, declining maintenance and new license revenue from older products could have a material adverse effect on our enterprise software business. In addition, because we commit substantial resources to developing new software products and services, if the markets for these new products do not develop as anticipated, or demand for our products and services in these markets does not materialize or materializes later than we expect, we will have expended substantial resources and capital without realizing sufficient revenue, and our enterprise software business and operating results could be adversely affected.

The decisions we make about which underlying technology platforms to base our products upon, particularly any eventual migration to a newer technology platform which becomes necessary or advisable to make as older technologies become obsolete and new technologies mature and become more widely accepted, subjects us to risks which could affect our business, results of operations and financial condition.

In our enterprise software line of business, we must make decisions as to which underlying technology platforms to base our products upon. During the natural evolutionary cycle of technology, as older technologies become obsolete and new technologies mature and become more widely accepted, we may eventually need to migrate our products from older technology platforms to new technology platforms. Any decisions we make with respect to making such a migration, and any such subsequent migration process, subject us to a variety of risks which could affect our business, results of operations and financial condition.

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We may not be successful in migrating our products to new technology platforms. In the past, several software companies have been unsuccessful with such migrations for a variety of reasons, such as an inability to adapt the new technology, bugs and errors in the product resulting from a significant rewrite of the software code, the inability to complete the migration process in a timely manner, and dependence upon the functionality and timely release of the new technology platform. In addition, the migration of software products to new technology platforms also subjects existing customers who decide to upgrade to the new technology to risks, such as the functionality of our migration tools which move customers from the old technology platform to the new technology platform and the clarity of documentation for the product on the new technology platform. If customers wish to upgrade, but encounter serious problems in the upgrade process or are not successful in upgrading, it could subject us to unfavorable publicity or customer relationships which could affect future upgrade sales to these or other customers. The risks associated with migrating to new technology platforms also includes the possibility that a customer will view this as an opportunity to review whether to upgrade or instead purchase a replacement solution from another supplier or competitor based on an analysis of the benefits and costs associated with upgrading versus replacement. In addition, as the time approaches for the release of upgraded software products built on new technology platforms, there is a risk that potential customers who might otherwise buy our products will delay their purchases until the new release to take advantage of the new technology, or that some customers who agree to purchase our products will insist on free upgrades or free integration services when the upgrade is available. Any of the these risks could materially affect our business, results of operations and financial condition.

We may not be successful in growing our sales organization and sales channels which would harm our ability to grow our business. In addition, efforts to grow our indirect sales channels expose us to additional risks.

To date, we have sold our solutions primarily through our direct sales force, particularly in the North American market. Our future revenue growth will depend in large part on recruiting, training and retaining direct sales personnel and expanding our indirect distribution channels. These indirect channels include value added resellers, or VARs, original equipment manufacturing, or OEM, partners, systems integrators and consulting firms.

While we believe the acquisition of c360 Solutions will assist us in expanding our indirect sales channels by leveraging upon its network of over 450 partners through which c360 Solutions exclusively sells its products, we may nonetheless experience difficulty in recruiting and retaining qualified direct sales personnel and in establishing third-party relationships with VARs, OEM partners, systems integrators and consulting firms. If we are not successful in growing our sales organization and sales channels, it would harm our ability to grow our business. In addition, we are exposed to risk as a result of forming relationships in these indirect channels and with such third-parties in the event such third-parties do not devote sufficient time, attention and resources to learning our products, markets and potential customers or if such third-parties encounter difficulties with their customers involving our products which could then adversely affect our reputation and the reputation of our products in the market.

If we are unable to take advantage of opportunities to market and sell the products and services of our newly-acquired companies such as Ross, Pivotal and IMI, to our customers, distribution channels and business partners in Asia, the value of our investment in Ross, Pivotal and IMI could be significantly diminished.

As part of our strategy, one of the significant anticipated benefits of the acquisitions of Ross, Pivotal and IMI is expanding these businesses in the Asia-Pacific region (with our key target markets being Japan and the PRC) by leveraging our local expertise and distribution channels. In particular, we believe we can cross-sell and market Ross’, Pivotal’s and IMI’s ERP, CRM and SCM applications and implementation services in growth markets for such software in Asia. The products and services of Ross, Pivotal and IMI are highly technical, principally servicing market segments and customers in which we traditionally have limited experience, and our salespersons may not be successful in marketing Ross, Pivotal or IMI products and services. In the event that we cannot adapt the Ross, Pivotal or IMI products to the needs of the local markets, or our traditional customers and business partners are not receptive to Ross’, Pivotal’s or IMI’s products and services, we may not realize some of the expected benefits of our investment in these companies, and the value of our investment could be significantly diminished.

Our strategy of developing industry products for specific industry segments, or micro-verticals, may not be successful which could affect our business, results of operations and financial condition.

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Many of our enterprise software products have been tailored to be industry-specific which allow businesses to immediately gain business benefits as the industry-specific customizations have already been completed. For example, with respect to Ross’ products, Ross focuses on the food and beverage, life sciences, chemicals, metals and natural products industries. Pivotal’s products have already been optimized and configured to include CRM products for the financial services (asset management, capital markets, commercial banking and private banking), healthcare provider, homebuilder, and life sciences (medical device manufacturing) markets. IMI’s products have been tailored towards order management, warehouse management and store replenishment for the grocery, specialty goods and pharmaceutical and over-the-counter drugs industries.

This strategy of developing industry products for specific industry segments may not be successful for a variety of reasons due to risks both inside and outside of our control, including the following:

• we cannot be certain that the companies in the micro-vertical markets we have selected will find our products attractive;

• many of our micro-vertical markets are subject to their own economic cycles, regulatory considerations and other factors which are beyond our control. For example, the homebuilder micro-vertical is sensitive to interest rate movements and the healthcare micro-vertical is subject to significant governmental regulations;

• some of our micro-vertical products have only been recently introduced, so do not have a large installed base of users or developed significant recognition in their industry;

• we may experience difficulty in recruiting sales, business and technical personnel who have experience in a particular micro-vertical industry;

• due to resource constraints, we have a limited number of developers who can focus upon developing for the micro-verticals; and

• in the event we decide to devote limited resources into a micro-vertical market, such as by dedicating a sales representative, such a resource may not be available to focus on general sales.

If our strategy of developing industry products for specific micro-vertical markets is not be successful, it could materially adversely affect our business, results of operations and financial condition.

We may not receive significant revenues from our research and development efforts for several years.

Developing, enhancing and localizing software is expensive, and the investment in product development may involve a long payback cycle. In 2005 our research and development expense was $22.6 million or approximately 9% of our total consolidated net revenues. Our future plans include significant additional investments in software research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we do not expect to receive significant revenues from these investments for several years, if at all.

We have been increasingly migrating software development capabilities for our enterprise application software products to India and China, which subjects us to several risks that may affect our business.

We have been increasingly moving software development capabilities for our enterprise application software products to India and China. Pivotal has established a software development center in Bangalore, India and Ross has established a software development center in Shanghai, China. While we believe the migration of software development capabilities offshore to India and China offers several advantages, including lower software development costs principally due to the relatively lower salaries of programmers in India and China, such off-shoring also subjects us to various risks, including the following:

• Competition to hire qualified programmers and developers in these local markets;

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• Risks associated with turnover of programmers and developers, particularly where we have devoted time and resources to train such persons to be familiar with our enterprise application software products;

• Challenges due to the need to remotely manage developers and programmers in India and China, particularly when the persons most familiar with the needs of the customer and the desired new functionality and features are not also located in India and China;

• Language and other communications barriers, particularly with software development in China; and

• Time zone differences which make liaising and communicating with persons in India and China more difficult.

While the vast majority of our professional services engagements associated with the sale and implementation of our enterprise application software products are billed on a time and materials basis, there are certain instances when management may accept fixed price engagements for certain of our products which exposes us to various risks.

While the vast majority of our professional services engagements associated with the sale and implementation of our enterprise application software products are billed on a time and materials basis, management may occasionally accept a fixed price engagement, particularly when management believes by appropriately managing the fixed price engagement we can achieve a greater hourly rate than we normally would when the customer purchases our services by the hour. The nature of a fixed price engagement, however, is such that a failure to estimate accurately the resources and time required for an engagement, to manage client expectations effectively regarding the scope of the services to be delivered for the estimated fees or to complete fixed price engagements within budget, on time and to clients’ satisfaction could expose us to risks associated with cost overruns and penalties. This risk of needing to commit unanticipated additional resources to complete a professional services engagement billed on a fixed price basis could have a material adverse effect on our results of operations.

A substantial percentage of our business services engagements are billed on a fixed price basis which may be subject to cost overruns if we do not accurately estimate the costs of these engagements or if clients change the scope of a project.

A substantial percentage of our business services engagements consists of individual, non-recurring, short-term projects billed on a fixed price basis as distinguished from a method of billing on a time and materials basis. At times this requires us to commit unanticipated additional resources to complete business services engagements, which may result, and has in the past resulted, in losses on certain engagements. Our failure to obtain new business services business in any given quarter or estimate accurately the resources and time required for an engagement, to manage client expectations effectively regarding the scope of the services to be delivered for the estimated fees or to complete fixed price engagements within budget, on time and to clients’ satisfaction (particularly if a client changes the scope of the project) could expose us to risks associated with cost overruns and penalties, any of which could have a material adverse effect on our business, results of operations and financial condition.

Our clients could unexpectedly terminate their contracts for our services which could result in a loss of expected revenues and additional expenses for redeployment of staff and resources.

The standard terms for many of our business services contracts include a down payment of a relatively low percentage of the fee at the commencement of the contract with the balance of the payments subject to the achievement of specific milestones and deliverables. We generally do not require collateral for accounts receivable. The final payment is not due until completion of successful user acceptance testing. However, most of our business services contracts can be cancelled by the client with limited advance notice and without significant penalty. Termination by any client of a contract for our services could result in a loss of expected revenues, additional expenses for redeployment of staff and resources that were allocated to the terminated engagement, and underutilized employees and resources. The unexpected cancellation or significant reduction in the scope of any of our large business services projects could have a material adverse effect on the business of our business services companies, particularly those companies which depend upon a relatively small number of key clients for a substantial portion of their business. Should any of those key clients unexpectedly terminate their contracts for our services or determine to use other service providers for some of their services, this could result in a significant loss of revenues for such companies which, in turn, could have a material adverse effect on our business, results of operations and financial condition.

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Our business services contracts may expose us to potential litigation and liabilities.

Our business services and advertising businesses involve services agreements with customers, some of which do not have disclaimers or limitations on liability for special, consequential and incidental damages, or do not have caps or have relatively high caps on the amounts its customers can recover for damages. Some of our subsidiaries do not carry professional indemnity or other insurance covering our exposure to any liability for any claims or breaches under the customer contracts. While there are no current material claims or litigation in connection with the service contracts, there can be no assurance that future claims will not arise. Any claim under customer contracts could subject us to litigation and give rise to substantial liability for damages, including special, consequential or incidental, that could materially and adversely affect our business and financial condition.

Failure by third party suppliers to provide us with software and hardware components could affect our ability to operate our business services business.

In several of our business services units and in CDC Software Asia Pacific, we depend on third party suppliers of software and hardware components. For our various business units, we rely on components that are sourced from key suppliers, including Business Objects S.A., Cisco Systems, Inc., Intel Corporation, Interactive Intelligence, Inc., International Business Machines Corporation, LSI Logic Corporation, Macrovison Corporation, Microsoft Corporation, Network Appliance, Inc., Oracle Corporation, Sun Microsystems Corporation, and Wherescape Software, Ltd. Any failure or delay on the part of our suppliers may prevent us from receiving the components, products and support we need to conduct our operations. Our inability to develop alternative sources for the software and hardware we need to operate our business may materially and adversely affect our operating efficiency and results of operations.

Each of our business services businesses face intense competition. If we fail to compete effectively, our failure could have a material adverse effect on our business financial condition and results of operation.

Each of our business services businesses, many of which are smaller in size and operate in localized regional markets (such as Australia, Korea, and the northeast United States) face intense competition. A significant portion of the revenues from some of our business services companies is obtained through key software owners who use our businesses as channel partners on a non-exclusive basis. Should any of those key partners decide to sell their software or provide services directly into our market, or use other service providers, this could result in a loss of expected revenues.

In addition, many of our existing competitors, as well as a number of potential new competitors, have longer operating histories in each of our target business services markets, greater name recognition, larger customer bases and greater financial, technical and marketing resources when compared to us. For example, as our business evolves to place greater emphasis on outsourced software development and support services, we will face competition from many of the large Asia Pacific-based outsourcing firms such as Infosys Technologies Ltd and Wipro Ltd. Any of our present or future competitors may provide products and services that provide significant performance, price, creative or other advantages over those offered by us. We can provide no assurance that we will be able to compete successfully against our current or future competitors, particularly as markets continue to consolidate, change or mature.

The holding company structure through which we have invested in IMI is complex, and subjects us to risks, including an obligation to purchase the shares of IMI from IMI’s other shareholder upon the occurrence of certain events which may result in the use of a significant amount of our cash or issuance of a significant number of our shares.

In September 2003, we acquired a 51% interest in Cayman First Tier, the holding company of IMI, an international provider of software to the order management systems sector, in exchange for $25.0 million to subscribe for new shares in Cayman First Tier. Symphony Technology Group, a Palo Alto, California based venture capital company holds the remaining 49% in Cayman First Tier. Cayman First Tier holds 100% of the shares of IMI through intermediate holding companies. IMI’s assets include software solutions which it has developed for retailers, wholesalers and consumer goods manufacturers, particularly in the grocery, specialty goods, and pharmaceutical and over-the-counter drugs industries.

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Symphony has an option to require us to purchase all of its 49% interest in IMI at any time during the twelve months following the occurrence of unpermitted changes in the composition of IMI’s executive committee, a decision of IMI’s executive committee being overruled by the IMI board, or modifications to the rights, powers or responsibilities of IMI’s executive committee without the approval of the directors appointed by Symphony. The purchase price for Symphony’s interest in IMI would be based on the financial performance of IMI. An exercise by Symphony of its option to require us to purchase its entire 49% interest in IMI may result in the use of a significant amount of our cash or issuance of a significant number of our shares, which may have a material adverse effect on our capital resources and stock price due to actual or perceived dilution. See Item 10.C – “Additional Information – Material Contracts – Expansion through Acquisitions and Partnerships – Cayman First Tier” for additional descriptions of our arrangements in connection with Cayman First Tier.

Our strategy to target higher margin services related to database marketing through our subsidiary, Mezzo Business Databases Pty Limited, or Mezzo, is subject to numerous risks, may not be successful, and could therefore limit the amount of advertising/marketing revenues we can generate.

Our advertising/marketing strategy is to target higher margin services related to database marketing. Our Mezzo business in Australia provides business marketing data and marketing support services. Mezzo maintains the IncNet databases as a source of marketing intelligence on medium and large companies and organizations in Australia and New Zealand which are used as a source of information by many business-to-business direct marketers. Our Mezzo business is subject to numerous risks, including the following:

• we depend upon the ability of Mezzo to maintain up-to-date datasets, and if Mezzo fails to maintain its databases, its services will be less attractive to customers;

• we may not be able to successfully market services in this business segment outside of Australia where the Mezzo business and our datasets are currently located;

• we may not be able to attract larger clients with correspondingly larger marketing budgets due to the limited size and scope of our current operational base in Australia;

• we face competition from companies that have developed large datasets and established related products and services, such as Acxiom and D&B, affiliated with The Dun & Bradstreet Corporation;

• we rely upon channel partners to distribute our databases to end-users, and should those channel partners determine to use other databases or stop or reduce their distribution in our market, this could result in a loss of expected revenues; and

• we may suffer continued reductions in revenues and profits as a result of the application of anti-spamming legislation in Australia (in particular, the Spam Act 2003 (Cth)) that could continue to reduce the distribution potential of our databases.

Risks Relating to our China.com Inc. Business Unit

The mobile applications and portal markets in China are highly competitive. If we fail to compete effectively, our failure could have a material adverse effect on our business, financial condition and results of operations.

We are not the only company providing mobile services and applications, such as wireless services including Short Message Service (“SMS”), Interactive Voice Response (“IVR”), Multimedia Message Service (“MMS”) and Wireless Application Protocol (“WAP”), in China. We face intense and increasing competition for subscribers, mobile services and applications, and content from companies such as: Sina Corporation, Sohu.com Inc., NetEase.com Inc., Tom Online Inc., Tencent.com Technology Limited, Linktone Ltd., Mtone Wireless Corporation and Kongzhong, as well as a number of smaller companies that serve China’s mobile services and applications market. In addition, in our portal business, our competition for user traffic, ease of use and functionality include Chinese and/or English language based Web search and retrieval companies, including AltaVista Co., Apple Daily, ChinaByte, FindWhat.com, Google, Inc., HotBot, HotWired Ventures, Lycos, Inc., Mingpao.com, MSN, Netease.com, Inc., Netvigator.com, Overture Services, Inc. (acquired by

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Yahoo!, Inc.), Shanghai Online, Sina Corporation, Sohu.com, Inc., Tom Online Inc. and Yahoo!, Inc. We may also encounter increased competition from Internet service providers, Web site operators and providers of Web browser software, including Microsoft Corporation or Netscape Communications Corporation, that incorporate search and retrieval features in their products. Our competitors may develop Web search, retrieval services, freemail and community services that are equal or superior to those we offer our users, and may achieve greater market acceptance than our offerings in the area of performance, ease of use and functionality.

Many of our competitors have more experience and longer operating histories in our target markets than us, as well as greater name recognition, larger customer bases and greater financial, technical and marketing resources. We may not be able to compete successfully against our competitors. Our failure to remain competitive may cause us to lose our market share in the mobile services and applications and/or portals business, and our business, financial condition and results of operations may suffer.

We depend primarily on the four mobile network operators in China for delivery of our mobile services and applications, and the termination or alteration of our various contracts with either of them or their provincial or local affiliates could materially and adversely impact our business.

We offer our mobile services and applications to consumers primarily through the four mobile network operators in China, China Mobile, China Unicom, China Telecom and China Netcom, which service nearly all of China’s mobile subscribers. Such dominant market position limits our negotiating leverage with these network operators. If our various contracts with either network operator are terminated or adversely altered, it may be impossible 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. For the year ended December 31, 2005, we derived approximately 14% of our total revenues from our Mobile Services and Applications segment, a substantial portion of which was delivered through the mobile network operators.

Delivery of our mobile services and applications is governed by contracts between us and the national, provincial or local affiliates of the mobile network operators. Each of these contracts is nonexclusive and has a limited term (generally one or two years). We 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 mobile network operators are generally entitled to terminate them in advance for a variety of reasons or, in some cases, for no reason at their discretion. For example, several of our contracts with the mobile network operators can be terminated if:

• we fail to achieve performance standards established by the applicable mobile network operator from time to time;

• we breach our obligations under the contracts, which include, in many cases, the obligation not to deliver content that violates the network operator’s policies and applicable law;

• the mobile network operator receives high levels of customer complaints about our mobile services or applications; or

• the mobile network operator sends us written notice that it wishes to terminate the contract at the end of the applicable notice period.

We may also be compelled to alter our arrangements with these mobile network operators in ways which materially and adversely affect our business. Our agreements with the mobile network operators are subject to negotiation and performance evaluation upon renewal, and we are aware that the mobile network operators have notified other mobile service providers of their intention to either not renew their agreements or to revise their revenue sharing arrangements upon the expiration of the existing cooperation agreements. We cannot assure you that the mobile network operators will either renew our agreement or not demand further changes to our revenue sharing arrangements in the future. If any of the mobile network operators decides to change its content or transmission fees or its share of revenue, or does not comply with the terms of the agreements, our revenue and profitability could be materially adversely affected.

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The regulators and the mobile network operators in China have imposed unilateral changes in their regulations and policies in the past. Depending upon the nature of these regulatory and policy changes and our ability to implement and adhere to them, our business and financial results could be materially adversely affected.

The regulators in China have unilaterally changed their regulations as applied to third party service providers in the past, and may do so again in the future. For example, in mid 2004, the Ministry of Information and Industry in China began requiring wireless service providers to apply for a nationwide value-added telecommunications services operating license, or a CP license, in order to provide value-added telecommunication services throughout China. China Mobile then issued a notice requiring all service providers to provide evidence of a CP license by October 31, 2004. After October 31, 2004, China Mobile and its subsidiaries ceased working with most of the service providers without CP licenses. The Ministry of Information and Industry has accepted Newpalm’s and Go2joy’s application for a CP license. Although we were able to acquire the required CP licenses in this particular instance without a substantial impact on our business, we may not be able to respond adequately to negative regulatory developments in the future because we are not able to predict any unilateral regulatory changes.

In January 2005, the Chinese State Administration of Radio, Film and Television (“SARFT”), which regulates radio and television stations in China, issued a notice prohibiting commercials for mobile services related to “fortune-telling” from airing on radio and television stations effective in February 2005. This notice could also lead to further actions by other Chinese government authorities to prohibit the sale of such fortune-telling related products which could have a material adverse effect on our financial position, results of operations, or cash flows. SARFT or other Chinese government authorities may prohibit the marketing of other mobile services via a channel we depend on to generate revenues, which could have a material adverse effect on our financial position, results of operations or cash flows.

In addition, some of the mobile network operators have unilaterally changed their policies as applied to third party service providers in the past, and may do so again in the future. For example, China Mobile banned all cooperative arrangements known as “SMS Website Unions” in July 2003, effectively precluding large service providers from aggregating unregistered websites and utilizing China Mobile’s billing platform to gather fees for these services. In August 2003, China Mobile further banned service providers from using its network to charge customers for services which were deemed by it to be not purely wireless services. Although we were not engaged in these activities and, therefore, these particular policy changes did not impact our business, we may not be able to respond adequately to negative developments in our contractual relationships with the relevant mobile network operators in the future because we are not able to predict any unilateral policy changes.

More recently, in April 2005, the National Copyright Administration and the Ministry of Information Industry issued the Measures for the Administrative Protection of Internet Copyright (the “Measures”) which, amongst other things, allows a copyright owner to issue a notice to an Internet Service Provider (“ISP”) informing them that materials are being made available on the internet without authorization from the copyright owner. Under the Measures, upon receipt of such notice, the ISP is obligated to block access to the identified material until an alleged breach is confirmed. We anticipate an increased amount of notices being issued by copyright owners which may result in us being denied access to the identified material until the alleged breach is confirmed which could have a material adverse impact on our business.

Further, in August 2005, the General Administration of Press and Publication (“GAPP”) introduced as an anti-addiction program which requires online game publishers to limit the length of time a person can play online. While this program has so far not been overly effective, GAPP could in the future enforce new requirements in relation to this program which could significantly reduce our online game revenue by reducing the online time of players.

China Mobile has imposed penalties on one of our mobile services and applications businesses for breaches and irregularities in the provision of services to users. If penalties are imposed by the mobile network operators in the future with respect to either our past or future activities, our business and financial results could be materially adversely affected.

In August 2004, Go2joy, one of our mobile services and applications units, received notice from China Mobile that China Mobile was imposing sanctions and penalties upon Go2joy and 21 other mobile value added service providers in China for various violations of China Mobile’s requirements. In connection with Go2joy, China Mobile indicated that Go2joy: in Shanxi province had inadvertently charged inactive users; in Hunan province, as a result of an agreement to

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take on certain services of a content partner, had transferred certain users to its SMS platform without positive confirmation of the users or approval from China Mobile; in Shanxi and Henan provinces had sent inappropriately worded SMS promotional messages to users; and had inadvertently continued to charge some cancelled accounts for SMS services.

The sanctions resulted in temporary suspension of Go2joy’s existing SMS services from August 2004 until February 2005 when Go2joy was able to resume billing for SMS services over China Mobile’s network. In addition, China Mobile temporarily suspended the approval of Go2joy’s application to operate on new platforms until the end of 2004 and suspended the approval of Go2joy’s application to offer new products and services on all existing platforms, such as SMS and IVR, until June 30, 2005. China Mobile also imposed fines of around RMB1.3 million, or approximately $160,000. The sanctions imposed by China Mobile did not affect Go2joy’s existing IVR services. Under the sanctions, Go2joy was required, among other things, to establish a satisfactory connection with the Mobile Information Service Center, or MISC platform, a centralized service provider monitoring system operated by China Mobile.

The mobile network operators have a wide range of policies and procedures regarding customer service, quality control and other aspects of the wireless value-added services industry. As the industry has evolved over the last several years, the mobile network operators have refined these policies to improve overall service quality. In addition, acting under the guidance of China’s Ministry of Information Industry, the mobile network operators have begun enforcing their customer service policies more rigorously than in the past and have initiated steps to improve customer service. If enforcement of such policies in the future results in additional penalties, such as being precluded from offering certain services over a mobile network operator’s network or from offering new services for a fixed period, our business and financial results could be materially adversely affected.

In addition, we are also subject to potential liability and penalty for delivering inappropriate content through our mobile value added services. For example, in July 2004, China Mobile temporarily terminated the IVR service of one of our competitors for violating certain operating procedures. One of the violations cited in the notice for temporary termination was that it had provided inappropriate content to its mobile subscribers through its IVR service. The definition and interpretation of inappropriate content in many cases is vague and subjective. We are not sure whether mobile network operators including China Mobile and China Unicom or the Chinese government will find our mobile content inappropriate and therefore prevent us from operating the mobile value added services relating to such content in the future. If they prevent us from offering such services, our profit from mobile values added services will suffer.

We may not be able to adequately respond to other developments in mobile network operator policies, or changes in the manner in which such policies are enforced. Furthermore, because the mobile network operators’ policies are in a state of change at this time and they are highly sensitive to customer complaints (even if the complaints may not have a bona fide basis), we cannot be certain that our business activities will always be deemed in compliance with those policies despite our efforts to comply. Accordingly, we may be subject to monetary penalties or service suspensions or both, even for conduct which we believed to be permissible. Any future noncompliance with the mobile network operators’ policies by us, whether inadvertent or not, could result in a material and adverse effect on our revenue and profitability.

In addition to enhanced enforcement of their policies, the mobile operators have been adopting new billing systems and policies which we believe have contributed to declines in our SMS revenue.

China Mobile and China Unicom are adopting new billing systems for 2G services, like SMS, on a province-by-province basis, which require users to make two confirmations to order services via the Internet or mobile phone, enable users to more easily cancel services and prevent service providers from billing inactive users for subscription-based services. As of December 31, 2005, these new billing systems were wholly or partially operational in 31 provinces for China Mobile and 21 provinces for China Unicom. In addition, effective January 1, 2005, China Mobile changed its billing policy so that we can no longer collect revenue with respect to undeliverable MMS messages. Previously, MMS messages that were undeliverable because the recipient’s handset was turned off, out of the network service area or not equipped to handle MMS messages were forwarded to an Internet mailbox, and we were entitled to collect revenue in connection with the messages.

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We believe the new billing systems and changes in policies have resulted and may further result in lower mobile services and applications revenues or additional operating costs for us. We cannot assure you that our financial condition and results of operations will not be materially adversely affected by any new system, policy or guideline imposed by the mobile network operators in the future.

Our business could be adversely affected if any of the mobile network operators begin providing their own mobile applications.

Our mobile business may be adversely affected if any of the mobile network operators decide to terminate our existing revenue-sharing relationship and begin providing their own mobile services and applications to subscribers. In that case, we would not only face enhanced competition, but could be partially or fully denied access to their networks.

If any of the mobile network operators fail to bill their customers or to provide billing confirmations for our mobile applications, our mobile applications revenues could be significantly reduced.

We depend upon the mobile network operators to maintain accurate records of the fees paid by users and their willingness to pay us. Specifically, the mobile network operators provide us with monthly statements that do not provide itemized information indicating for which mobile services and applications the mobile network operator has collected fees. As a result, monthly statements that we have received from the mobile network operators cannot be reconciled to our internal records on a segmented basis. In addition, access to the mobile network operators’ internal billing and collection records is subject to the discretion of such operators; we have only limited means to verify the information provided to us independently. Our mobile services and applications revenues could be significantly reduced if these mobile network operators miscalculate the revenues generated from our mobile services and applications and our portion of those revenues.

Our mobile applications revenues are affected by billing and transmission failures which are often beyond our control.

We do not collect fees for delivery of our mobile services and applications from the mobile network operators in a number of instances, including if:

• the delivery of our mobile services and applications to a subscriber is prevented because his or her mobile phone is turned off for an extended period of time, the customer’s prepaid phone card has no value or the subscriber has ceased to be a customer of the applicable mobile network operator;

• the applicable mobile network operator experiences technical problems with its network which prevent the delivery of our mobile services and applications to the subscriber;

• we experience technical problems with our technology platform that prevents delivery of our mobile services and applications; or

• the subscriber refuses to pay for our mobile services and applications due to quality or other problems.

These situations are known in the mobile services and applications industry as billing and transmission failures. We do not expect to recover revenues that are lost due to billing and transmission failures. The failure rate can vary among network operators, and by province, and also have fluctuated significantly in the past. For example, for the year ended December 31, 2005, the average monthly transmission failure rate ranged from 5% to 10%. We do not have any agreements with the mobile network operators that provide that if such differences are greater than a fixed percentage, we have the right to adjust the differences. The mobile network operators have absolute discretion in the adjustment of any difference. Any significant billing and transmission failures therefore will significantly lower our recorded revenues.

Because the mobile network operators do not provide information showing revenues and transmission information on a service-by-service basis, we can only estimate our actual revenues by service type.

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The mobile network operators’ monthly statements to service providers regarding mobile applications delivered through their networks currently do not contain revenues and billing and transmission failure information on a service-by-service basis. Although we maintain our own records reporting the mobile applications provided, we can only estimate the actual revenues by service type because we are unable to confirm from all provincial operators which services were transmitted but resulted in billing and transmission failures. As a result, we are unable to calculate and monitor service-by-service revenues, margins and other financial information, such as average revenue per user by service and total revenues per user by service, with sufficient precision to allow us to accurately determine which of our mobile applications are or may be profitable.

The mobile network operators may impose higher service or network fees if we are unable to satisfy customer usage and other performance criteria, thereby reducing our mobile applications revenues.

Fees for our mobile services and applications are charged on a monthly subscription or per usage basis. Based on our contractual arrangements, we rely upon China Mobile and China Unicom for both billing of, and collection from, subscribers of fees for our mobile applications.

China Mobile and China Unicom generally charge us service fees of 15% to 30% of the revenues generated by our mobile applications, respectively. To the extent that the number of messages sent by us over China Mobile’s network exceeds the number of messages our subscribers send to us, we must pay per message channel fees, which decrease in several provinces as the volume of customer usage of our mobile applications increases. The number of messages sent by us will exceed those sent by our subscribers, for example, if the subscriber sends us a single message to order a game but we must send that subscriber several messages to confirm his or her order and deliver the game itself. Any increase in China Mobile’s or China Unicom’s network fees and service charges could reduce our gross margins. China Telecom and China Netcom generally charge us service fees of 30% to 50% of the revenues generated by our mobile applications, respectively.

The mobile network operators may not authorize our mobile applications to be offered on their networks if we fail to achieve minimum customer usage, revenues and other criteria, thereby adversely affecting our mobile services and applications revenues.

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

In the future, we may fail to meet the then-current performance criteria that mobile network operators in these or other provinces or municipalities set from time to time. In any such case, our mobile applications could be excluded from certain services or from their entire networks at a national, provincial or municipal level, or we could be precluded from introducing new services, which would adversely affect our revenues and growth prospects.

In the event we fail to achieve or maintain a prominent position on the WAP portals of the two principal mobile network operators in China, we may not be able to capture opportunities presented by the expected high growth in the market for WAP services in China which could affect our overall financial condition.

The current practice of the mobile network operators is to place the most popular WAP services at the top of the menu on the first page of the list of services available in each service category on their WAP portals. Services at the top of the menu are more accessible to users than other services and, in our experience, are more frequently accessed than those services lower on the menu. This effectively reinforces the position of the most popular services. The placement of services on these menus creates significant competitive advantages for the top-ranked services and significant challenges for newer and less popular services. In the event we fail to achieve or maintain a prominent position on the WAP portals of the two principal mobile network operators in China, we may not be able to capture opportunities presented by the expected high growth in the market for WAP services in China. This could materially and adversely affect the revenue from our services, and thus our overall financial condition.

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Our mobile applications and their pricing are subject to approval by the applicable mobile network operator, and if requested approvals are not granted in a timely manner, our mobile services and applications business could be adversely affected.

We must obtain approval from the applicable mobile network operator with respect to each mobile application that we propose to offer or charge to their subscribers and the pricing for such mobile application. No assurance can be given that such approvals will be granted in a timely manner or at all. Moreover, under some of our contracts with the mobile network operators, we cannot change prices more than once every six months or charge prices outside a fixed range. Failure to obtain, or a delay in, obtaining such approvals could place us at a competitive disadvantage in the market and adversely affect our mobile applications business.

We rely heavily on certain regions in China for a significant share of our mobile applications revenues. An economic downturn or any loss of our contracts with mobile operators in these provinces could have a material adverse effect on our results of operations.

A significant portion of our revenues from mobile applications are derived from the provinces of Shandong, Jiangsu, Sicuan, Shanxi and Henan in China. As such, our results of operations are susceptible to changes in the economies of these regions. An economic downturn in any one of these regions, or our failure to renew our contracts with the applicable mobile network operator in any one of these regions, could reduce our mobile services and applications revenues.

The Chinese government has granted licenses to offer basic wireless telecommunications services in China to third parties with whom we have not yet developed close relationships, and may grant additional licenses to others in the future. If those parties which receive licenses are successful in the mobile applications market, but we are unable to establish new arrangements or develop cooperative relationships with them, our mobile applications business, revenue and overall financial condition could be adversely affected.

The success of our mobile applications business depends on our relationship with China’s mobile network operators. While China Mobile and China Unicom are the largest companies permitted to provide mobile services in China, the Chinese government has granted licenses to offer basic wireless telecommunications services in China to China Network Communications Group Corporation, or China Netcom, and China Telecommunications Corporation, or China Telecom. We have not yet developed close business relationships with those parties as we have done with China Mobile and China Unicom If we are unable to develop our relationship with China Telecom and China Netcom, our revenue and overall financial condition could be adversely affected if they take market share from China Mobile and China Unicom.

Further, China Netcom and China Telecom have recently decided to offer wireless value-added services created by them (or a division of them), rather than by third party service providers such as our company. It is also possible that other parties receiving basic wireless telecommunications licenses may decide to offer wireless value-added services created by them, rather than by a company such as ours. We will be in direct competition with those operators, and our revenue and overall financial condition could be adversely affected if we are not able to compete effectively against them.

Our mobile applications and portal business could be materially adversely affected if the current ownership structure of our Chinese companies that hold ICP licenses is challenged by the Chinese regulatory authorities.

The Chinese government has imposed foreign ownership restrictions and prohibitions on Internet content and telecommunications operations. Laws and regulations in China require all Internet portal and mobile portal operators to obtain an Internet content provider, or ICP, license before they may operate the portals in China. Under current regulations, ICP license holders must be Chinese nationals or domestic Chinese companies. As a result, we cannot be the legal owner of such ICP licenses which are necessary to operate our mobile and portal businesses in China. Currently, each of the three primary business units of China.com has formed domestically registered companies in China to, among other things, be the legal owner of required ICP licenses.

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• Newpalm has formed Beijing Newpalm Technology Co. Ltd. and Beijing Wisecom Technology Co., Ltd.

• The China.com portal unit has formed Beijing China.com Technology Services Co., Ltd.

• Go2joy has formed Beijing He He Technology Co., Ltd.

• 17game has formed Beijing Hulian Jingwei Technology Development Co., Ltd.

Employees of the respective business units who are Chinese nationals own the shares of the respective domestically registered companies in China. These Chinese nationals, in turn, have entered into trust deed arrangements with respect to the domestically registered companies in China and affiliates of the respective business units under which the Chinese nationals serve as trustees of the trusts, and the business units have formed offshore holding vehicles registered in the British Virgin Islands to be 100% beneficiary of the trusts. For a further description of the corporate structure in China for our China.com subsidiary, see Item 4.C “Information on the Company – Organizational Structure – Corporate Structure in China for our China.com Subsidiary”.

Due to uncertainties relating to the interpretation and application of telecommunications and Internet legislation in China, the authorities in China could, at any time, assert that any part of our existing or future business, or the ownership of the domestically registered companies in China and their ICP licenses through the trust deed arrangements, violate Chinese laws or regulations. If we are found to be in violation of any Chinese law or regulation, the relevant authorities would have broad discretion in imposing penalties, which could include one or more of the following:

• levying of fines;

• compulsory disgorgement of income for both current and past periods;

• revocation of our ICP or business license;

• closure or suspension of our China operations; and

• compulsory restructuring of our China operations or licensing arrangements.

Any of these actions may disrupt our services in China, may harm our reputation and could have a material adverse effect on our portal and mobile operations in China. In particular, if any of these ICP licenses are revoked or terminated, our Internet content and mobile operations in China that are dependent on such licenses will be discontinued, which will have a material adverse effect on our results of operations and financial condition.

Our business could be materially adversely affected if we cannot provide effective operational control of our mobile applications and portal business due to the current ownership structure of our Chinese companies.

As described in the preceding risk factor, we rely upon certain Chinese nationals as the legal owners of the domestically registered companies in China that hold the ICP licenses which are necessary to operate our Internet and mobile businesses in China. Although our indirect subsidiaries are the beneficial owners of these domestically registered companies and such Chinese nationals may be our directors or employees, the rights provided in these trust arrangements are contractual in nature and do not necessarily guarantee operational control. If our trustees fail to perform their obligations, the contractual remedies available in jurisdictions outside China may not provide us with effective control over these domestically registered companies in China due to the uncertainty of enforcing foreign judgments or arbitral awards in China. The loss of effective control over our China operations and licensing would significantly harm our portal and mobile businesses in China.

The dividends, other distributions on equity, service fees, and other payments we may receive from our domestically registered companies in China are subject to restrictions under Chinese law.

The domestically registered companies in China through which we conduct operations for each of China.com’s three primary business units and have an indirect ownership interest through trust deed arrangements are the primary

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revenue generating entities of each of the primary business units of China.com. Each of China.com’s three primary business units have formed and invested in a wholly foreign owned enterprise (“WFOE”), to act as a long term exclusive partner of the domestically registered company in China. WFOEs are limited liability companies established under the Chinese Company Law, the shareholders of which are permitted to be 100% foreign. As the long term exclusive partner of the domestically registered company in China, the respective WFOE provides technical and logistical support for the day to day operations of the domestically registered company in China, including sales and marketing, billing, and administrative services. To facilitate the delivery of the technical and logistical support, the WFOE owns the physical assets, including servers, switches and computers, and employs the technical, sales and administrative personnel necessary to deliver these services. In exchange for such services, the WFOE charges the domestically registered company in China a fee which ranges from 49% to 90% of the gross revenue of the domestically registered company. For a further description of the corporate structure in China for our China.com subsidiary, see Item 4.C “Information on the Company – Organizational Structure – Corporate Structure in China for our China.com Subsidiary”.

If any of our domestically registered companies in China incurs debt in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions. In addition, Chinese law requires that payment of dividends by our domestically registered companies in China can only be made out of their net income, if any, determined in accordance with accounting standards and regulations in China. Under Chinese law, those domestically registered companies are also required to set aside a portion, up to 10% of their after-tax net income each year to fund certain reserve funds, and these reserves are not distributable as dividends. Any limitation on the payment of dividends or service fees by domestically registered companies in China through which China.com primarily conducts its operations could have a material adverse effect on our ability to grow, fund investments, and otherwise operate our mobile services and applications business.

The Chinese government or the applicable mobile network operators 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 to violate Chinese law, including content that is pornographic or obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory.

China Unicom and China Mobile 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 inappropriate content, including the imposition of fines and service suspensions. Some of those providers indicated that the mobile operators informed them that certain of their content was construed as too adult-oriented or sexually suggestive. In addition, in June 2004, along with other participants in our industry, we received information and guidance from China Mobile and China Unicom regarding what they consider to be inappropriate content for mobile value-added services. In response, we reviewed our services and removed certain content, including picture downloads, in order to comply with such information and guidance. There can be no assurance that we will not receive future guidance that could compel us to further alter our services.

The appropriateness or inappropriateness of mobile services and applications content on platforms like MMS, WAP and IVR, is a new and emerging concept in China. The industry is in its infancy and the first publicly announced application of penalties for inappropriate content occurred in the second and third quarters of 2004. Most importantly, the determination that content is deemed to be inappropriate is inherently subjective, and is subject to the interpretation of the governmental authorities and mobile network operators in China. Their standards are generally more restrictive than those applied in other countries like the United States. Accordingly, while we intend to comply with all applicable rules regarding mobile content, it is very difficult for us to assess whether we offer particular content that could be construed by the mobile network operators as inappropriate under current regulations in China. Any penalties imposed on us by the mobile network operators for the content of our services could result in a material and adverse effect on our revenue, profitability and reputation.

If we are held liable for claims based on information originating from our portal network or communicated through our mobile applications, we may incur significant costs contesting such claims or paying damages.

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We may face liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of information originating from our portal network or communicated through our mobile services and applications, including our SMS, MMS, WAP and IVR products. Such information could include content and material posted by our registered community members on our message boards, online communities, voting systems, e-mail or chat rooms. By providing technology for hypertext links to third-party websites, we may be held liable for copyright or trademark violations by those third-party sites. Third parties could assert claims against us for losses incurred in reliance on erroneous information distributed by us. Users of our web-based e-mail or SMS, MMS, WAP or IVR products could seek damages for:

• unsolicited e-mail or messages;

• lost or misplaced messages;

• illegal or fraudulent use of e-mail or SMS messages; or

• interruptions or delays in service.

We do not carry liability insurance to cover potential claims of this type. We may incur significant costs in investigating and contesting these claims. Any judgment, fine, damage awards or liability imposed on us could significantly increase our costs. Moreover, our reputation may suffer as a result of these claims, which could reduce traffic on our portal network or reduce our revenues.

If the Chinese government considers our existing licensing structures to be insufficient in meeting compliance requirements with applicable licensing restrictions, or if we fail to comply with changes to these requirements or restrictions, our portal and mobile services and applications businesses could be materially adversely affected.

The Chinese government regulates access to the Internet by imposing strict licensing requirements on Internet service providers, or ISPs. Generally, the provision of different types of infrastructure telecommunication services and value-added telecommunication services is subject to different licensing regimes in China.

While we believe that our current operation complies with all existing laws, rules and regulations in China, there are substantial uncertainties regarding the interpretation of current Internet laws and regulations. It is possible the Chinese government may take a view contrary to ours because there are no well established precedents or clear judicial interpretations to support our interpretations and views of the laws, rules and regulations. Issues, risks and uncertainties relating to government regulation of China’s Internet sector include:

• regulations applying to Internet-related services and telecom-related activities. While many aspects of these regulations remain unclear, they purport to limit and require licensing of various aspects of the provision of Internet information services. If these regulations are interpreted to preclude our current ownership structure or business model, our portal and mobile services and applications businesses could be severely impaired; and

• the activities of ICPs are subject to regulation by various government authorities in China depending on the specific activities conducted by the ICP as stated by the Ministry of Information and Industry. Various government authorities have enacted several laws and regulations that govern these activities. The areas of regulation include:

• online advertising;

• online news reporting;

• online publishing;

• online securities trading;

• online gaming;

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• online broadcasting;

• bulletin board service; and

• the provision of industry-specific information (e.g., pharmaceutical products) over the Internet, etc.

Other aspects of our online operations may be subject to regulation in the future.

In addition to the regulations promulgated by the Chinese national government, some local governments, such as the Beijing local government, have also promulgated local rules applicable to Internet companies operating within their respective jurisdictions. These local rules may also create additional barriers in relation to the operation of our business.

Our portal business depends substantially on third party content providers and may be adversely affected if we are unable to maintain existing arrangements with these content providers.

We rely on third parties to create traffic and provide content for our portal network to make it more attractive to advertisers and consumers. Our content providers include Xinhua, a major shareholder of CDC, as well as commercial content providers and our registered community members. If Xinhua or these third parties fail to provide us with high quality content, our portal network could lose viewers, subscribers and advertisers and our revenue from these sources would decrease. Our existing relationships with Xinhua and other commercial content providers are not exclusive and may not result in sustained business partnerships or successful service offerings or sustained traffic on our portal network or future revenues. Our purchases of content from Xinhua have not been material in the past.

Regulation of content distributed on the Internet in the PRC may adversely affect our business.

The PRC has enacted regulations governing Internet access and the distribution of news and other information. The Ministry of Information and Industry has published implementing regulations that subject online information providers to potential liability for content included on their portals and the actions of subscribers and others using their systems, including liability for violation of laws prohibiting the distribution of content deemed to be socially destabilizing. Because many laws, regulations and legal requirements with regard to the Internet in the PRC are relatively new and untested, their interpretation and enforcement of what is deemed to be socially destabilizing by Chinese authorities may involve significant uncertainty.

Under the regulations on telecommunications and Internet information services in China, Internet information service providers are prohibited from producing, duplicating, releasing or distributing any information which falls within one or more of the nine stipulated categories of “undesirable content”. These categories cover any information which:

• contravenes the basic principles enshrined in the PRC Constitution;

• endangers the security or unity of the State;

• undermines the State’s religious policies;

• undermines public order or social stability; or

• contains obscene, pornographic, violent or other illegal content or information otherwise prohibited by law.

In addition, the legal system in the PRC 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. As a result, it is difficult to determine the type of content that may result in liability. We cannot predict the effect of further developments in the Chinese legal system, particularly with regard to the Internet and the dissemination of news content, including the creation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local rules and regulations by national laws.

Violations or perceived violations of laws in China arising from information displayed, retrieved from or linked to our portals could result in significant penalties, including a temporary or permanent cessation of our business in China. The

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Chinese government agencies have announced restrictions on the transmission of state secrets through the Internet. State secrets have been broadly interpreted by Chinese governmental authorities in the past. We may be liable under these pronouncements for content and materials posted or transmitted by users on our message boards, virtual communities, chat rooms or e-mails. If the Chinese government were to take any action to limit or eliminate the distribution of information through our portal network or to limit or regulate any current or future applications available to users on our portal network, this action could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to our Intellectual Property, Personnel and Network

We may be unable to protect or enforce our own intellectual property rights adequately and may be involved in future litigation over our use of technology rights.

We have acquired and are increasingly developing our own intellectual property. Recent acquisitions of a significant amount of intellectual property have resulted from the following:

• the recent purchase of Ross, which possesses intellectual property principally consisting of ERP and SCM software applications for the food and beverage, life sciences, chemicals, metals and natural products industries;

• the recent purchase of Pivotal, which possesses intellectual property principally consisting of a complete set of highly flexible CRM software applications;

• the purchase of IMI, which possesses intellectual property principally consisting of order management software solutions for complex retail, wholesale, consumer goods, and distribution operations;

• the purchase of OpusOne Technologies, which possesses intellectual property principally consisting of proprietary enterprise software related applications for use in human resources, payroll administration and attendance tracking;

• the purchase of Executive Suite, which possesses intellectual property principally consisting of business intelligence and analytics software products;

• the purchase of the assets of JRG Software, which possesses intellectual property principally consisting of on-demand supply chain solutions for planning and scheduling, delivered as Software as a Service (SaaS); and

• the purchase of the URLs, including www.china.com and www.hongkong.com.

We regard the protection of our trademarks, service marks, copyrights, trade secrets, domain names, and other intellectual property rights as crucial to our success. We rely on a combination of copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information and technology. We do not currently hold any patents nor do we have any patent applications pending. There can be no assurance that any copyrights or trademarks held by us will not be challenged or determined to be invalid. In addition to the protection generally available to unregistered trademarks under the laws of many jurisdictions, we also protect our trademarks through registration primarily in the United States and Canada, although we do seek such protection elsewhere in selected key markets.

As part of our confidentiality procedures, we have policies of entering into non-disclosure and confidentiality agreements with our employees, consultants, corporate alliance members, customers and prospective customers. We also enter into license agreements with respect to our technology, documentation and other proprietary information. These licenses are nonexclusive and generally perpetual. We provide for source code escrow arrangements under some of our license agreements. Despite the efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain the use of our products or technology that we consider proprietary and third parties may attempt to develop similar technology independently.

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Protection may not be available in every country in which our intellectual property and technology is used. Some countries, such as the People’s Republic of China, may not protect our proprietary rights to the same extent as in the United States and Canada. In particular, software piracy has been an issue in China for many software publishers, although we believe the complexity of our software products and the need to customize, maintain and upgrade such products mitigates the risk of software piracy. We also anticipate that companies that develop software applications will be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. As a result, we may become involved in these claims. Furthermore, we must also protect our trademarks, service marks, copyrights, trade secrets, domain names, and other intellectual property rights in an increasing number of jurisdictions, a process that is expensive and difficult, and may not be successful in every location. Policing the unauthorized use of our licensed technology is difficult as are the steps necessary to prevent the misappropriation or infringement of our licensed technology. In addition, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Any of these claims, with or without merit, could result in costly litigation, divert our management’s time, attention and resources, delay our product shipments or require us to enter into royalty or license agreements. If a claim of product infringement against us is successful, our business and operating results could be seriously harmed. There can be no assurance that protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

Most of our products do not contain license management functionality, or contain only limited license management functionality. Because some of our license agreements are for named-user licenses in which only a certain limited number of named individuals are permitted to use the software for which the license is granted, if our customers do not accurately report the number of users using our products or we cannot accurately track the number of users of our products at a customer site, we face the potential of lost revenues if the customer has a greater number of users than for which they have purchased licenses. License agreement provisions, such as requesting customers to perform annual self audits of the number of users at a customer site, provide only limited protection and are retrospective.

We currently sub-license and distribute the intellectual property and technology of third parties. As we continue to develop intellectual property and introduce new products and services that require new technology, we anticipate that we may need to obtain licenses for additional third party technology. We cannot provide assurance that these existing and additional technology licenses will be or will continue to be available to us on commercially reasonable terms, if at all. In addition, it is possible that in the course of using new technology, we or our agents acting on our behalf may inadvertently breach the technology rights of third parties and face liability for our breach. Our inability to obtain these technology licenses or avoid breaching third party technology rights could require us to obtain substitute technologies of lower quality or performance standards or at greater cost which could delay or compromise the introduction of new products and services, and could materially adversely affect our business and financial condition.

We are subject to possible infringement claims, which could be time consuming and costly to defend, divert management’s attention and resources or cause product shipment delays.

We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our various industry segments grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time consuming and costly to defend, divert management’s attention and resources, cause product shipment delays or require us or our subsidiaries to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all, and may require the payment of substantial amounts of money. In the event of a successful product infringement claim against us or our failure or inability to license the infringed or similar technology, our business, operating results and financial condition could be materially adversely affected.

We are exposed to product liability claims, which could be time consuming and costly to defend, divert management’s attention and could have a material adverse effect on our business, operating results and financial condition.

Our enterprise software license agreements with our customers typically contain provisions designed to limit exposure to potential product liability claims. Any such claims, with or without merit, could be time consuming and costly to defend and divert management’s attention and resources. Some of our subsidiaries carry insurance to protect against certain of these claims. It is possible, however, that the limitation of liability provisions contained in our license agreements may not be effective as a result of U.S. or foreign laws or ordinances enacted in the future or because of judicial decisions,

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and that liability insurance may not be available, or that coverage for specific claims may be denied. Although we have not experienced any material product liability claims to date, our sale and support of products may entail the risk of such claims. A successful product liability claim brought against us could materially adversely affect our business, operating results and financial condition.

We rely on key personnel. In the event we lose the services of key employees, it may be costly and time consuming for us to locate other personnel with the required skills and experience.

Our success depends on the continued efforts of our board members, our senior management and our technical, research and development, services and support, marketing and sales personnel. These persons may terminate their association or employment with us, or they may be terminated by us, at any time. During 2004 and 2005, we experienced changes in our senior management and the senior management at our subsidiary companies for a variety of reasons, including restructuring, medical reasons, retirement, and resignations to pursue other career opportunities. Loss of the services of key members of senior management or experienced personnel in our key revenue producing businesses can be disruptive and causes uncertainty. Until March 2004, we had split the role of chairman and chief executive officer between Dr. Raymond Ch’ien and Mr. Peter Yip, respectively. From April 2004 to August 2005 both positions were undertaken by Dr. Ch’ien, from August 2005 to April 2006 Mr. Steven Chan was acting chief executive officer and since April 2006 Mr. Peter Yip has again undertaken the position as chief executive officer. An inability to attract or retain additional qualified board members, senior managers or personnel in a timely manner, or health, family or other personal problems of key personnel could have a material adverse effect on our business, financial condition, results of operations and share price.

The process of hiring employees with the combination of skills and attributes required to implement our business strategy can be extremely competitive and time-consuming. We compete for a limited number of qualified individuals with more established companies with greater resources that may offer more attractive compensation or employment conditions. As a result, we may be unable to retain or integrate existing personnel or identify and hire additional qualified personnel. Furthermore, our success depends upon our ability to retain or replace the members, particularly the independent members, of our board of directors.

We have entered into indemnification agreements with some of our directors and officers which generally do not explicitly state our maximum obligation under these agreements. If we were to incur a loss in connection with these arrangements, it could affect our business, operating results and financial condition.

In order to attract the service of some of our directors and officers, we have entered into indemnification agreements with some of our directors and officers that may require us to indemnify such directors and officers against liabilities that may arise by reason of their status or service as directors or officers, and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified. Generally, the maximum obligation under such indemnifications is not explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated. If we were to incur a loss in connection with these arrangements, it could affect our business, operating results and financial condition.

We have relied on stock options to compensate our employees. In the event employees do not consider their options as valuable compensation, we may need to provide additional compensation at additional expense.

We have granted stock options to many of our employees in lieu of additional salary. Some of our employees may not consider their options to be valuable compensation, and we may need to provide additional compensation, in the form of additional salary, bonuses or equity, in an effort to retain those existing employees. Our inability to retain our employees, particularly our senior officers, and key sales, technical, research and development, services, marketing and other service personnel in our key revenue producing businesses could have a material adverse effect on our business, financial condition, results of operations and share price.

Our computer networks are vulnerable to hacking, viruses, spamming and other disruptions which may cause us to lose key clients, expose us to liability for our clients’ losses, or prevent us from securing future business.

Inappropriate use of our Internet services or errors or omissions in processing instructions or data available in our computer system or databases could jeopardize the security of confidential information stored in our computer system, which may cause us to lose key clients, expose us to liability for our clients’ losses and prevent us from securing future business, any of which could have a material adverse effect on our business, financial condition, results of operations and share price.

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Inappropriate use of the Internet includes attempting to gain unauthorized access to information or systems (commonly known as cracking or hacking) and repeated transmission of unsolicited e-mail messages (commonly known as e-mail bombing or spamming). Our current policies, procedures and configurations for managing our systems, including our computer servers, may not be adequate to protect our facilities and the integrity of our user and customer information. Although we implement security measures to protect our facilities and the integrity of our user and customer information, such measures could be ineffective or circumvented.

Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation in our services, in addition to the outages that occur in our systems from time to time for various reasons, including power interruptions, errors in instructions, equipment inadequacy, capacity and other technical problems. We do not carry errors and omissions or other insurance covering losses or liabilities caused by computer viruses, security breaches or spamming attacks. Compromises or breaches in the security or integrity of our facilities or customer or user information, or inappropriate use of our Internet services, could subject us to litigation and could adversely affect our customer base, business, share price, results of operation and financial condition.

We rely on software and hardware systems that are susceptible to failure, and in the event of service operations or other related problems, our operating efficiency and results of operations may be adversely affected.

Any system failure or inadequacy that interrupts our services or increases the response time of our services could reduce user satisfaction, future traffic and our attractiveness to advertisers and consumers. We also depend on Internet service providers and other Web site operators in Greater China and elsewhere that have experienced significant system failures and electrical outages in the past. Our users have experienced difficulties due to system failures that were unrelated to our systems and services. There can be no assurance that our technologies, services and products will not experience interruptions or other related problems, which could affect our operating efficiency and results of operations.

We have limited backup systems and redundancy. We do not have a disaster recovery plan in the event of damage from fire, natural disasters, power loss, telecommunications failures, break-ins and similar events. We may experience a complete system shut-down if any of these events were to occur. To improve performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or one or more copies of our Web sites to mirror our online resources. Because we carry property insurance with low coverage limits, our coverage may not be adequate to compensate us for our losses. If we do not increase our capacity and our redundancy, these constraints could have a material adverse effect on our business, results of operations and financial condition.

Political, Economic and Regulatory Risks

There are economic risks associated with doing business in the People’s Republic of China which could adversely affect our business.

A significant part of our current revenues are, and a significant part of our future revenues are expected to be, derived from the market in the PRC. The economy in the PRC differs from the economies of most developed countries in many respects, including:

• amount of government involvement;

• level of development;

• growth rate;

• control of foreign exchange; and

• allocation of resources.

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While the economy in the PRC has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The economy in the PRC has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

A change in currency exchange rates could increase our costs relative to our revenues thereby potentially adversely affecting our financial condition, results of operations and increasing market risk.

Substantially all of our revenues, expenses and liabilities are denominated in either Australian dollars, British pounds, Canadian dollars, Euros, Hong Kong dollars, renminbi, Singapore dollars, South Korean won, Swedish Kronas, or U.S. dollars. However, our quarterly and annual financial results are reported in U.S. dollars. In the future, we may also conduct business in additional foreign countries and generate revenues, expenses and liabilities in other foreign currencies. As a result, we are subject to the effects of exchange rate fluctuations with respect to any of these currencies and the related interest rate fluctuations. We have not entered into agreements or purchase instruments to hedge our exchange rate risks although we may do so in the future.

Increased Sino-U.S. political tension may make our company less attractive to investors and clients.

The relationship between the U.S. and the PRC is subject to sudden fluctuation and periodic tension. For example, relations may be compromised if the U.S. becomes a more vocal advocate of Taiwan. Any weakening of relations between the U.S. and China could have a material adverse effect on our business. Anti-U.S. or anti-China sentiment could make our company and our shares less attractive since we are listed in the United States. Changes in political conditions in China and changes in the state of Sino-U.S. relations are difficult to predict and could adversely affect our operations or cause the Greater China market to become less attractive to investors and clients.

Hostilities involving the United States and/or terrorist attacks could harm our business.

Our operations could be negatively impacted if there are additional terrorist attacks or threats of terrorist attacks, or if hostilities involving the United States escalate. In the past, terrorist attacks, including attacks on the United States and internationally, have had a significant impact on global economic conditions and our operations. Further, as a result of past terrorist attacks and hostilities involving the United States, we believe many of our customers and potential customers have been much more cautious in setting and spending against their capital expenditure budgets. Subsequent terrorist acts and/or the threat of future terrorist attacks or escalation of hostilities involving the United States or other countries could adversely affect the growth rate of our revenue and have an adverse effect on our business, financial condition or results of operations. In addition, any escalation in these events or similar future events may disrupt our operations or those of our customers, distributors and suppliers, which could adversely affect our business, financial condition or results of operations.

Risks Relating to Treasury Management

Our entry into banking facilities with Fortis Bank and Standard Chartered Bank exposes us to interest rate, market and credit risks when we borrow funds from these facilities to make other investments.

We have entered into repurchase facilities with Fortis Bank and a collateralized credit facility with Standard Chartered Bank. We refer to these facilities together as the banking facilities. The banking facilities allow us to borrow, in

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aggregate, up to $350 million on such terms as we and the banks may mutually agree. The facilities were established to provide us with a source of reasonably priced capital to give us the flexibility to finance operational working capital and acquisitions, as well as our treasury management program, without having to liquidate our investment portfolio at short notice. A description of the terms under which we may borrow under these banking facilities may be found under Item 5.B – “Operating and Financial Review and Prospects – Liquidity and Capital Resources – Future Cash Requirements and Sources of Liquidity – Lines of Credit.” These banking facilities expose us to interest rate, market and credit risks when we borrow funds from these facilities to make other investments. A more detailed description of these risks may be found under Item 11 – “Quantitative and Qualitative Disclosures about Market Risk”.

Further, because we have purchased, as of December 31, 2005, approximately $32.2 million of debt securities with drawdowns under our repurchase facilities, we are subject to risk associated with investment leverage. Since the base rate of our drawdowns are reset periodically, in rising interest rate environments, we run the risk that our borrowing rate might exceed any interest income that we receive from the debt securities purchased with the proceeds of draw downs from the repurchase facilities. Any such negative interest rate differential, or “negative carry”, could lead to material adverse effect on our financial results.

Risks Relating to our Class A Common Shares

Our share price could be adversely affected if our major strategic shareholders materially change their holdings in our shares, particularly if the share holdings are not disposed of in an orderly manner.

As of March 31, 2006, Xinhua, through a wholly-owned subsidiary, owned 7,362,734 of our common shares, or approximately 6.6% of our total outstanding share capital. As of March 31, 2006, Asia Pacific Online Limited, or (“APOL”), owned 19,318,444 of our common shares, or approximately 17.3% of our total outstanding share capital. APOL is owned by the spouse of Mr. Peter Yip, CDC’s current chief executive officer and a Vice Chairman of the Board of Directors, and by a trust established for the benefit of Mr. Yip’s children. There is no guarantee that Xinhua or APOL will continue to hold our shares going forward for any length of time. If Xinhua or APOL disposes, or if our investors expect Xinhua or APOL to dispose of, a substantial portion of its holdings in CDC at any time, it could adversely affect our share price. For more information regarding the shareholdings of Xinhua and APOL, see Item 7.A – “Major Shareholders and Related Party Transactions – Major Shareholders”.

A small group of our existing shareholders controls a significant percentage of our common shares, and their interests may differ from other shareholders.

As of March 31, 2006, APOL has beneficial ownership of approximately 17.3% of our common shares and Xinhua, through a wholly-owned subsidiary, owned approximately 6.6% of our total outstanding share capital. Accordingly, these shareholders, particularly if they act together, will have significant influence in determining the outcome of any corporate transaction or other matter submitted to shareholders for approval, including:

• mergers, consolidations and other business combinations which under the law of the Cayman Islands requires the approval of at least 75% of the shares voting at the meeting;

• election or non-election of directors which under the law of the Cayman Islands requires the approval of a simple majority of the shares voting at the meeting;

• removal of directors which under the law of the Cayman Islands requires the approval of at least 66²/₃% of the shares voting at the meeting; and

• amendments to CDC’s memorandum and articles of association which under the laws of the Cayman Islands requires the approval of at least 66²/₃% of the shares voting at the meeting.

As a result, these shareholders, if they act together, may be able to effectively prevent a merger, consolidation or other business combination, elect or not elect directors, prevent removal of a director and prevent amendments to our memorandum and articles of association.

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For more information regarding the shareholdings of Xinhua and APOL, see Item 7.A – “Major Shareholders and Related Party Transactions – Major Shareholders”.

Our share price has been, and may continue to be, extremely volatile, which may not be attractive to investors.

The trading price of our common shares has been, and is likely to continue to be, extremely volatile. During the period from July 12, 1999, the date we completed our initial public offering, or IPO, to December 31, 2002, the closing price of our shares ranged from $1.86 to $73.4375, adjusted for our two stock splits. From January 1, 2003 to December 31, 2004, the closing price of our shares ranged from a low of $2.73 per share on March 11, 2003 to a high of $14.46 per share on July 14, 2003. On May 24, 2005, our shares closed at new 52-week low of $2.38 per share. There is no assurance that our share price will not fall below its historic or yearly low.

The trading price of our Class A common shares is subject to significant volatility in response to, among other factors:

• investor perceptions of our business, the market performance of our peer companies in the enterprise software businesses, mobile services and applications business, business services, Greater China portal and advertising and marketing activities business in general;

• our significant acquisitions, partnerships, joint ventures or capital commitments;

• trends and developments in all the markets in which we compete;

• variations in our operating results;

• our new product or service offerings;

• changes in our financial estimates by financial or industry analysts;

• technological innovations;

• litigation;

• changes in pricing made by us, our competitors or providers of alternative services;

• the depth and liquidity of the market for our shares; and

• general economic and other factors.

In addition, the trading price of our common shares has experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to our operating performance. Broad market, political and industry factors may also decrease the price of our common shares, regardless of our operating performance. Securities class-action litigation and regulatory investigations often have been instituted against companies following steep declines in the market price of their securities.

We are a “foreign private issuer”, and have disclosure obligations different from those of other U.S. domestic reporting companies.

We are a foreign private issuer and, as a result, obtain relief from certain of the requirements imposed upon U.S. domestic issuers by the Securities and Exchange Commission. For example, we are not required to issue quarterly reports or proxy statements. We are allowed six months to issue annual reports instead of three, and we are not required to disclose executive compensation reports that are as detailed as U.S. domestic issuers. Our directors and officers are not required to report equity holdings under Section 16 of the Securities Act of 1933, as amended, although we do file reports under Section 13 of the Securities Exchange Act of 1934, as amended, if and when applicable. As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors, although we are still subject to the

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antifraud and antimanipulation rules of the Securities and Exchange Commission, such as Rule 10b-5. In general, because various of the disclosure obligations on us as a foreign private issuer are less stringent than those required by other U.S. domestic reporting companies, our shareholders should not expect to receive an equivalent amount of disclosure from us as from other U.S. domestic reporting companies. We are however, in general, liable for violations of the rules and regulations of the Securities and Exchange Commission which do apply to us as a foreign private issuer, any of which violations could affect our business, results of operations and financial condition.

We may incur significant costs to avoid being considered an investment company under the Investment Company Act of 1940.

We may incur significant costs and management time to avoid investment company status under the Investment Company Act of 1940. Based upon an analysis of our assets at December 31, 2005 and income for the year 2005, during 2005, we do not believe we will be considered an investment company. The determination of whether we will be an investment company will be based primarily upon the composition and value of our assets, which are subject to change, particularly when market conditions are volatile. As a result, we could inadvertently become an investment company.

We can give no assurances in the future as to our investment company status under the Investment Company Act of 1940.

We are classified as a passive foreign investment company, or PFIC, which will subject our U.S. investors to adverse tax rules.

Based upon an analysis of our assets as at December 31, 2005 and income for the year 2005, during 2005, we were a PFIC for the U.S. federal income tax purposes. We have substantial passive assets in the form of cash and cash equivalents and treasury instruments, and can provide no assurance that we will not continue to be classified as a PFIC in 2006 and beyond. The determination of whether we would continue to be a PFIC would be principally based upon:

• the composition of our assets, including goodwill, the amount of which will depend, in part, on our total net assets and the market value of our Treasury portfolio, which is subject to change; and

• the amount and nature of our income from time to time.

We have limited control over these variables. To the extent we do have control over these variables, we may take steps to reduce the material and adverse effect that our PFIC classification may have on our share price.

Further, we may consider additional capital markets or corporate finance transactions in the future. Should we proceed with such offerings, we cannot, at this stage, specify with certainty the timing, amounts or the particular uses of the net proceeds. Depending on the usage of any such net proceeds, we could continue to be classified as a PFIC.

Since we are a PFIC, U.S. investors will be subject to adverse U.S. federal income tax consequences. For further discussion regarding our status as a PFIC, see Item 10.E – “Additional Information – Taxation – Tax Consequences of U.S. Holders – Passive Foreign Investment Company Status”. U.S. investors are strongly urged to consult their own tax advisors regarding the application of the PFIC rules to their particular circumstances.

Substantial amounts of our common shares are eligible for future sale, which could adversely affect the market price of our shares.

Sales of substantial amounts of our Class A common shares in the public market could adversely affect the market price for our shares. As of March 31, 2006, we had 111,655,585 Class A common shares issued and outstanding, substantially all of which may be sold pursuant to an effective registration statement under the Securities Act or an applicable exemption from registration thereunder, including Rule 144, which permits resales of securities subject to limitations (including trading volume) depending on the holding period of such securities.

In addition, as we continue to issue and register shares to fulfill our contractual and acquisition-related obligations, and as our employees and other grantees have been or are granted additional options to purchase our shares, additional shares will be available-for-sale in the public market. We have also granted options to certain of our shareholders, directors

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and officers to purchase our shares, the vesting of which options may be accelerated upon an occurrence of a change-of-control event. As a result, additional shares may be available-for-sale in the public market. The availability or perceived availability of additional shares could have a dilutive and negative impact on the market price of our shares.

In the future, we also may issue additional shares, convertible notes or warrants to purchase our shares, in connection with acquisitions and our efforts to expand our business. Shareholders could face further dilution from any future share issuances.

Anti-takeover provisions in our charter documents may adversely affect the rights of holders of our common shares

Our memorandum and articles of association include provisions that could limit the ability of others to acquire control of CDC, modify our structure or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of CDC in a tender offer or similar transaction.

For example, our board of directors is divided into three classes, each having a term of three years, with the term of one class expiring each year. This provision would delay the replacement of a majority of our directors and would make changes to the board of directors more difficult than if such provision was not in place. In addition, our board of directors has the authority, without further action by our shareholders, to issue up to 5,000,000 preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A common shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. If our board of directors issues preferred shares, the price of our Class A common shares may fall and the voting and other rights of the holders of our Class A common shares may be adversely affected.

Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.

Our corporate affairs are governed by our memorandum and articles of association, by the Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. Cayman Islands law in this area may conflict with jurisdictions in the United States. As a result, our public shareholders may face more difficulties in protecting their interests in the face of actions against the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. For instance a class action lawsuit may not be available to our shareholders as a vehicle for litigating securities matters against us in the Cayman Islands. In addition, shareholder derivative actions may generally not be brought by a minority shareholder in the Cayman Islands.

If you are not a registered shareholder and do not hold greater than 10,000 shares, you may not receive our proxy materials or other corporate communications.

CDC is a Cayman Islands company and as such, we only need to distribute our proxy materials to our registered shareholders. Our proxy materials are delivered to all of our registered shareholders. We offer electronic delivery of proxy materials to our registered shareholders, and we mail proxy materials to each registered owner who has not opted to receive materials electronically. You are a registered shareholder if you have an account with our transfer agent, The Bank of New York, and if you hold a stock certificate evidencing your ownership of our common shares. You are a beneficial shareholder if a brokerage firm, bank trustee or other agent holds your common shares. However, your name would not appear anywhere on our records, but rather the name of the broker, bank or other nominee appears on our records as retained by our transfer agent, The Bank of New York. Although we only need to distribute our proxy materials to registered shareholders under Cayman Islands law, we also distribute proxy materials to beneficial shareholders who hold greater than 10,000 of our shares. In an effort to maintain cost effectiveness, we have, and will continue to, mail the proxy materials to those beneficial shareholders who hold greater than 10,000 of our shares. If you are not a registered shareholder and do not hold greater than 10,000 of our shares, you may not receive our proxy materials or other corporate communications. Therefore, if you are a

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beneficial shareholder and want to ensure that you do receive proxy materials, you are urged to become a registered owner. If you have questions on how to do so, we encourage you to contact your broker or bank to find out how to do so and you may also contact us.

There is uncertainty as to our shareholders’ ability to enforce civil liabilities in Australia, the Cayman Islands, Hong Kong, the PRC and Sweden.

We are a Cayman Islands company and a substantial majority of our assets are located outside the United States. A substantial portion of our current operations is conducted outside the United States in countries such as Australia, Hong Kong, the PRC and Sweden. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of Australia, the Cayman Islands, Hong Kong, the PRC, Sweden and other jurisdictions would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Australia, the Cayman Islands, Hong Kong, the PRC, Sweden, or other jurisdictions against us or such persons predicated upon the securities laws of the United States or any of its states.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our headquarters and principal executive offices are located at Suite I, 5/F, Building A, East Gate Plaza, 9 Dongzhong Street, Dongcheng District, Beijing 100027, People’s Republic of China, and our telephone number is 011-8610-5129-8700. Our contact telephone number in Hong Kong is (852) 2893-8200 and in the United States is (212) 661-2160. We have a website that you may access at http://www.cdccorporation.net. Information contained on our website does not constitute part of this Annual Report.

We were incorporated in June 1997 as China Information Infrastructure Limited, a company limited by shares under the Companies Law of the Cayman Islands and a wholly-owned subsidiary of CIC Holding Limited (“CIC,”) to operate CIC’s Internet portal and related businesses.

In June 1999, CIC distributed its entire interest in our predecessor company to CIC’s shareholders. Upon completion of that transaction, CIC ceased to have any ownership interest in our predecessor company. APOL and a wholly-owned subsidiary of Xinhua provided rights of first refusal to buy the other party’s shares in us in the event either party sought to dispose of its shareholdings. Additionally, APOL received rights to place shares of us owned by the Xinhua subsidiary to prospective buyers on behalf of the Xinhua subsidiary in exchange for a commission.

In July 1999, we completed our IPO of the equivalent of 19,320,000 Class A common shares on NASDAQ at the equivalent of a public offering price of $5.00 per share on a stock split adjusted basis. All of the shares registered were sold and net proceeds from the IPO totaled $85.6 million.

In December 1999, our shareholders approved a two-for-one share split.

In January 2000, we completed a second public offering of the equivalent of 9,952,884 Class A common shares on NASDAQ at the equivalent of a public offering price equal to $42.50 per share on a stock split adjusted basis. Of the 9,952,884 Class A common shares sold, 2,325,000 shares were offered by certain of our shareholders. The selling shareholders received an aggregate of $94.1 million in net proceeds for their shares. All of the shares registered were sold and net proceeds to us from the offering totaled $303.9 million.

In March 2000, we listed our subsidiary, hongkong.com Corporation (which has since been renamed to China.com Inc.), on the Growth Enterprise Market (“GEM”), of the Hong Kong Stock Exchange by selling approximately 16% of such subsidiary to the public. We received net proceeds of approximately $168.5 million in connection with such listing and sale. We currently continue to own approximately 77% of China.com Inc.

In April 2000, our shareholders approved a second two-for-one share split.

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In addition, in April 2000, our shareholders approved the change of our company name to chinadotcom corporation. In April 2005, our shareholders approved a second change of our company name from chinadotcom corporation to CDC Corporation. Concurrently, in April 2005, the shareholders of hongkong.com Corporation approved a change of its name from hongkong.com Corporation to China.com Inc.

Acquisitions and Divestitures

Our business model has evolved away from a pan-Asian Internet company, and our goal is to be a global company focused on enterprise software, through our CDC Software business unit, and on mobile applications and online games through our China.com Inc. business unit. The evolution of our business model has been achieved in large part through strategic acquisitions and investments during the past three fiscal years. We have spent a significant amount of cash and have issued a significant amount in CDC shares in connection with the strategic acquisitions and investments mentioned below for each of the three years ended December 31, 2003, 2004 and 2005, respectively.

The following is a summary of our material strategic acquisitions and investments completed since January 1, 2003 by business unit:

CDC Software

Acquisition or Investment	Date	Description
Praxa Limited	February 2003	Praxa is an IT professional services organization in Australia which provides IT consulting services, outsourced applications development, systems integration services and managed IT services to corporate and government market clients.
Industri-Matematik International Corp.	September 2003	IMI is an international provider of software to the supply chain management sector principally across Europe and the United States. We acquired a 51% interest in IMI through a joint venture.
Ascent Computing Group, Inc	September 2003	Ascent Computing Group, based in the metropolitan New York region, provides applications and system outsourcing services, and was acquired through our 51% owned subsidiary, Software Galeria, Inc.
Acquired rights to Executive Suite software	October 2003	Executive Suite is an integrated financial management application based on Microsoft technology which offers budgeting, planning, forecasting, consolidation, reporting and analysis functionality. We acquired the intellectual property rights to such software from CIP-Global ApS, a Danish software company.
Pivotal Corporation	February 2004	Pivotal is an international customer relationship management (CRM) company that provides a suite of highly flexible CRM applications and implementation services for mid-sized enterprises and selected target industries.
Ross Systems, Inc.	August 2004	Ross offers a family of Internet-architected software solutions that form a comprehensive, modular suite spanning the enterprise, from manufacturing, financials and supply chain management to customer relationship management (powered by Pivotal software), performance management and regulatory compliance. It focuses on the food and beverage, life sciences, chemicals, metals and natural products industries.
Acquired assets of JRG Software, Inc.	February 2006	JRG is a leading provider of on-demand supply chain solutions for planning and scheduling, delivered as Software as a Service (SaaS). Our CDC Software business unit acquired the business assets of JRG including the One Plan applications which add complementary on-demand factory planning and scheduling to our enterprise suite of industry-leading enterprise resource planning.

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Acquisition or Investment	Date	Description
Acquired assets of Horizon Companies, Inc.	February 2006	Horizon is an IT consulting business offering outsourced information technology professional services in the United States and Canada utilizing India-based resources who’s specialization in the financial services, life sciences and manufacturing industries is aligned to the industry-specific solutions from Pivotal and Ross Systems. We acquired the business assets of Horizon through our 51% owned subsidiary Software Galeria, Inc.
c360 Solutions, Inc.	April 2006	c360 is a leading provider of add-on products, industry solutions and development tools for the Microsoft Dynamics CRM platform, which will allow us entry into CRM products for smaller scale businesses with zero complexity which complements our existing CRM product line for mid-market enterprises.

China.com Inc

Acquisition or investment	Date	Description
Palmweb Inc. (holds Newpalm (China) Information Technology Co., Ltd.)	April 2003	Newpalm is a mobile services and applications provider in China which was acquired through China.com.
Group Team Investments Limited (holds Beijing He He Technology Co. Ltd.)	May 2004	Beijing He He Technology Co. Ltd., which operates Go2joy, is a mobile value-added services and applications provider in China with partnerships with media companies in China.
Equity Pacific Limited (holds Beijing 17Game Network Technology Co., Ltd.)	August 2004, November 2004, August 2005 and March 2006	17game is a leading massive multiplayer online role-playing games (MMORPG) provider with a track record in launching and distributing online games in the China market. It’s latest game, Yulgang, was one of the fastest-growing MMORPGs in China in 2005. In March 2006, China.com became the indirect legal and beneficial owner of 100% of 17game.
Unitedcrest Investments Limited (holds Shenzhen KK Technology Ltd.)	June 2005	Shenzhen KK Technology Ltd. is a mobile value-added services and applications provider in China which was acquired through China.com and which specializes in nation-wide WAP businesses.

As our business model has evolved away from a pan-Asian Internet company, during the past three fiscal years we have ceased operations, liquidated or disposed of many of our legacy businesses mostly related to the Internet, many of which were not profitable. Such activities resulted in net loss from operations of discontinued operations of $0.05 million in 2005 compared to $0.6 million in 2004. We recorded a net loss on disposal/dissolution of such discontinued operations of $0.003 million in 2005 compared to $1.0 million in 2004.

B. Business Overview

CDC Corporation, with facilities in the PRC, North America, Europe and Australia, is a global provider of enterprise software, mobile services and applications and internet and media services. We report operating results in four business segments, “Software,” “Business Services,” “Mobile Services and Applications” and “Internet and Media”. During 2005 the Company reorganized these segments into two core business units, CDC Software and China.com Inc. The operations of Software and Business Services is included in the CDC Software business unit and the operations of Mobile Services and Applications and Internet and Media is included in the China.com Inc business unit.

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CDC Software Business Unit

Our CDC Software business unit is a global provider of enterprise software applications and related business services. Our products and services seek to help companies worldwide fulfill their business growth objectives through increased operational efficiencies, improved profitability, strengthened customer relationships and improved regulatory compliance. Our offerings are designed to automate, customize, optimize and support the processes of an organization to achieve company-wide integration of business and technical information across multiple divisions and organizational boundaries, such as finance, manufacturing, logistics, human resources, marketing, sales and customer service, by utilizing common databases and programs that share data real time across multiple business functions.

Our offerings are provided through two principal business segments:

• Enterprise Software. Our enterprise software segment provides a diverse portfolio of enterprise application software products to our customers with a complete range of world-class applications targeting mid-sized enterprises and divisions of larger enterprises, as well as selected target industries. Our software suite includes Enterprise Resource Planning (“ERP”), Customer Relationship Management (“CRM”), Supply Chain Management (“SCM”), Order Management Systems (“OMS”), Human Resources and Payroll Management (“HRM”) and Business Intelligence (“BI”) which are utilized by approximately 4,000 customers worldwide (which does not include the addition of more than 1,000 customers added as a result of our acquisition of c360 Solutions in April 2006).

• Business Services. Our business services segment offers a variety of information technology services designed to allow customers to achieve either more value added services for their IT expenditures for the same cost or the same value added services for their IT expenditures for less cost. The services we offer cover the business optimization spectrum from industry advisory services to business process improvement services to traditional implementation services to tuning/optimization services to outsourced hosting/application management services.

The business services segment also includes other specialized business services we offer in regional markets, including eBusiness consulting and web development offered principally in the western United States, mobile user interface design consultancy and development services for the telecommunications industry in Korea, and marketing database and marketing support services conducted principally in Australia and New Zealand.

Products and Services

Software segment. Our enterprise software segment provides a diverse portfolio of enterprise application software products to our customers with a complete range of world-class applications targeting mid-sized enterprises and divisions of larger enterprises, as well as selected target industries. While most of our products are available as licensed applications installed at the customer’s facilities, some of our products are available as Software as a Service (SaaS) enabling the customer to use the applications as a subscription service. Over time, we intend to make more of our products available as Software as a Service (SaaS). In addition, the professional services operation of the enterprise software segment (which is distinct from the operations of our business services segment) provides a broad range of services to install, optimize and support the software products we offer.

Revenues from our software segment increased by approximately 48% to US$158.8 million in 2005 from US$107.6 million in 2004. As a percentage of total revenues, revenues from our software segment constituted approximately 65% of total revenues in 2005 and 59% of total revenues in 2004.

Our enterprise application software products can be further sub-categorized into more highly specialized products which target various processes of an enterprise, including the following:

• Enterprise Resource Planning (“ERP”). Our ERP products consist of multi-module application software that helps a manufacturer produce finished goods by offering control over forecasting, planning, customer service, handing of raw materials and deployment of equipment. The ERP products we offer are targeted at the formula and specifications-based requirements of process manufacturers.

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• Supply Chain Management (“SCM”). Our SCM products help coordinate processes involved in producing, shipping and distributing products to ensure that the correct amount of product is in the correct locations at the right time and at the lowest possible cost.

• Customer Relationship Management (“CRM”). Our CRM products address needs of an enterprise to establish and maintain profitable long-term business relationships with customers by integrating information from the entire enterprise and increasing efficiencies within the sales, marketing and service functions to create one unified business network connecting employees, partners and customers.

• Order Management Systems (“OMS”). Our OMS products provide a system that concentrates on optimizing the order and replenishment processes of order fulfillment and logistics by providing visibility into and control over a distribution center and store inventory, as well as managing orders from vendors, warehouses, stores, customers and consumers.

• Human Resource Management (“HRM”). Our HRM products focus on automating processes to enable an organization to improve business results and increase workforce performance by leveraging technology and applications to manage and mobilize a unified, global workforce. These HRM products seek to more efficiently connect people, processes and systems, and align workforce contribution with business objectives.

• Business Intelligence (“BI”). Our BI products help to convert large volumes of data collected and stored by businesses into meaningful and multi-dimensional reports and analyses for use in decision-making. Integrated with other components of enterprise application software, our BI products enhance the development of a business environment driven by performance management.

ERP and SCM Software. Our ERP and SCM software products are principally offered by Ross ERP and Ross SCM brands. Historically these applications were offered under the iRenaissance brand.

The Ross ERP suite consists of three primary interconnected applications that help bring the manufacturing and distribution, maintenance management, and financial functions into balance so that the various departments in a formula and recipe-based process manufacturing enterprise can more easily share information, communicate with one another, and obtain operational efficiencies to lower costs, improve supplier and customer relations and increase revenues.

• Manufacturing & Distribution Applications. The Manufacturing & Distribution Applications provide functionality which support the different processes in manufacturing from purchasing of raw materials to shipping of finished goods. The modules with the Manufacturing & Distribution Applications address inventory control, process manufacturing, sales order processing, transportation management, process planning, purchase order processing and management of maintenance and facilities.

• Inventory Control Module. With respect to inventory control, built in functionality includes lot details, lot traceability, movement history, inventory valuation and physical inventory counting which enables capabilities such as managing inventory based upon characteristics such as pH, moisture content, or potency, tracking shelf life and expiration dates, tracing all the changes in the product from the time raw material is received through manufacturing and storage, determining the quantity and location of any material or product, valuing inventory by options such as standard cost, weighted average cost or actual lot cost, and performing inventory re-ordering based upon minimum/maximum inventory values by item by warehouse.

• Data Collection. Ross Data Collection is a plant-level solution that pushes data from receiving, production, inventory, and shipping operations directly into the enterprise system of record. This results in real-time and accurate visibility into production, inventory and distribution, optimized resources, and improved customer responsiveness. By extending transactions to smart handheld devices, Ross Data Collection allows customers to simplify the process of capturing and viewing production and distribution data—while also improving the accuracy of the data flowing into the enterprise system. Automated data capture also reduces transaction time substantially, increasing plant-floor productivity. Typical benefits include reduced manual overhead and costs, greatly reduced data-entry errors, increased visibility and confidence in the accuracy of the information.

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• Process Manufacturing Module. The process manufacturing module defines the production process, calculates and tracks product and job costs, and records all of the activities necessary to manufacture products. This module enables the production of batches or lots based upon recipes and formulas which produce products with specified characteristics, such as potency or weight. With this module, users can define process steps and resources required to produce a product (such as weighing, mixing for a specified period of time, and packaging), define quality control requirements and testing for each stage of the product and process, perform potency calculations automatically based upon specified minimum and maximum values, define batch sizes in terms of quantity (such as pounds) or time (such as hours or shifts), maintain version controls of changes to existing recipes, authorize and record a production job, manage materials so that for example materials needed for a key customer or a critical job are not used for another purpose, record machine and labor time used in production for costing and efficiency calculations, record production outputs for products coming out of any stage in the process or going into inventory, and report yield measurements based upon the recipe’s material inputs and production outputs.

• Sales Order Processing Module. The sales order processing module includes functionality for sales order entry, shipping, invoicing, credit memos and sales analysis. To support these functions, users can create and maintain customer information and generate price, discount and promotion plans. Included with order entry and shipping are credit checking (such as checking against both credit limits and overdue debits and defining the consequences) and inventory availability, enabling reservations of and availability to promise inventory. For example, through this module a customer service representative could enter a customer name and retrieve information such as the customer’s address, functional currency and primary ship-to location. The representative could enter a product order and amount, and automatically receive the appropriate discount, tax and sales price which is adjusted based upon factors such as products the customer is buying, the amount the customer ordered, the location from which the order is placed and the warehouse the product will be shipped from. The specific lot that matches the customer’s specifications will automatically be selected, and packaged according to the customer’s requirements. If a modification is made to a sales order, all related information is updated automatically.

• Pricing and Promotions Management. Pricing & Promotions Management provides a discount and rebate management system for consumer packaged goods (CPG) companies. With Pricing & Promotions, companies can integrate complex discounting and rebate programs for their customers, reduce the time and effort needed for making off-line calculations, fixing customer invoices, and posting journal entries. Clients can also addresses both “off invoice” discounts and “post invoice” rebates or commissions.

• Transportation Management Module. The transportation management module works in conjunction with the sales order processing module for the planning and costing of freight for outbound shipments to customers and transfer orders to other warehouses in order to produce the most efficient shipping costs for the manufacturer and its customers. The module allows capabilities such as the definition of shipping zones and ship-from warehouses to customer addresses, the definition of routes to connect the various shipping zones and association of one or multiple freight providers to these routes, the establishment of freight rates for each freight provider by route with a choice of rate methods, the fixing of a load planning process after the entry of sales orders to assign outstanding sales order lines to loads and releasing of loads for picking and shipping, and at shipment confirmation, the determination of freight charges based upon factors such as the route, actual freight provider, and actual quantity shipped and vouchering of freight provider invoices.

• Process Planning Module. The process planning module allows manufacturers to develop production plans based upon demand (based upon sales orders and/or sales forecasts) and current inventory levels and existing replenishments in order to effectively manage resources to meet sales demands. Capacity requirements of resources can be checked, and based upon the capacity constraints, the master production schedule can be adjusted to result in a workable production plan. The module includes material planning functionality which can be used to determine the quantity and required date of ingredients and packaging supplies. The module enables the management of capacity with comparison to demand to arrive at a viable production plan within the constraints, calculation of the materials needed, creation of

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manufacturing jobs for production, making of adjustments or identification of alternatives in production planning, and creation of production plans with specified horizons (such as an annual operating plan for budgeting or intermediate forecast plan to meet actual orders and inventory levels).

• Purchase Order Processing Module. The purchase order processing module handles purchase requisitions, purchase orders, receiving and vouchering of invoices for raw materials, raw material planning purchases, maintenance purchases and other one-time purchases. The module supports the purchasing requirements of both multi-site, multi-national corporations and single site domestic operations in either a centralized or decentralized mode. The functionality of the module enables, for example, inspection of a product received from a supplier (such as moisture level of a lot characteristic which is important to the manufacturer), automatic management of pricing and discounts with a supplier, and return of materials to suppliers.

• Maintenance Management Application. The Maintenance Management Application provides users access to current and historical data needed to control and effectively manage facilities and equipment to help ensure high levels of equipment reliability, regulatory compliance and cost containment, and extend the life of significant capital assets. The application allows a manufacturer to manage repair work orders electronically, including verifying availability and status of required spare parts, tooling, supplies and personnel before releasing repair work orders, provide planning, approval and tracking of work orders, prioritize repairs, and have up-to-the-minute status updates of repair work orders to view progress. The application allows equipment records to be maintained so that vital and technical information (such as operating instructions and safety precautions) are available to those who need it, and equipment expense history can be tracked to show repair and preventive work performed and costs incurred. The application permits preventive and predictive maintenance to be defined so that parts, crews, shifts, and labor can be planned as needed on a regular basis.

• Financial Applications. The Financial Applications are tightly integrated to the Ross’ ERP suite to provide a central source of financial information to help a manufacturer manage critical financial processes from planning through decision making. The Financial Applications include general ledger, accounts payable, accounts receivable, fixed assets, financial reporting and financial budgeting modules. The financial reporting and financial budgeting modules are third-party products from FRx which Ross licenses and resells.

The Ross SCM suite consists of three primary interconnected applications, Demand Management, Supply Chain Management and Measurement, that help formula and recipe-based process manufacturing enterprises optimize supply chains by connecting business processes, allowing information transparency and common metrics, and allowing for collective decision making among employees, partners, suppliers and customers. The solution can be implemented quickly, yet is flexible enough to account for changing business needs, so that manufacturers can realize a return on their investment quickly.

• Demand Management Applications. The Demand Management Applications consist of a set of modules that enable manufacturers to forecast demand, down to the level of individual customers at particular locations, and improve customer service while reducing inventory. The modules include Demand Planning, Enterprise Forecasting and Inventory Planning.

• Demand Planning Module. The demand planning module helps a manufacturer understand both historical demand patterns and how future events, such as planned promotions, new product introductions, revisions to existing product, marketing campaigns and changing economic and market conditions, will affect forecasts. The module models business processes at user-defined levels such as product, division, location or customer. The plan created by the module can be automatically fed into the advanced planning module to help create production schedules.

• Enterprise Forecasting Module. The enterprise forecasting module allows a sales force, who are closest to the point of demand generation, to help create and manage forecasts remotely. It can also help evaluate sales performance against weekly, monthly, quarterly and yearly targets through a personalized view of each sales person’s or regional manager’s performance.

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• Inventory Planning Module. The inventory planning module assists a manufacturer in balancing inventory investments and customer service levels, based upon user defined inventory policies, so that informed decisions can be made. Using the inventory policies, the module calculates recommended stocking levels.

• Supply Chain Management Applications. The Supply Chain Management Applications bring together optimization of a demand plan with available supply, thus allowing the manufacturer to connect its business plan to departmental operations. The application consists of modules including Replenishment Planning, Optimized Orders, and Advanced Planning and Scheduling.

• Replenishment Planning Module. The replenishment planning module seeks to optimize having the right amount of product at the right location at the right time, while managing supply chain costs. Using inventory policies from the inventory planning module and the demand forecast from the demand planning module, it considers the consumption rates and inventory levels throughout the supply chain, and automatically calculates time-phased safety stocks and replenishment quantities for each item at each location. If additional products need to be ordered, it suggests replenishment orders to come either from existing inventory or new production. The module dynamically calculates inventory status and monitors inventory exception conditions (like stock outs, using safety stock or high stock levels).

• Optimized Orders Module. The optimized orders module automates the process of generating replenishment orders in order to improve on-time delivery and minimize the need for extra costs to expedite orders. The module recommends replenishment order quantities using the demand forecast and the inventory policies from Ross’ other SCM modules, and includes shipment optimization logic that accounts for truckload and pallet configuration while balancing constraints like weight, cost and dimensions.

• Advanced Planning and Scheduling Module. Once a demand plan is developed, the task becomes developing a production plan to meet the demand while balancing budget needs and supply and demand. The advanced planning and scheduling module focuses on providing answers to questions like what products should be made, how much should be made, where should it be made, and how to optimize efficiency and capacity. The module provides graphical warnings to identify capacity, materials, labor and customer service issues. It also assists with scheduling production runs and changeovers so that downtime is kept to a minimum. The module balances competing objectives such as optimizing sequencing, minimizing changeovers and labor, and maximizing throughput.

• Measurement Application. The Measurement Applications bring together information from outside and inside the enterprise regarding sales, service, manufacturing, inventory, finance and the supply chain so that it may be used in decisions, thereby enabling better strategic plans, evaluation of plans and improved responsiveness to changes in plans. The application extracts information from the other modules of Ross’ ERP and SCM solutions in order to generate analyses and plans that can be used as management tools to measure performance and judge the impact of proposed corrective actions.

• Sales & Operations Planning Module. The sales & operations planning module allows executives to see how the organization is performing against plan, establish where future demand or supply issues may arise, and evaluate the outcome of different demand and supply balancing options on the business. The module enables the tracking of sales and operational activities, and map deviations from the corporate plan.

Ross also offers the following additional solutions to help customers achieve greater value from their Ross ERP and SCM suites through radio frequency identification (RFID) tagging and analytics capabilities.

• RFID-to-Go. The RFID-to-Go is an EPC-compliant, bolt-on application to the Ross ERP and SCM suites. RFID-to-Go supports the practice of applying RFID tags to products during the receipt process, while in storage, and just prior to shipping.

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• Ross EPM Analytics. The Ross enterprise performance management (EPM) suite of analytics applications, integrated with Ross ERP and SCM, enables fast, multi-dimensional and cross-functional analysis of key business drivers. Through customizable management dashboards, pre-built reports, and proactive alerts, decision makers can monitor key performance indicators in real time. These include Ross EPM Sales Analytics for monitoring key metrics in sales and customer service, Ross EPM Manufacturing Analytics and Ross EPM Financial Analytics.

CRM Software. Our CRM software products are principally offered through two subsidiaries which target complementary markets:

• Pivotal provides a complete set of highly flexible CRM applications and implementation services for mid-sized enterprises and divisions of larger enterprises, as well as selected target industries.

• c360 Solutions provides add-on products, industry solutions and development tools for the Microsoft Dynamics CRM platform, which allows us entry into CRM products for smaller scale businesses with zero complexity. The acquisition of c360 occurred in April of 2006 and the operating results of c360 are not included in the Company’s consolidated financial statements for any of the years ended December 31, 2005.

Pivotal’s CRM suite consists of four product suites, including applications for sales force automation, marketing automation, service automation, and partner relationship management. In addition, Pivotal offers additional solutions to help customers achieve greater value from their Pivotal CRM suites through mobile access and analytics capabilities. Together, these products are designed to enable companies to increase revenues and decrease costs by increasing efficiency within the sales, marketing and service activities and creating one unified business network to connect employees, partners and customers in an effort to increase customer acquisition and loyalty.

• Pivotal Sales Suite. The Pivotal Sales Suite provides critical customer information, opportunity management tools, and “best practices” sales methodologies for the enterprise sales force. Core capabilities of the suite include quote and proposal management, consolidated revenue forecast, territory management, opportunity management, team selling enablement, product configuration and guided selling. Core applications in the suite include the following:

• Pivotal Sales Application. Pivotal Sales enables global sales organizations to sell collaboratively across multiple regions, currencies and channels. With Pivotal Sales, organizations can share information across sales teams, forecast their business, manage pipelines, automatically generate quotes and proposals, and configure products and services that meet specific customer needs.

• Pivotal Sales Application – Miller Heiman Edition. Pivotal Sales – Miller Heiman Edition is an option for the Pivotal Sales application based on the three most popular disciplines – strategic selling, conceptual selling, and large account management – as taught by Miller Heiman, a leader in sales methodologies.

• Pivotal Assisted Selling Application. Pivotal Assisted Selling combines sales automation, guided selling, complex quote creation and price/product configuration. Users can configure products and services with flexible guided selling capabilities, and then create, propose and automatically expire multiple quotes per opportunity that contain up-to-date products, services and pricing.

• Pivotal Marketing Suite. The Pivotal Marketing Suite features Pivotal MarketFirst as a comprehensive marketing automation product designed for end-to-end management of multi-channel campaigns and marketing processes. It reduces both the cost and time to create personalized campaigns and increases the ability to deliver better leads to sales resources. Core capabilities of the suite include campaign management and execution lead capturing and tracking, customer profiling and analysis, data mining and direct mail campaign management. Core applications of the suite include the following:

• Pivotal MarketFirst Direct Marketing Manager™ Application. Pivotal MarketFirst Direct Marketing Manager™ synchronizes a customer’s marketing database, web site, and multi-channel communications to create a segmented and targeted direct marketing program that delivers improved response rates, higher quality leads and better brand building.

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• Pivotal MarketFirst Event Manager™ Application. Pivotal MarketFirst Event Manager™ automates labor-intensive tasks associated with marketing events (including logistics, invitations, registration, scheduling, lead management and budgeting) and facilitates follow up to turn event attendees into sales leads.

• Pivotal MarketFirst Lead Manager™ Application. Pivotal MarketFirst Lead Manager™ streamlines lead management, simplifying the process of qualifying, managing, nurturing and tracking leads, thereby focusing sales and improving both lead conversion and sales closure rates.

• Pivotal MarketFirst Prospecting Assistant™ Application. Pivotal MarketFirst Prospecting Assistant™ delivers consistent, accessible marketing support to the sales team via a Web-based portal that takes the burden off salespeople while accelerating the conversion of prospects to leads.

• Pivotal MarketFirst Campaign Portal™ Application. Pivotal MarketFirst Campaign Portal™ allows distributed marketing organizations to work together more effectively and consistently in order to launch targeted campaigns.

• Pivotal Service Suite. The Pivotal Service Suite is an Internet-based customer service application designed to build customer loyalty and optimize call center performance. Core capabilities of the suite include, service request management, online request tracking and escalation, personalized 24x7 self service and online FAQs. Core applications of the suite include:

• Pivotal Service Application. Pivotal Service automates the capture, management and resolution of customer service and support requests across multiple channels. It integrates with sales and marketing functions to provide service professionals with the tools and information they need to deliver personalized service for improved customer satisfaction.

• Pivotal Contact Center Application. Pivotal Contact Center transforms call centers into a contact center that supports multiple channels of customer interactions, including voice, email, text chat, Internet collaboration, and fax. By managing customer interactions across multiple channels, service organizations have the tools and information they need to deliver high quality, cost-effective customer service.

• Pivotal eService Application. Pivotal eService helps organizations reduce the cost of service by giving customers a self-service portal with one-click access to personalized information. The application provides customers access to self-service reports to keep track of orders, incidents, contracts and service level agreements, and includes quick product registration capabilities. The application also allows full text search to help customers solve their problems quickly.

• Pivotal Partner Management Suite. The Pivotal Partner Management Suite empowers customer companies to more effectively manage their partner relationships. Core capabilities of the suite include, partner lifecycle management, recruitment management, partner profiling, lead management, opportunity management and forecasting, alliance management and partner performance reporting and analytics. Core applications of the suite include:

• Pivotal ePartner Application. Pivotal ePartner is a browser-based product that extends marketing, sales, service and ordering capabilities to a customers’ business partners, enabling them to become effective members of the customers’ extended enterprise to generate sales and deliver customer value. Tools within the suite allow the customer to keep a partner up-to-date by providing easy access to product information, training, sales tools, transaction data, and performance analysis reports.

• Pivotal Partner Manager Application. Pivotal Partner Manager is an internal tool used to help manage and enable partner relationships and operations. The application enables organizations to collaboratively sell, service and market to end-users, and measure and reward the partner community.

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Pivotal also offers the following additional solutions to help customers achieve greater value from their Pivotal CRM suites through mobile access and analytics capabilities.

• Pivotal Mobile CRM Solution. The Pivotal Mobile CRM solution delivers sales and service functionality to disconnected users. It is designed to support an organization’s mobile users, from mobile executives on the road to remote field sales to sales representatives who have stepped out of the office. The solution offers users remote access to data through the following products:

• Pivotal Mobile Client.™ Pivotal Mobile Client delivers access to Pivotal CRM application functionality, with or without a network.

• Intellisync for Pivotal.™ Intellisync for Pivotal supports bi-directional synchronization of data in the Pivotal CRM suite with Microsoft Outlook or Lotus Notes, allowing offline access to critical data through a personal digital assistant.

• Pivotal Wireless.™ Pivotal Wireless allows mobile users to stay connected and up-to-date on critical opportunity and account developments. Using the micro-browser on a wireless device, such as a web-enabled cell phone or personal digital assistant, mobile users have real-time access to data they need from the field.

• Pivotal Analytics Solution. The Pivotal Analytics solution is a business intelligence solution which enables organizations to analyze customer data. Pivotal Analytics enables businesses to gain greater insight and value from their CRM data, giving users the ability to analyze data, identify trends, and make better-informed business decisions, more quickly. It is built on the Microsoft BI platform, and offers both the flexibility of a BI tool framework and the usability of a pre-packaged analytics application, making sophisticated analytical capabilities accessible.

Industry Specific CRM Solutions. Pivotal has tailored its CRM software products for certain specific industries. In 2001, Pivotal provided industry specific CRM products to meet special requirements of healthcare payer organizations, and has since then expanded its portfolio of industry specific products to include CRM products for the financial services (asset management, capital markets, commercial banking and private banking), homebuilder, and life sciences (medical device manufacturing) markets.

• Pivotal Financial Services. Pivotal Financial Services is comprised of targeted solutions tailored to meet special business requirements of commercial banking, asset management, private banking and capital markets organizations. Pivotal’s financial services solutions have been designed in consultation with financial institutions to help these companies drive revenue by fostering more meaningful relationships with each stakeholder, identifying cross-sell and up-sell opportunities, enabling team selling, providing better visibility into the sales pipeline, and improving regulatory compliance.

• Pivotal Healthcare. Pivotal Healthcare is a comprehensive front office solution that improves the ability of healthcare payers to serve and manage brokers, members, and employer groups efficiently and effectively. Comprised of Pivotal Healthcare Front Office, Pivotal Healthcare eBroker, and Pivotal Healthcare eEnrollment, the Pivotal Healthcare solution delivers a scalable foundation and processes for member acquisition, retention, and growth. It encompasses components including lead management, new business quoting, renewal processing, rating/underwriting, online enrollment, and back office integration.

• Pivotal Homebuilder. Pivotal Homebuilder is designed to handle the complete marketing automation, lead management, sales automation, and customer care cycles of homebuilders, from the first point of interest on a website through the complete sales cycle to the handling of service and warranty requests years after a home is purchased. It features extensive integration to Microsoft Office, including Microsoft Outlook, a user friendly interface, and integration to back-office systems including Oracle/PeopleSoft.

• Pivotal Medical Devices. Pivotal Medical Devices is designed to meet the special needs of medical device manufacturers. Its end-to-end industry-specific integrations can help companies through the process of how they go to market. The solution offers a combination of technology-enabled sales, lead management, and

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industry-specific capabilities which make it easier for medical device manufacturers to market, sell to and service customers. Pivotal Medical Devices is the first in a series of CRM applications designed for specific industries in discrete manufacturing. Much like the industry-specific CRM applications for financial services and homebuilders, these new applications are rapidly delivered using a similar application template methodology.

• Pivotal Manufacturing. Pivotal Manufacturing provides the critical functionality needed by manufacturers-integrated sales, marketing, service, and partner processes-to become customer-driven. With the ability to capture, analyze, and act on customer intelligence, CDC Software helps manufacturers aggregate and analyze information across the business, giving them the insight to guide effective decision-making and more easily adapt to changing markets.

c360 Solutions provides add-on products, industry vertical solutions and development tools for the Microsoft Dynamics CRM platform v1.2 and 3.0. Microsoft Dynamics is a line of integrated business management solutions offered by Microsoft based upon their widely-used productivity applications (like Microsoft Office and Microsoft Outlook) which, generally, are geared towards smaller scale businesses with limited complexity. The Microsoft Dynamics CRM platform is Microsoft’s product to manage customer groups, create and launch marketing campaigns, track customer activity, and organize sales and after-sales. c360 Solutions has developed and offers packages to supplement and enhance the Mirosoft Dynamics CRM platform, including add-on products, industry vertical solutions and development tools.

The add-on products c360 Solutions offers for the Microsoft Dynamics CRM platform v3.0 are sold through one of three productivity packs.

• Core Productivity Pack. The core productivity pack adds functionality to the Microsoft Dynamics CRM platform v3.0, including “Duplicate Detection” to alert uses when a new entry record already exists in the Microsoft CRM database, “Alerts” to allow users to add critical information to CRM records so other user will be advised of this information upon access of the record, “Consoles” to allow users to consolidate CRM data in a series of customizable cells which can reduce excess clicks and navigation, “Multi-field Search” to provide users with a quick central search screen where they can search across multiple fields with a single click, “Summary” to provide a user a configurable screen to roll-up, summarize, read and review interactions for various record types in Microsoft CRM without opening other windows or performing additional clicks, “Email Link” to allow users to quickly generate Microsoft Outlook email to share account information with others and “Relationship Explorer” to allow users to have a single place to view all relationships that exist for a particular object in a user friendly graphical tree.

• Sales Productivity Pack. The sales productivity pack adds functionality to the Microsoft Dynamics CRM platform v3.0, including “Forecast Manager” to allow users to update multiple fields and records from a single editable dashboard screen and retrieve find queries allowing users to show opportunities meeting specific criteria and “Web Connect” to allow organizations using Microsoft CRM to easily integrate their website to Microsoft CRM for lead and web visitor activity capture.

• Service Productivity Pack. The service productivity pack adds functionality to the Microsoft Dynamics CRM platform v3.0, including “Email to Case” to allow users to configure multiple CRM queues to convert inbound emails to service cases so that each time a case is created the customer is emailed and designated CRM users are notified and “My Workplace” to allow users to personalize the CRM workplace area for more efficient queue management.

c360 Solutions currently offers an industry vertical pack solution for Microsoft Dynamics CRM platform v3.0 which combines all of the functionalities of the Core Productivity Pack, Sales Productivity Pack and Service Productivity Pack, in addition to adding “Customer Portal” functionality which allows customers to log in to a protected area to access CRM functionality, allows customers to create, edit and view service cases on the web, allows a user publish all or part of the information in the CRM knowledge base, allows customers to update their contact records on the web and allows customers access to custom developed modules protected by the portal’s authentication functionality.

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The development tools c360 Solutions offers for the Microsoft Dynamics CRM platform v3.0 are offered through a software development kit which allows developers to build applications on the Microsoft CRM platform v3.0. Each of the functionalities c360 Solutions offers in its productivity packs have been built using the software development kit. The kit provides a complete suite of ASP.NET user interface controls that look and behave like standard Microsoft CRM controls.

Order Management Systems (OMS) Software. Our OMS software products are principally offered by IMI. IMI is an established international provider of software to the order management and supply chain management sector and is a division of our CDC Software business unit. IMI develops, markets, and supports client/server and Internet architectured application software that enables manufacturers, distributors, wholesalers, retailers, logistics service providers, and e-businesses to more effectively manage complex customer fulfillment in distribution-intensive businesses. The process encompasses the execution of multiple customer-focused order fulfillment processes, including order management, pricing and promotion, handling, sourcing, warehouse management, transportation management, service management, and replenishment planning and coordination. Vertical market solutions have been designed for retailers, wholesalers, consumer goods manufacturers and logistics service providers.

• IMI Order Management Systems (OMS). These are distributed order management applications for multi-channel sales and sourcing, coordination of all kinds of order flows, and distribution models with a single face to the customer. It ensures clients can source and distribute products from anywhere, and to anywhere, based on individual customer needs.

• IMI Warehouse Management Systems (WMS). The WMS suite includes applications for planning, executing, monitoring, and following up warehouse activities, optimizing the use of staff, space, and equipment, and maximizing the efficiency of day-to-day operations. It performs all tasks in real-time 24 x 7 x 365, adapting to resource constraints and priorities as well as coordinating interdependent warehouse and transportation activities.

• IMI Collaboration. Our Collaboration software products address business process integration via web services and portal applications that support trading partner interaction over the web. They enable customers, vendors, and logistics service providers to collaborate around orders, confirmations, advance shipping notices, status inquiries and updates, track & trace and proof of delivery.

• IMI Supply Chain Analytics. Our Supply Chain Analytics helps our clients assess operational effectiveness and how each functional area is contributing towards corporate goals. Through customizable management dashboards, pre-built reports, and proactive alerts, decision-makers can easily monitor key performance indicators across the supply chain, manage by prioritized exceptions, and ensure that all supply-chain functions are working with the same information.

The IMI suite of solutions for Demand Chain Management is designed for specific vertical industries as follows:

• Solutions for retailers. IMI’s retail solutions help retailers (including grocery, specialty goods, and direct merchant retailers) improve ordering, fulfillment, and customer service across sales channels. The products are designed to provide full visibility and control of distribution center and store inventory, as well as managing orders from vendors, warehouses, stores, customers, and consumers. They permit distribution centers and stores to maintain and control product inventory and goods-in-transit, and to replenish store shelves based on expected consumer demand. The control and visibility of inventory helps retailers reduce out-of-stocks, increase product availability at the shelf, improve response to customer demand and better utilize store shelf capacity.

• Solutions for wholesalers. IMI’s wholesaler solutions focus on the grocery, specialty goods, and pharmaceutical and over-the-counter drugs industries. The solutions contain advanced order management, replenishment management, warehouse management, and collaborative management components. It is designed to give the wholesaler a logistics platform to enable very late customer orders, allow for multi-channel distribution within the same customer order, lower inventory handling and storage costs through managing cross-docking and merge-in-transit strategies throughout the logistics network, differentiating customer service to various individual customers to give additional focus to the most important customers, and support collaborative purchasing operations by providing suppliers with time-phased forecasts and replenishment schedules over the Internet.

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• Solutions for consumer goods manufacturers. IMI’s consumer goods manufacturer solutions target distribution-intensive supply chain operations and complement existing enterprise resource planning and supply chain planning systems. The products are designed to solve the problem of multi-channel integration through a collaborative order management solution that can fulfill global customer orders and deliver a single point of contact to customers.

• Solutions for logistics service providers. IMI’s logistics service provider solutions focus on traditional services such as warehousing and transportation, but also complementary services like vendor-managed inventory, replenishment, inventory control, advanced collaborative order management and customer relationship management.

IMI’s solutions are comprised of configurable, scalable and flexible components, including IMI Order, IMI Warehouse, IMI Replenishment, IMI Collaboration, IMI Analytics and IMI Access.

HRM. Our HRM software products are principally offered by OpusOne Technologies. OpusOne Technologies is a developer and service provider of business management software solutions for state enterprises and multi-national corporations in Greater China.

OpusOne’s products include the following:

• PowerHRP. PowerHRP is used in human resources and payroll administration to provide comprehensive data management functions for the storing, calculating, reading and tracking of employee information. Data management functions include comprehensive employee information management, including employee personnel information, payroll data, attendance, leave status, training, position, benefits and other user definable information. PowerHRP also provides process management functions, including recruiting, training, compensation and benefits, and employee performance functionality. Decision support tools are also available to assist in employee succession planning and budgeting.

• PowerATS. PowerATS is an attendance tracking system which provides functionality with respect to organizing working shifts, administering temporary changes to shifts, tracking late arrivals, early departures, absence, overtime and leave, tracking of meal locations, times and number of meals, and administering salary deductions.

• PowerESS. PowerESS is an Internet based employee self-service application which provides employees and managers with self-service functions for accessing and updating various human resources related data, such as personal information, leave applications and approvals, training applications and approvals, time sheets and pay slip inquiries.

BI Software. Our BI software product, Executive Suite, is a fully integrated financial management application providing budgeting and forecasting, statutory consolidations, reporting and analysis to a broad spectrum of customers. Executive Suite is based on Microsoft .NET and Microsoft SQL technology which allows access via web-based technology.

In addition, each of our Ross, Pivotal and IMI products offer complementary business intelligence through their analytics capabilities.

• Ross EPM Analytics. Ross EMP Analytics is a suite of applications, integrated with Ross ERP and SCM which enables multi-dimensional and cross-functional analysis of key business drivers. Through customizable management dashboards, pre-built reports, and proactive alerts, decision makers can emonitor key performance indicators (KPIs) in real time. These include Ross EPM Sales Analytics for monitoring key metrics in sales and customer service, Ross EPM Manufacturing Analytics and Ross EPM Financial Analytics.

• Pivotal Analytics Solution. The Pivotal Analytics solution is a business intelligence solution which enables organizations to analyze customer data. Pivotal Analytics enables businesses to gain greater insight and value from their CRM data, giving users the ability to analyze data, identify trends and make better-informed

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business decisions. It is built on the Microsoft BI platform, and offers the flexibility of a BI tool framework and the usability of a pre-packaged analytics application, making sophisticated analytical capabilities accessible.

• IMI Supply Chain Analytics. The IMI Supply Chain Analytics helps our clients assess operational effectiveness and how each functional area is contributing towards corporate goals. Through customizable management dashboards, pre-built reports, and proactive alerts, decision-makers can easily monitor key performance indicators across the supply chain, manage by prioritized exceptions, and ensure that all supply-chain functions are working with the same information.

Professional Services. Our professional services operation (which is distinct from our business services offerings) complements our enterprise application software offerings. We provide a broad range of services to install, optimize and support the software products. These services fall into two broad categories: Professional Services and Client Support.

Our professional services operations provide a complete set of services to address customer requirements across all phases of their enterprise application software initiative. We attempt to offer services designed to meet the budget, timeframe, risk profile, implementation needs, performance requirements, integration needs and expansion plans of our customers. Generally, our professional services are offered on a time and expense reimbursement basis, although there has been an increasing trend at some of our enterprise application software subsidiaries, such as Pivotal, to have such services performed for a fixed fee. The major types of services provided include the following:

• Business Application Consulting. Business application consulting involves in-depth analysis of the client’s specific needs and preparation of detailed plans that list step-by-step actions and procedures necessary to achieve a timely and successful implementation of our software products. Our consultants, who often have significant industry-specific experience and product knowledge, work with companies to identify measurable business objectives and provide a sensible path to reach them.

• Technical Consulting. Technical consulting is dedicated to successful implementation of a product. The services involve evaluating and managing the client’s needs by supplying custom application systems, custom interfaces, data conversions and system conversions. Consultants participate in a wide range of activities, including requirements definition, software design, and development. Technology services focused on networking, database administration and tuning can also be provided. In addition, Pivotal also offers hosting services.

• Integration Services. Integration services focus on a smooth, efficient and cost-effective integration of our software products across multiple existing systems. Because businesses have often deployed disparate enterprise systems over time to support sales, services, accounting, manufacturing, human resources and order processing, integration services seeks to unify the multiple systems and unlock the information in these separate databases.

• Education Services. Education services seek to ensure that client companies effectively adopt and use their enterprise application software products by delivering training which fits the client’s business needs. Education services can be offered to clients either at our education facilities or at the client’s location as either standard or customized classes.

Client support seeks to ensure our clients easily gain answers to questions or issues related to their enterprise application software solution. Client support is provided through a variety of mediums, including web based support, email, telephone support, technical publications and product support guides. These mediums allow our clients to conveniently and effectively acquire their desired information on demand. Client support works closely with our clients’ internal support to provide timely product knowledge in assisting our clients in the usage of the solution. Generally, our client support is provided for under the maintenance provisions in our license agreements for an annual fee based on a percentage of the software license fees. Standard maintenance agreements generally entitle a client to certain product upgrades, product enhancements as well as access to our professional staff. In addition to standard support, we continue to expand our offering to include remote services and extended technical support.

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Product Development. To meet the increasingly sophisticated needs of our customers and address potential new markets, we generally strive to enhance the functionality of our existing products. Our enterprise application subsidiaries use a variety of methods to survey our customers, including questionnaires, direct discussions, and meetings at annual user conferences. We incorporate many recommendations into our products. We also conduct a variety of forms of market research with industry analyst groups and targeted industries to determine strategies for new features and functions. We are committed to achieving advances in the use of computer systems technology and to expanding the breadth of our product lines. Development activity during 2005 covered a range of evolving functionality enhancements to present releases of our products. For example,

• In March 2005, Ross introduced Ross EPM, a suite of applications, integrated with Ross ERP and SCM, enabling fast, multi-dimensional and cross-functional analysis of key business drivers. Through customizable management dashboards, pre-built reports, and proactive alerts, decision makers can easily monitor key performance indicators in real time. The first application in the suite was Ross EPM Sales Analytics for monitoring key metrics in sales and customer service. In the fall of 2005, Ross EPM Manufacturing Analytics and Ross EPM Financial Analytics were added to the suite. Several other analytics modules are planned for 2006, including Inventory and Purchasing.

• In May 2005, Ross introduced iRenaissance SCM 5.9.1 which offered improved planning and scheduling, enhancements to demand planning, enhancements to ERP integration and support for Oracle 10g technology.

• In December, 2005, Ross introduced Ross Data Collection, a fully automated system that eliminates the need for manual entry of operational and inventory information. From initial receipt of materials to customer shipments, Ross Data Collection automates all tracking of material movements with immediate data capture and point-of-scan error alerts.

• In April 2005, Pivotal introduced Pivotal Medical Devices 2.0, an upgraded industry-specific template for Pivotal CRM that addresses unique requirements in the medical devices industry.

• In May 2005, Pivotal introduced Pivotal Sales 5.7, an upgraded module within Pivotal CRM, providing enhanced integration with Microsoft Outlook email, improved analytics functionality, Unicode CRM data support and enhanced .NET customization and application development capabilities.

• In August 2005, Pivotal introduced Pivotal Financial Services 3.7, an upgraded industry-specific template for Pivotal CRM that addresses unique requirements in the financial services industries and the capital markets in particular.

• In December 2005, Pivotal introduced Pivotal Homebuilder 3.6, an upgraded industry-specific template for Pivotal CRM that addresses unique requirements in the construction, homebuilding and real estate industries. The template provides improved sales processes, and neighborhood level interest tracking for leads and contacts.

• In December 2005, Pivotal introduced Pivotal Interaction Connector – Universal Edition 5.7, a standardized, vendor-agnostic API that can be used to integrate the Pivotal CRM system to almost any brand of contact center hardware or infrastructure equipment.

• In June 2005, IMI released new versions of the core products in the IMI Suite for supply chain management, IMI Order v9 and IMI Warehouse v5. IMI Order v9 introduced a new ultra-thin web user interface, configurable workbenches for streamlined workflows and increased user productivity, adherence to the Sarbanes-Oxley and IFRS mandates, built-in VAT and Intrastat handling along with other performance and usability improvements. IMI Warehouse v5 featured a world-class solution for dynamic pick optimization and real-time pick execution, complete re-architecting of inbound processes, support for Windows server deployment and Service Oriented Architecture based on web services.

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• In September 2005, Platinum China released version 6.4 of the PowerHRP suite which included employee motivation management and which completed the function of Employee Risk & Motivation Management, enhanced Attendance Tracking Management and enhanced Employee Self-Service.

• In October 2005, IMI released a technology migration of its solution for coordinated supply chain execution, IMI Collaboration v3, based on open internet-based architecture, with hardware, operating system and database independent deployment and web services enablement.

• In December 2005, IMI Warehouse v5.0i was released with integration (web services) to Ross ERP 5.9.

• In April 2006, Ion Global redesigned its expresso interface which makes it easier for new customers to learn. Expresso is a hosted solution for direct email marketing used by a wide variety of customers throughout Asia.

Projects in progress include several functionality enhancements important to a broad base of our customers, a new product release for medical device manufacturers, incremental enhancements for products designed for our targeted industries, a new analytics product and ongoing improvements to the integration aspects of applications which have been incorporated into our product suite.

We have been increasingly moving software development capabilities for our enterprise application software products to India and China. Pivotal has established a software development center in Bangalore, India and Ross has established a software development center in Shanghai, China. This shift has enabled Pivotal and Ross to expand the breadth of product development and accelerate delivery schedules while reducing overall development costs. By establishing our own development centers, rather than outsourcing to third parties as is frequently practiced in the software industry, we believe we have maintained better control over product quality and development schedules.

Business Services segment. Our business services segment offers a variety of information technology services designed to allow customers to achieve either more value added services for their IT expenditures for the same cost or the same value added services for their IT expenditures for less cost. The services we offer cover the business optimization spectrum from industry advisory services to business process improvement services to traditional implementation services to tuning/optimization services to outsourced hosting/application management services.

The business services segment also includes other specialized business services we offer in regional markets, including eBusiness consulting and web development services offered principally in the western United States, mobile user interface design consultancy and development services for the telecommunications industry in Korea, and marketing database and marketing support services conducted principally in Australia and New Zealand.

Revenues from our business services segment slightly decreased to US$42.7 million in 2005 from US$42.9 million in 2004. As a percentage of total revenues, revenues from our business services segment constituted 17% of total revenues in 2005 and 24% of total revenues in 2004.

We offer a variety of services to help companies customize, optimize and support their information technology infrastructures, including processes, systems and people. These services are generally much broader in scope than the more narrow implementation services which are typically offered by enterprise software companies as a part of their professional services offerings. The services we offer cover the business optimization spectrum, enabling customers to obtain more value for their IT expenditure, and include the following:

• Strategy. These services cover industry advisory services, and are intended to help customers with requests such as, “What are the industry’s best practices?” and “What best practices should be adopted?”

• Design. These services cover business process improvement services, and are intended to help customers with requests such as, “Please assist us in designing our business processes?”

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• Implementation. These services cover traditional implementation services which are typically offered by enterprise software companies as a part of their professional services offerings, and are intended to help customers with requests such as, “Please lead the overall effort with participation from our team.”

• Enhancing. These services cover tuning and optimization services, and are intended to help customers with requests such as, “My system isn’t running well. Please help me figure out what is wrong.”

• Outsourcing. These services cover hosting and application management services, and are intended to help customers with requests such as, “take care of the entire solution for me” and “Can you manage our applications and information technology needs?” Solutions offered in these services include Customer Application Development, System Integration, Software Product Engineering and Infrastructure related services.

The services we offer to support information technology infrastructures are generally offered on a regional basis around the world through various subsidiaries, principally in the northeastern United States and Australia, including the following:

• Ascent SGI. Ascent SGI is a 51% owned subsidiary with offices in the metropolitan New York region servicing customers principally in the northeastern United States.

• Horizon Companies. Horizon Companies is a 51% owned subsidiary with offices in New Jersey, Mumbai and Ontario servicing customers principally in the northeastern and central United States. The acquisition of Horizon occurred in January of 2006 and the operating results of Horizon are not included in the Company’s consolidated financial statements for any of the years ended December 31, 2005.

• Praxa. Praxa is a 100% owned subsidiary with offices in Australia servicing customers principally in Australia.

• PK Information Systems. PK Information Systems is a 100% owned subsidiary with offices in Australia servicing customers principally in New South Wales in Australia.

These business services subsidiaries specialize in providing IT consulting services, outsourced applications development, systems integration services and managed IT services to corporate and government market clients. In order to provide more cost-effective services to clients while maintaining a high quality of service, our business services subsidiaries employ both “on-shore” locally based professional services staff who can interact with a client’s local staff on-site, as well as “off-shore” based professional services staff typically located in India or China.

IT Consulting Services. IT consulting services and project management services involve working with clients to understand their business issues and to identify and document achievable technical solutions to provide tangible business improvements. Utilizing staff with a range of industry experience, our business services subsidiaries each offer independent analysis, advice and technical consulting services to help customers plan, evaluate, select, develop and implement effective business solutions. In addition, Praxa also offers assistance with business planning and process modeling, financial modeling, defining and documenting business requirements, requests for tenders, defining functional specifications, and change control management.

Outsourced Applications Development. Outsourced applications development involves the design, development, testing and deployment of custom software applications. Ascent SGI and Horizon offer engineers with experience in enterprise system design, object oriented analysis and design, and database design and implementation to help develop custom applications for clients. Praxa has developed an ISO9001:2000 certified delivery process which defines project management, analysis, design, software development, testing, deployment, quality control and support processes to enable Praxa to deliver systems adapted to the custom needs of the client. Ascent SGI, Horizon Companies, Praxa and PK Information Systems have custom applications development capabilities on several platforms, including Microsoft .NET technology.

Systems Integration Services. System integration services integrate third party software solutions with custom developed interfaces to allow clients to utilize software solutions from various vendors. By combining IT consulting

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services and applications development capabilities, Ascent SGI, Horizon Companies and Praxa assist clients in implementing off-the-shelf software solutions into existing systems. Ascent SGI and Praxa are involved in implementing Pivotal CRM solutions into the existing systems of clients. In addition, Praxa leverages upon its association with Microsoft as a “Gold Certified Partner in Business Intelligence” to develop its systems integration services business.

Managed IT Services. Ascent SGI, Horizon Companies and Praxa each offer a variety of managed IT services for clients, including outsourcing, facilities management and strategic infrastructure projects. IT outsourcing offers a practical alternative for organizations wanting to concentrate on core business activities, rather than devote limited resources to IT matters. Managed services include, providing outsourced desktop and data management, help desk support and information technology asset ownership, and acting as a strategic source for certain segments of a organization’s IT environment (such as second level support beyond the help desk).

Other Specialized Business Services

We offer other specialized business services in regional markets, including the following:

• eBusiness Consulting and Web Development. We offer eBusiness consulting and web development services primarily through our wholly-owned subsidiary, Ion Global, which has offices in San Francisco, Hong Kong and Korea. Ion Global (other than Ion Global Korea which is engaged in providing solutions geared to the mobile business) is engaged in planning, architecting, and delivering e-business consulting services for both Fortune 500 multinational corporations and pan-Asian clients. Ion Global typically assists clients with the adoption of web-based technologies and helps clients deploy web-based initiatives to lower costs, increase sales, or increase efficiency. The industries with which Ion Global has the most experience are financial services, travel and transportation, communications, media and consumer goods.

• Mobile User Interface Design Consultancy and Development. We provide mobile user interface design consultancy and development services for a number of leading Korean companies in the telecommunications industry primarily through Ion Global Korea. Ion Global Korea’s customers include service providers, mobile handset manufacturers and manufacturers of MP3 devices, wireless Internet broadband devices and interactive televisions. Ion Global Korea has expertise in designing user interfaces and graphic user interfaces which are considered critical to the success or failure of these devices which need to operate under a variety of pre-defined industry standard specifications. Industry standard specifications which Ion Global Korea designs under include, Wireless Internet Platform for Interoperability (WIPI), a standard developed in Korea to provide an operating environment for applications downloaded via the wireless Internet for use on a mobile device (like an MP3 player), Wireless Application Protocol (WAP), an open international set of communications protocols that standardizes the manner in which wireless devices (such as mobile phones) are used for Internet access, and Video on Demand (VOD), a technology to enable individuals to select videos from a central server for viewing on demand (for use in interactive televisions).

• Marketing Database and Marketing Support Services. We provide business marketing data and marketing support services in Australia and New Zealand primarily through our Mezzo business. Mezzo maintains the IncNet databases as a source of marketing intelligence on medium and large companies and organizations in Australia and New Zealand. The IncNet databases, which identify decision makers within approximately 50,000 organizations in Australia and New Zealand, are used as a source of information by many business-to-business direct marketers in Australia and New Zealand. Direct marketers and other customers can use this data to develop and execute marketing campaigns, measure market penetration and analyze marketing opportunities. Marketing support services offered by Mezzo include inbound and outbound call center services, market analysis and research, and marketing database development services. Services are provided to lending marketers in several industries, including the financial services, consumer goods and automotive sectors. Mezzo has also used its data resources to assist companies in refining their marketing strategies, and has developed various modeling techniques to segment markets, quantify opportunities and allocate resources to the appropriate sales channel.

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Competitive Strengths

We believe our principal competitive strengths in our CDC Software business unit include the following:

We offer a range of enterprise software products which enable businesses to increase revenues, margins and customer loyalty. Our enterprise software products attempt to achieve enterprise-wide integration of business and technical information across multiple divisions and organizational boundaries, such as finance, manufacturing, logistics, human resources and sales, utilizing common databases and programs that share data on a real time basis across multiple business functions. By offering a broad range of enterprise software products, including products for enterprise resource planning, supply chain management, customer relationship management, order management systems, human resource management and business intelligence, we have products, services and professionals to fill a wide range of customer needs. With our products and services, our customers can increase revenues, improve customer loyalty, increase customer retention and increase customer net value, while decreasing costs by streamlining processes and interactions between employees, partners and customers.

We have developed industry-specific products for strategic specific industry segments (“micro-verticals”). Many of our enterprise software products have been designed and built to be industry-specific which allows businesses to immediately gain business benefits because unique industry-specific requirements are addressed by these systems without the need for extensive, costly customizations. The benefits that our customers gain, compared to companies that license generalized software systems include, reduced cost of the initial implementation due to the reduced need for customizations, rapid implementation and much shorter time-to-value, reduced training costs for end-users, and reduced cost of ongoing system maintenance.

For example, with respect to Ross’ products, Ross focuses on the food and beverage, life sciences, chemicals, metals and natural products industries. Pivotal’s products have already been optimized and configured to include CRM products for the financial services (asset management, capital markets, commercial banking and private banking), healthcare, homebuilder and life sciences (medical device manufacturing), and general manufacturing industries. IMI’s products have been tailored for the grocery, specialty goods and pharmaceutical and over-the-counter drugs industries.

We believe that the all markets for enterprise solutions are maturing and buyers are becoming increasingly sophisticated. They increasingly seek software applications that provide a very tight fit to their specific industry requirements. Additionally, we also believe that the rapidly growing market of mid-sized companies exhibits highly pragmatic buying characteristics, further adding to the demand for industry-specialized applications that fit their businesses. These market dynamics create significant competitive advantages for us compared to our typical competitors offering generalized software systems that require significant customization for each customer. As an example of this competitive advantage, our competitive win rates exceed 50% during 2005 in some of our target industries. This compares very favorably to the typical competitive win rates of 20-25% for generalized enterprise software systems.

Our products can be implemented rapidly, can be easily customized and are relatively easy to learn, all of which helps to yield a low total cost of ownership but high return on investment. Businesses can use our products without significant customization, thereby expediting the implementation process. If they so desire, businesses can easily customize our products to reflect their own internal processes. As a result, our products can be cost-effectively deployed, and require relatively few customer resources for ongoing support, system maintenance and end-user training. Our products are also relatively easy for end-users to learn, which helps to lower start-up training and deployment costs.

Our products can be scaled with the growing needs of our customers. Many of our customers require that our products support their growing number of employees, customers and partners. Our underlying architectures enable our customers to expand our products as their businesses grow by adding servers in a number of locations. This capability improves performance and enables our products to support larger numbers of concurrent users.

Goals and Strategy

Our goal for our CDC Software business unit is to be an integrated global enterprise solutions company offering a complete range of software products to meet the needs of large and mid-sized enterprises in our target industries, with the capability of providing high quality, low cost outsourced software development services to develop additional products and offer support services complementary to our product line to meet our customers’ needs. The key elements of our strategy are as follows:

Complement our product line through selective acquisitions. While we have built a broad product line principally through acquisitions, we may seek to add additional capabilities and functionalities with selective acquisitions of additional software, technologies or companies to complement the capabilities of our existing products. We believe that large and mid-market customers would find appealing the ability to contract with a single company which can offer a complete range of enterprise software products to meet all of their enterprise software needs, so we may seek to selectively acquire from around the world “best of breed” software and technologies to complement the line of enterprise software products which we offer.

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Invest in our existing businesses and align their operating plans. Now that we have recently completed the initial process of growing our line of enterprise application software products through several significant acquisitions, including the acquisitions of IMI in September 2003, Pivotal in February 2004 and Ross in August 2004, we are looking to invest in our existing businesses and align their operating plans to capitalize on future growth. To assist with this, CDC Software will form a new board of directors, separate from the Company’s board, which will focus on key growth initiatives and help the organization to become an independent, standalone company. The CDC Software board will discuss strategic and operational issues, review and approve new investments, review progress and implementation, and solve issues which cut across our various software businesses. Peter Yip, vice chairman of the board of the Company will serve as executive chairman of the CDC Software board and John Clough, a board member and chairman of the executive committee for the Company will serve as vice chairman of the CDC Software board. Additionally, the Company is in discussion with US-based board member candidates with deep enterprise software experience. In addition, CDC Software has announced several senior management team promotions in key areas including product direction, mergers and acquisitions, global services, sales and marketing.

Extend existing applications and product scope. We intend to continue the development of our applications to add new functionality. The core strategy for product development and acquisitions will be driven by the following objectives which are expected to enhance our current competitive advantages and increase the value of the solutions provided to our customers:

• Broader application functionality to address an increasingly expanded set of requirements for our customers.

• Deeper functionality to address increasingly specific and complex requirements that are unique in each of our strategic industries.

• Geographically-specific functionality to increasingly address the local requirements of each customer and enable expansion of our markets on a global basis.

• Flexible delivery models to address the preferred acquisition and deployment preferences of each customer. We anticipate that customers will continue to prefer both traditional on-premise software licensing as well as Software as a Service (SaaS) options for accessing applications via the Internet based on subscription services. We intend to offer a full range of options to address the preferences of each customer.

• Expanded services offerings to increasingly address a broader range of services needs for our customers. These may range from outsourced support and maintenance to fully outsourced operations or monitoring for adherence to best-practices.

Leverage cross-selling opportunities with our expanded customer base. With the acquisition of Ross, Pivotal and IMI, we have, together with our other enterprise application software companies, approximately 4,000 customers worldwide which have licensed our products (which does not include the addition of more than 1,000 customers added as a result of our acquisition of c360 Solutions in April 2006). We believe that this large, global customer base provides a platform for cross-selling synergies within the group, and we plan on offering to individual customers the capability of purchasing from our group of related companies complementary product and service offerings. We further believe that our ability to approach individual customers is further enhanced with our greater global scale and global marketing presence.

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Target the markets in Japan and the PRC for enterprise application software, and leverage our experience and brand name in the Asia Pacific region. While we have clients worldwide, some of our key target markets will be Japan and the PRC. We believe that the potential growth of the enterprise software and business services market for mid-market manufacturing is significant in Japan and the PRC because many companies are re-locating their manufacturing operations to Asia Pacific due to lower overhead and labor costs, and because enterprise software products developed for the mid-market are more appropriate for the Japanese and the PRC markets due to the fact that in general, such products are easier to use, can be implemented rapidly and can be easily customized which helps to yield a low total cost of ownership; yet, such products can also be scaled with the growing needs of the customer.

China.com Inc. Business Unit

Our China.com Inc. business unit is engaged in providing mobile services and applications, online entertainment, direct marketing and Internet products and services. China.com Inc. business unit is comprised of two segments, “Mobile Services and Applications” and “Internet and Media”.

Our Mobile Services and Applications segment provides popular news and mobile applications services targeting the consumer market in China. We offer wireless services including Short Message Service (“SMS”), Multimedia Message Service (MMS”), Wireless Application Protocol (“WAP”) and Interactive Voice Response (“IVR”). We have established strong local direct connectivity with provincial mobile network operators in 31 provinces, which facilitates the marketing and promotional activities of our wireless services. Our mobile services and applications business is primarily operated through Newpalm and Go2joy, both of which are held through our subsidiary, China.com.

Our Internet and Media segment is focused on online entertainment and Internet products and services that target users in China and Chinese communities worldwide via our portal network (www.china.com and www.hongkong.com). Included in the Internet and Media segment is our online games business hosting a wide assortment of games targeting the China market. The spectrum of games ranges from role playing games which create precise, rich and colorful virtual gaming worlds for online users, to online board games suitable for casual game players, to online poker games. Our online game platforms have reached approximately 20 million registered users in China. This segment also includes our Singapore-based travel trade publisher and organizer serving the travel and tourism industry in the Asia Pacific region.

Prior to 2005, our China.com Inc. business unit was organized in three segments, “Mobile Services and Applications”, “Advertising/Marketing” and “Others”. Advertising/Marketing segment was engaged in providing advertising and e-commerce services which are now included in the Internet and Media segment.

Products and Services

Mobile Services and Applications segment. We currently offer a comprehensive suite of mobile data applications, including dating, chatting, fortune telling, entertainment, information-related content and community services to mobile subscribers in China utilizing SMS, MMS, WAP and IVR services.

Revenues from our mobile services and applications segment increased by approximately 45% to US$34.4 million in 2005 from US$23.7 million in 2004. As a percentage of total revenues, revenues from our mobile services and applications segment constituted 14% of total revenues in 2005 and 13% of total revenues in 2004.

Services. Our mobile data application products are available through a variety of services, including the following:

• SMS. SMS is a communications protocol which allows users to access, download and communicate information consisting of fairly simple and short text messages through mobile phones.

• MMS. MMS uses General Packet Radio Service technology, or GPRS technology, and has a greater capacity than SMS. MMS transmits more data in a single message, enabling users to access and download color pictures, multi-tonal sounds and Flash files.

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• WAP. WAP is a set of communications protocols that standardizes the manner in which wireless devices (such as mobile phones) are used for Internet access. WAP allows users with WAP enabled handsets to browse content in a more user-friendly format on their mobile phones so that users can request and receive information in a manner similar to accessing information on Internet websites. WAP also uses GPRS technology, enabling users to access and download color pictures, multi-tonal sounds and Flash files.

• IVR. IVR provides users with voice content, such as celebrity voice greetings and news information.

Products. Some of our more popular products available through the different services, include:

• Mobile Dating. Our mobile dating services are subscription-based community services that provide dating and chatting platforms through which subscribers may meet and socialize, or arrange to meet in person, by sending wireless messages. Users can select a particular geographic location to meet friends and set criteria, including age, gender, hobbies and qualifications, for the friends they would like to meet. Some services combine a mobile platform with our Internet portals so that subscribers can conduct chat sessions with online subscribers or mobile subscribers. In addition, certain subscribers can record and upload video clips and/or photos onto online websites, which enhances the communication among our online and mobile subscribers.

Mobile subscribers can access mobile dating services through SMS, WAP and IVR.

• Fortune Telling. We offer a subscription and on-demand service that provides fortune telling and tips on one’s luck for the day. Users enter their birth dates and select fortune categories, such as relationships, general fortune or career that they would like to inquire.

Mobile subscribers can access fortune telling through SMS, MMS, WAP and IVR.

• Jokes. We offer jokes on both a subscription and on-demand basis. Users can subscribe to a fixed number of jokes to be delivered each day, or they can order on a per-joke basis, which is delivered on demand. We develop our daily jokes internally or select jokes submitted by users.

Mobile subscribers can access jokes through SMS, MMS, WAP and IVR.

• Mobile Games. We offer mobile games to subscribers. For Java based mobile games, subscribers can download these games to their handsets and play them with their handsets repeatedly. We offer these games through third party game developers. We also offer interactive network games of various types that we develop ourselves.

Mobile subscribers can access mobile games through SMS, WAP and IVR.

• Information-Related Services. We offer current information, such as stock quotes, news and local weather conditions, and entertainment related products such as music and celebrity voice greetings to subscribers on a subscription and on-demand basis. Most of the information distributed from our mobile platform is aggregated from content partners through revenue sharing arrangements.

Mobile subscribers can access information-related services through SMS, MMS, WAP and IVR.

• Pictures and Ringtones. We provide ringtone, picture and logo downloads through China.com’s portal and through a subscriber’s mobile handsets on a subscription and per download basis.

Mobile subscribers can access pictures and ringtones through SMS, MMS, WAP and (for ringtones) IVR.

Internet and Media segment. Our Internet and Media segment is focused on online entertainment and Internet products and services that target users in China and Chinese communities worldwide via our portal network (www.china.com and www.hongkong.com). This segment also includes a Singapore-based travel trade publisher and organizer serving the travel and tourism industry in the Asia Pacific region. Internet and Media segment offers the following products and services.

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Revenues from our internet and media segment increased by approximately 10% to US$9.0 million in 2005 from US$8.2 million in 2004. As a percentage of total revenues, revenues from our internet and media segment constituted 4% of total revenues in 2005 and 2004.

Online Games. 17game, while accounted for on the equity basis of accounting in 2005, commercializes online games in the China market which includes operating the games and developing marketing and promotional strategies for the games. It has an extensive distribution network in China, including both online and offline channels, and collaborates with two of the largest data center services operators in China. 17game licenses and distributes three fantasy based MMORPGs, Yulgang, Travia and Droiyan. Yulgang, which was commercially launched in mid-July 2005, has experienced rapid growth and popularity. We believe the number of concurrent players will continue to increase with additional investments in marketing, technical enhancement and support.

The business model of Yulgang is different from traditional MMORPG business models because its revenue is generated from selling value-added virtual merchandise and services, rather than charging players fees for time spent playing the game. With strong point card sales since the commercial launch in mid-July 2005, we believe that this game will contribute a majority of our online games revenue in the second half of 2005. In addition, we expect there will be more synergies developed among our various businesses.

Portal. The services and products of our portal include online advertisement, search, enterprise service and mail services.

Travel and Trade Services. TTG publishes literature for the travel industry and organizes industry events. It is one of Southeast Asia’s most established information and access providers to the travel and tourism industry. TTG offers a wide range of travel and tourism media products, including publications, exhibitions, database management and Internet products. TTG also offers integrated marketing solutions and a platform for customers to showcase their products and services in the travel and tourism industry. TTG sells its products and provides services directly to its customers, such as travel associations and government agencies.

Competitive Strengths

We believe our principal competitive strengths in respect to our China.com Inc business unit include the following:

Integrated mobile and portal platforms. We offer a broad range of mobile products and services in China through our integrated mobile and portal platforms. We leverage our global exposure to introduce advanced mobile services and applications and to expand and enhance our product selections in China. In addition, we have made recent strategic investments, such as in Go2joy and 17game, to further enhance our capability to expand our product offerings and develop new products internationally.

Scalable, high-margin business model. Our mobile services and applications business is highly scalable with relatively low incremental operating costs. We have developed a cost-effective development and distribution platform. After incurring initial research and development costs for mobile services and applications, we can deliver such products to a large mobile subscriber base quickly and at a low cost.

Extensive China-wide network coverage with direct local connectivity. Our mobile services and applications are accessible to China’s large mobile subscriber base through our nationwide network coverage. We have direct local connectivity with China Mobile in 28 provinces and with China Unicom in 26 provinces. We believe our nationwide coverage facilitates our promotional activities. Our coverage also contributes to our high success rate for SMS, MMS, WAP and IVR messages sent, which enhances our revenues and financial position.

Recognized brand names in China. We believe our China.com brand is recognized throughout China, and we operate the www.china.com portal. As of May 19, 2005, Alexa, a subsidiary of Amazon.com, ranked www.china.com as 57th of all websites globally, and also ranked www.china.com as 14th among all simplified Chinese character websites, as measured by user traffic.

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Experienced management team. Our management team has extensive experience in our businesses. For example, our mobile services and applications management team has an average of over 15 years of experience in the mobile data applications market in China, and members of Newpalm’s management helped Motorola establish operations in China in the early 1990’s. We believe that our management’s extensive industry experience, combined with our dedication to and reputation for technical excellence, differentiates us from our competitors and provides us with a competitive advantage when introducing new mobile services and applications and recruiting new talent.

Goals and Strategy

Our goal for our China.com Inc business unit is to become one of the dominant providers of mobile services and applications in China and to emerge as a major player in the mobile services and applications sector. Further, we aim to be a leading portal and online game company in China. To achieve these goals, we intend to:

Pursue selective strategic acquisitions and investments to achieve greater scale. We intend to pursue selective strategic acquisitions and investments aimed at complementing our existing suite of operations.

Expand our product selection and integrate new services and applications. We intend to expand our existing products and services. We also intend to leverage our existing operation, interactive media and marketing platforms to identify and develop new services and applications with the potential to generate significant consumer demand. We plan to introduce new products and innovative technology from various international markets to capitalize on the long term growth opportunities in China. We also intend to access developed markets to source advanced and innovative technologies and applications from these markets to the China market.

Broaden our customer base. We have maintained strong relationships with leading mobile network operators in China, at both the national and local provincial levels, and our existing marketing channels. We intend to further develop these relationships to expand our existing products, broaden our customer base and increase our average revenue per unit. We also intend to use a variety of traditional media, including television, radio, newspaper and magazine advertisement, in addition to our existing marketing channels to enhance our marketing efforts.

Expand and develop our portal network. In 2005 and 2006, we placed, and are continuing to place, renewed emphasis on the development of our www.china.com portal network. We believe the portal network will play a critical role in driving synergies among our other related businesses, including our mobile services and applications and online games businesses, and will serve as a strategic and core business platform. We have begun to implement a repositioning strategy for the portal network to sharpen its vertical focus, and extend the depth of its product offerings in channels such as military, automobile and sports. We will be exploring cross-selling and cooperation opportunities between our business divisions in the areas of marketing and promotion, community building and mobile services and applications product sales.

Industry

In order to succeed in increasingly competitive environments, many enterprises have sought to implement broad enterprise software applications to automate their key business processes. Historically, these enterprise software applications, particularly those geared towards the needs of enterprise resource planning to help a manufacturer produce high-quality finished goods, were costly and complex, in part because they frequently required time-consuming custom programming and implementation. Many enterprises did not have the financial resources to implement these software applications and lacked the information technology expertise and infrastructure required to operate, refine and maintain the software. In addition to being costly and infrastructure intensive, many enterprises found the software applications too rigid to easily customize, difficult to adapt as business processes evolved through planning, and difficult for end-users to learn.

We believe that the enterprise software market has been undergoing a shift from generalized, one-size-fits-all, difficult to adapt and learn enterprise applications to focused, industry-specific applications that can be quickly installed at a lower upfront cost and maintained over the life of the system much more affordably because they require little, if any customization. We believe these industry-focused applications offer customers a more compelling return on investment in a

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more rapid timeframe and deliver significant improvements in total cost of ownership over traditional generalized enterprise applications. This shift has resulted in the creation of targeted applications that are economically viable for mid-sized as well as large enterprises.

We believe in a strategy of focusing on enterprise software applications which generally incorporate industry-specific business expertise, best practices and regulatory requirements which can significantly reduce or eliminate much of the expense and time required to customize these applications. These applications must often be implemented into mixed software infrastructures at reasonable cost with minimal disruption to business operations, so it is important to utilize flexible technologies and architectures and have the software be usable and deployable via the Internet. In order to address the evolving enterprise software market, in addition to tailoring applications to match the unique requirements of each customer, vendors must offer flexible pricing, architecture and deployment options. At the same time, these software applications must extend the reach of the business processes to include customers, partners, suppliers and employees.

Our China.com business unit also operates in an increasingly competitive environment. We are not the only company providing mobile services and applications, such as wireless services including Short Message Service (“SMS”), Interactive Voice Response (“IVR”), Multimedia Message Service (“MMS”) and Wireless Application Protocol (“WAP”), in China. We face increasing competition for subscribers, mobile services and applications, and content from companies such as: Sina Corporation, Sohu.com Inc., NetEase.com Inc., Tom Online Inc., Tencent.com Technology Limited, Linktone Ltd., Mtone Wireless Corporation and Kongzhong, as well as a number of smaller companies that serve China’s mobile services and applications market. In addition, in our portal business, our competition for user traffic, ease of use and functionality include Chinese and/or English language based Web search and retrieval companies, including AltaVista Co., Apple Daily, ChinaByte, FindWhat.com, Google, Inc., HotBot, HotWired Ventures, Lycos, Inc., Mingpao.com, MSN, Netease.com, Inc., Netvigator.com, Overture Services, Inc. (acquired by Yahoo!, Inc.), Shanghai Online, Sina Corporation, Sohu.com, Inc., Tom Online Inc. and Yahoo!, Inc. We also encounter increased competition from Internet service providers, Web site operators and providers of Web browser software, including Microsoft Corporation or Netscape Communications Corporation, that incorporate search and retrieval features in their products.

We believe that it is critical to our China.com business to maintain strong relationships with the leading mobile network operations in China, at both the national and local provincial levels, and our existing marketing channels. In order to be successful in the China market, vendors must continue to develop these relationships. We also believe in a strategy of developing our www.china.com portal network. We believe that our portal network will play a critical role in driving synergies among our other related businesses, including our mobile services and applications and online games businesses, and will serve as a strategic and core business platform.

Customers

We believe our large, global customer base is one of our competitive strengths. As of December 31, 2005, we cumulatively had approximately 4,000 customer companies worldwide which have licensed our products (which does not include the addition of more than 1,000 customers added as a result of our acquisition of c360 Solutions in April 2006), with approximately 1,200 customer companies worldwide at Ross, 2,000 companies around the world which have licensed Pivotal software, and 800 customers worldwide which have licensed our other enterprise application software businesses. Not all of our customers which have licensed our products, however, are active on maintenance. Our enterprise software application customers include many of the world’s leading companies. Ross’ customers include Pez Candies, Nucor Steel, Schenectady International, Summit Kluber, Acambis, Jennmar Corporation and Litehouse Foods. Pivotal’s customers include VISA International Asia Pacific, Morgan Keegan & Company, Vantage Credit Union, Centex Homes, Beazer Homes, Standard Pacific Homes, Savills UK, Premera Blue Cross, Qiagen, Sharp Electronics Corporation, and WellCare Health Plans. IMI’s customers include British Airways, Canadian Tire, GE Plastics, Mercury Marine and Royal Ahold.

Our CDC Software business unit targets large and mid-sized enterprises and divisions of larger enterprises, as well as selected target industries, as our principal customer base. We believe that the mid-enterprise market and divisions of larger enterprises continue to be underserved, and require vendor solutions which can address the special needs of this market, such as the need to quickly realize benefits and returns from the software investment, the ability to make modular purchase decisions, the availability of risk-mitigating implementation services, applications offering a full range of

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functionality, strong customization support, industry-specific solutions, low total cost of ownership, flexible pricing models, and strong support of widely used technologies (like Microsoft). Additionally, customers are much more sophisticated and have come to expect not just knowledge of enterprise software applications (like ERP or CRM), but additional deep industry expertise from their enterprise application vendor. As a result, we believe the group of industry-specific enterprise software applications we have assembled that meet many of a company’s industry-specific requirements out of the box are attractive to customers, and will be an important element of our enterprise application strategy going forward.

While we are a well established global company with strong market presence in North America, the United Kingdom, Western Europe and Australia/New Zealand, four of our key target markets for our CDC Software business unit, will be the Eastern Europe, Middle East, India and China markets where we have current customers, and which we believe have strong growth potential. We believe that we can increase the rate of our revenue growth by targeting the established market in Japan and the emerging market in China for enterprise application software.

Our China.com business unit generates revenues from its Mobile Services and Applications segment from a comprehensive suite of mobile data applications, including dating, chatting, fortune telling, entertainment, information-related content and community services to mobile subscribers in China utilizing SMS, MMS, WAP and IVR services. We rely on mobile network operators in China to bill mobile phone users for our subscription fees. We have revenue sharing arrangements with China Mobile and China Unicom under which we receive 70% to 85% of the subscription fee collected from a mobile subscriber, with the balance being retained by the mobile operators. In addition to our charges, the mobile operators separately charge their subscribers RMB0.05 to RMB0.25 for every SMS, MMS or WAP message sent. These amounts are collected by the mobile operators and are not shared with us.

As of January 1, 2005, in response to significant changes in the operation of the Mobile Services and Applications business in China, our China.com business unit is recording revenues from our mobile services and applications business on a “gross basis” (including the portion of the mobile services and applications revenue paid to mobile network operators as an addition to revenues and as an additional cost of revenues) rather than a “net basis” (excluding the portion of the mobile services and applications revenue paid to the mobile network operators).

Our China.com business unit derives our Internet and Media revenues from online and print advertising, and online entertainment and Internet products and services that target users in China via our portal network. 17game, while accounted for on the equity basis of accounting, generates revenues from pay-for-use subscriptions to our online games, or from sales of virtual merchandise and services that players may purchase for the roles they are playing in the game in order to improve their performance. The game players buy our pre-paid game cards through distributors. Each game card has a given set of points installed in it. The game player must activate their pre-paid game cards using access codes and passwords.

Sales

We sell our products and services through a variety of methods. Ross sells its products and services in the US and Western Europe primarily through a direct sales force. Pivotal sells its products and services in the US primarily through a direct sales force, and in the United Kingdom and France through a mixture of direct sales as well as indirect channels. At December 31, 2005, Ross, Pivotal and IMI had approximately 156 sales and marketing employees, collectively.

In other areas of the world, we sell our products through partners and distributors. At December 31, 2005, Ross, Pivotal and IMI had approximately 56 distributors collectively. Ross has distributors in various countries in the following regions: Asia (including China and Japan), Australia/New Zealand, Eastern and Western Europe, the Middle East, South America, and Southeast Asia. Pivotal has partners in various countries in the following regions: Asia (including China and Japan), Australia/New Zealand, Eastern and Western Europe, the Middle East, South America, and Southeast Asia. These independent members of Pivotal’s partner program embed, resell or distribute its products, comprised of original equipment manufacturers, consulting and professional services companies, progressive product development organizations, and regional consulting and sales agents that meet certain criteria. These partners and distributors pay royalties on the sales of products and maintenance services.

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c360 Solutions, which does not maintain a direct sales force, sells its products both directly through an online store and more than 450 authorized reseller partners worldwide. The acquisition of c360 occurred in April of 2006 and the operating results of c360 are not included in the consolidated financial statements for any of the years ended December 31, 2005.

In support of our sales force, partners and distributors, our enterprise application software subsidiaries conduct a variety of marketing programs which include telemarketing, direct mailings, online and print advertising, promotional material, seminars, trade shows, public relations and on-going customer communication. These subsidiaries also conduct a significant amount of marketing efforts using online channels including web-based seminars, online newsletters, and electronic direct mail, participate in industry, customer and analyst events, and hold local events to better meet the needs of prospects, partners, distributors and customers around the world.

We and our enterprise application software subsidiaries also conduct communications programs to establish and maintain relationships with key trade press and industry analysts. We have customer marketing teams targeted at working directly with our customers to obtain feedback and to track ongoing customer success stories. Our enterprise application software subsidiaries also hold joint web events with marketing partners and others, co-author business papers, and create and publish other materials that are of value to our customers and partners in making a decision to purchase a one of our products.

We believe that Asia/Pacific is a strategic market with significant upside for our company. CDC Software companies, Pivotal, Ross and Platinum China have been successful for many years in the Asia/Pacific market. As we bring the family of CDC Software companies into one we are leveraging the strengths of each organization to maximize return from the Asia/Pacific region. We have created a single country operation in each of the major markets (Japan, China, Australia) in Asia to represent our products. We have completed the translation and localization of our solutions for each of these major markets. We have a combination of direct and partner distribution that covers all markets in the region.

Our China.com Inc. business unit is focused on enhancing our relationships with China Mobile and China Unicom and launching promotions both through our portals and the general media. Currently, we have approximately 100 sales and marketing personnel who are located throughout China, including in Beijing, Nanjing, Shandong, Guangdong and Hangzhou, and maintain our relationships with China’s mobile operators at the national and local provincial level. Our primary sales and marketing initiatives in mobile services and applications include promotional activities through mobile operators, bundled access through partnerships with mobile operators and handset manufacturers, direct marketing through consumer portals like www.china.com, and general media advertising in traditional media, including point-of-purchase promotions, newspaper and magazine advertisements, radio and TV advertisements.

Intellectual Property

We rely on a combination of copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information and technology. We do not currently hold any patents nor do we have any patent applications pending. There can be no assurance that any copyrights or trademarks held by us will not be challenged or determined to be invalid.

As part of our confidentiality procedures, we have policies of entering into non-disclosure and confidentiality agreements with our employees, consultants, corporate alliance members, customers and prospective customers. We also enter into license agreements with respect to our technology, documentation and other proprietary information. These licenses are nonexclusive and generally perpetual. We provide for source code escrow arrangements under some of our license agreements. Despite the efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain the use of our products or technology that we consider proprietary and third parties may attempt to develop similar technology independently. We pursue registration and protection of our trademarks primarily in the United States and Canada, although we do seek protection elsewhere in selected key markets. Effective protection of intellectual property rights may be unavailable or limited in some countries. Some countries, such as the People’s Republic of China, may not protect our proprietary rights to the same extent as in the United States and Canada. In particular, software piracy has been an issue in China for many software publishers, although we believe the complexity of our software products and the need to customize, maintain and upgrade such products mitigates the risk of software piracy. There can be no assurance that protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

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Treasury Management

We generated $8.2 million of interest income in 2005, and as of December 31, 2005 our debt securities investment portfolio amounted to $148.2 million.

We invest on the basis of recommendations from international investment banks, as well as information and credit ratings provided by independent ratings agencies including Moody’s Investors Service and Standard & Poor’s. When purchasing or selling debt securities, our policy is to obtain between three and five competing quotes. Generally, a debt security’s credit quality depends on the issuer’s ability to pay interest on the amount borrowed and to repay principal. The lower the credit rating, the greater the risk the issuer will default or fail to meet their payment obligations, as determined by the rating agency. As of December 31, 2005, 97% of our debt securities were invested in AAA-rated securities of U.S. government sponsored enterprises or U.S. Treasuries. We also held AA and AAA-rated short-term corporate debt which matured in March 2006, representing 7% of our debt securities. At present, we hold only one security that is rated lower than AAA. In the event of a downgrade in an investment to BBB-, as rated by Standard & Poor’s, or Baa3, as rated by Moody’s Investors Service, we will generally implement an orderly sale of the security in order to maintain a relatively conservative stance in our portfolio, although on a case-by-case basis we may decide to retain such debt securities. For a summary of the effects of our treasury management program on our liquidity and capital resources and our material market risks, see Item 3.D – “Key Information – Risk Factors – Risks relating to treasury management”, Item 5.B – “Operating and Financial Review and Prospects — Liquidity and Capital Resources” and Item 11 – “Quantitative and Qualitative Disclosures About Market Risk”.

As of December 31, 2005, our investments in debt securities of $148.2 million are effectively reflected in our consolidated financial statements at their fair values, based on the market values of publicly traded debt securities. At the end of each quarter, if the end of the quarter fair value of a debt investment is below the original investment cost, the difference is charged to “accumulated other comprehensive income” under the shareholders’ equity section of our consolidated balance sheet. If the fair market value of any of our debt investments declines below its investment cost and the decline is considered “other-than-temporary”, the decline would then be reflected as an expense under “impairment of cost investments and available-for-sale securities” in our consolidated statement of operations.

As of December 31, 2005, we had generated a significant portion of our interest income from our investments in debt securities. Our interest income is a source of liquidity for our working capital needs. Of $8.2 million in interest income, $5.3 million was generated by our investments in debt securities. Our consolidated quarterly interest income ranged from approximately $1.9 million to $2.1 million during 2005. Of this, interest income from debt securities ranged from approximately $1.2 million to $1.4 million. This reflects an annual interest income of $5.3 million or a yield of 3.2% on the average balance of $164.1 million of debt securities between January 1 and December 31, 2005, compared to a yield of 2.7% in 2004. The yield on our debt securities increased from 2.7% in 2004 to 3.2% in 2005.

Markets and Operations

We operate in 14 countries across Asia Pacific, Australia, Europe, North America and South America.

Legal Proceedings

As of June 21, 2006, other than as set forth below, there was no material litigation pending against us. From time to time, we and our subsidiaries are a party to other litigation and claims incident to the ordinary course of business. While the results of such litigation and claims cannot be predicted with certainty, we believe that the final outcome of such other matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Vertical Computer Systems/NOW Solutions LLC. In April 2003, Vertical Computer Systems (on behalf of itself and on behalf of NOW Solutions) filed a civil action against our subsidiaries Ross Systems, Inc. and others alleging, amongst other things, breach of contract, claims under contractual indemnifications and fraud arising from the sale of Ross’s HR/Payroll division to NOW Solutions in an amount of $3.5 million. In April 2003, Ross filed a motion to dismiss the complaint, which was granted in November 2003. The plaintiff appealed and its appeal was granted in

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October 2004. The matter has been remanded to the trial court for adjudication. The parties have engaged in and completed written and document discovery and have taken all material depositions. Meanwhile, the parties have filed their respective Notes of Issue and Certificates of Readiness for Trial, wherein each party has demanded a jury trial on all issues. The Court has scheduled a pre-trial conference for July 18, 2006. We believe that this action is without merit and we intend to vigorously defend such action.

Harry Edelson. In October 2003, Harry Edelson, a former member of our board of directors, brought an action at the District Court for the Northern District of Illinois against us and Dr. Raymond Ch’ien and Mr. Peter Yip, two members of our board of directors, seeking injunctive relief and monetary damages in connection with alleged violations of the Securities Exchange Act of 1934, as amended, in connection with his failure to be re-elected to the board at our 2003 annual general meeting. In February 2004, Mr. Edelson filed an appeal to a decision by the District Court to dismiss the action. The appeal was denied in April 2005 by the Courts of Appeal for the Seventh Circuit. In May 2005, Mr. Edelson petitioned for a re-hearing en banc at the Courts of Appeals. The petition was subsequently denied. In October 2005, Mr. Edelson petitioned to the Supreme Court for a Writ of Certiorari to the Courts of Appeal’s decision and in February 2006 the Supreme Court denied to hear the petition. In February 2004, Mr. Edelson brought an amended action at the District Court against us based upon the same allegations seeking monetary damages. In June 2005, we filed a motion for summary judgment at the District Court, and in November 2005, the motion was granted in our favour. We believe that the actions brought by Mr. Edelson are without merit and we intend to vigorously defend such actions.

Class Action Lawsuit. A class action lawsuit was filed in the United States District Court, Southern District of New York on behalf of purchasers of our securities between July 12, 1999 (the date of our IPO) and December 6, 2000, inclusive. The complaint charges us and the underwriters in our IPO with violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that the prospectus used in our IPO was materially false and misleading because it failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors, in exchange for which the underwriters allocated to those investors material portions of the restricted numbers of our shares issued in connection with the IPO; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate our shares to those customers, in exchange for which the customers agreed to purchase additional shares in the aftermarket at pre-determined prices. In June 2003, the plaintiffs in the consolidated IPO class action lawsuits currently pending against us and over 300 other issuers who went public between 1998 and 2000, announced a proposed settlement with us and the other issuer defendants. The proposed settlement provides that the insurers of all settling issuers will guarantee that the plaintiffs recover $1 billion from non-settling defendants, including the investment banks that acted as underwriters in those offerings. In the event that the plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the difference. Under the proposed settlement, the maximum amount that could be charged to our insurance policy in the event that the plaintiffs recovered nothing from the investment banks would be approximately $3.9 million. We believe that we have sufficient insurance coverage to cover the maximum amount that we may be responsible for under the proposed settlement. The independent members of our board of directors approved the proposed settlement at a meeting held in June 2003. As of March 2005, outside counsel advised that the court has granted preliminary approval of the settlement, subject to certain conditions.

Lam, Po Chiu Mark. In December 2003, Mr. Mark Lam filed a civil action against our subsidiary Ion Global (BVI) Limited alleging breach of contract in relation to a put option agreement under a share purchase agreement in an amount of $741,937. Pleadings closed in April 2004 when Lam filed its reply to the defense filed by Ion Global. The case was largely dormant until late 2005 when the plaintiff sought and was granted leave to amend his statement of claim and to join the Company as a party. The parties are now disputing procedural matters in connection with the service of the amended Statement of Claim and the amended defense. We believe that this action is without merit and we intend to vigorously defend such action.

Herkemij & Partners Knowledge. In April 2004 Herkemij & Partners Knowledge B.V., or Herkemij Knowledge, filed a civil action against our subsidiaries Ross and Ross Nederland alleging Ross and Ross Nederland developed a software program named iProject using documentation and source code from Herkemij Knowledge’s copyrighted Project Administration and Control System. The action includes counts for copyright infringement, misappropriation of trade secrets, and unfair competition and seeks, among other things, injunctive relief, damages totaling $5.0 million to $10.0

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million, and payment of royalties. In September 2004, the case against Ross Nederland was dismissed for lack of personal jurisdiction, and in February 2005, a hearing was held in which the judge refused to dismiss the case against Ross, but transferred the case to the Northern District Court of Georgia in Atlanta. We believe that the action is without merit, and intend to vigorously defend such action.

Adding Value to Business Pty Ltd trading as Countrywide Systems Network (“Adding Value”). In December 2004, Adding Value filed a civil action against our subsidiary Praxa Limited alleging breach of contract, misleading and deceptive conduct and various equitable remedies in an amount of $993,000 plus interest and costs. In February 2006, the plaintiff paid security of costs in an amount of $22,700. On March 8, 2006, we filed and served a request for further and better particulars of the statement of claim and we received the plaintiff’s response to our request on April 11, 2006. We are currently preparing our defense and potential cross-claim against the plaintiff. We believe that the action by Adding Value is without merit and that we have a strong potential cross-claim. We intend to vigorously defend the action.

Mantech International Corporation and ManTech Australia International Inc. In October 2005, ManTech International Corporation and ManTech Australia International Inc, filed a civil action against our subsidiaries CDC Australia Limited and CDC Australia (Praxa) Pty Ltd alleging that CDC Australia failed to pay an amount of $3.7 million retained as part of the consideration for the acquisition of Praxa Limited. In late 2005, we filed and served a request for further and better particulars of the statement of claim and a request for the filing of security of costs. We believe that the $3.7 million was correctly retained by CDC Australia in accordance of the terms of the acquisition agreement. We believe that the action is without merit, and intend to vigorously defend such action.

C. Organizational Structure

CDC Corporation was incorporated in June 1997. The following table sets forth our significant subsidiaries organized by business unit as of April 30, 2006. Please note that the following table does not include our intermediate holding companies.

•      Ross Systems, Inc. •      Pivotal Corporation •      Industri-Matematik International Corp (51%) •      Platinum China Holdings Inc.(holds OpusOne) •      Ion Global (BVI) Limited •      Praxa Limited •      PK Information Systems Pty Ltd. •      Software Galeria, Inc. (51%) (holds Ascent and the assets of Horizon) •      MEZZO Business Databases Pty Limited •      Assets acquired from JRG Software, Inc. •      c360 Solutions Incorporated

•      NewPalm (China) Information Technology Co. Ltd. (held by Palmweb Inc.)* •      Beijing He He Technology Co. Ltd. (held by Group Team Investments)* (operates Go2joy) •      Beijing 17Game Network technology Co., Ltd* •      TTG Asia Media Pte Limited* •      chinadotcom Portals Limited* •      hongkong.com Portals Limited* •      Shenzhen KK Technology Ltd (held by United Crest Limited)*

(  ) Denotes percentage ownership, if less than 100%

* Subsidiaries held under our 77% owned subsidiary, China.com, which is listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, or GEM. As at December 31, 2005 we owned 81% of China.com Inc. As of March 31, 2006, as a result of our acquisition of the remaining 52% of Equity Pacific Limited which ultimately owns Beijing 17game Network Technology Co Limited, we own 77% of China.com Inc. See Item 10.C – Material Contracts for a summary of the terms of the 17game acquisition.

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Corporate Structure in China for our China.com Subsidiary

Overview

As at March 31, 2006, China.com, a 77% owned subsidiary of CDC Corporation, operates the following two business segments in China:

- Mobile Services and Applications; and

- Internet and Media (including our Online Games business).

China.com makes investments in each of these business units mainly through offshore holding vehicles registered in the British Virgin Islands or Cayman Islands.

Trust Deed Arrangements

To comply with legal considerations in China, China.com conducts a significant portion of the operations of these business units through domestically registered companies in China, referred as ICPs, which are held under trust deed arrangements under which the trustees are employees of China.com who are Chinese nationals and the offshore holding vehicles of China.com registered in the British Virgin Islands or Cayman Islands are the 100% beneficiaries of the trusts.

With respect to our Newpalm business, we have formed two ICPs, Beijing Newpalm Technology Co., Ltd., or Beijing Newpalm, and Beijing Wisecom Technology Co., Ltd., or Beijing Wisecom. Two of China.com’s employees, Mr. Wang and Mr. Cui, each own 50% of Beijing Newpalm and 50% of Beijing Wisecom, respectively. Beijing Newpalm and Beijing Wisecom are held under trust deed arrangements under which Mr. Wang and Mr. Cui also serve as trustees of the trusts, and Palmweb Inc. is the holding vehicle of China.com incorporated in Cayman Islands which is the 100% beneficiary of the trusts.

With respect to our Shenzhen business, the ICP is Shenzhen KK Technology Ltd., or Shenzhen KK. Two of China.com’s employees have ownership interests in Shenzhen KK with Mr. Fan and Mr. Cui each own 50% of Shenzhen KK. Shenzhen KK is held under trust deed arrangements under which Mr. Fan and Mr. Cui also serve as trustees of the trusts, and Unitedcrest Investments Limited is the offshore holding vehicle of China.com registered in the British Virgin Islands which is the 100% beneficiary of the trusts.

With respect to our China.com Portal business, the ICP is Beijing China.com Technology Services Co., Ltd., or Beijing China.com. Three of China.com’s employees have ownership interests in Beijing China.com with Mr. Wang and Ms. Wang each owning 40% of Beijing China.com and Ms. Wu owning 20% of Beijing China.com. Beijing China.com is held under trust deed arrangements under which Mr. Wang, Ms. Wang and Ms. Wu also serve as trustees of the trusts, and chinadotcom Portals Limited is the offshore holding vehicle of China.com registered in the British Virgin Islands which is the 100% beneficiary of the trusts.

With respect to our Go2joy business, the ICP is Beijing He He Technology Co., Ltd., or Beijing He He. Two of China.com’s employees have ownership interests in Beijing He He with Ms. Wang and Ms. Wu each owning 50% of Beijing He He. Beijing He He is held under trust deed arrangements under which Ms. Wang and Ms. Wu also serve as trustees of the trusts, and Double Keen Limited is the offshore holding vehicle of China.com registered in the British Virgin Islands which is the 100% beneficiary of the trusts.

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With respect to our 17game business, the ICP is Beijing Hulian Jingwei Technology Development Co., Ltd., or Beijing Inter Connected. Two of China.com’s employees have ownership interests in Beijing Inter Connected with Mr. Wang owning 70% of Inter Connected and Mr. Fan owning 30% of Inter Connected. Inter Connected is held under trust deed arrangements under which Mr. Wang and Mr. Fan also serve as trustees of the trusts, and Equity Pacific Limited is the offshore holding vehicle of China.com registered in the British Virgin Islands which is the 100% beneficiary of the trusts.

Licenses and Agreements

The ICPs each hold various types of licenses required by the regulatory authorities in China with respect to operating their respective businesses.

• Beijing Newpalm, Beijing Wisecom, Beijing He He and Shenzhen KK each hold a license to provide SMS, MMS, IVR, WAP and other mobile services and applications to public subscribers in China.

• Beijing Newpalm, Beijing He He and Shenzhen KK each hold a nationwide license to provide mobile value added services, or MVAS in the PRC.

During 2005, Beijing Newpalm continued to serve as the primary ICP within Newpalm. Previously, Beijing Newpalm had entered into agreements with China Mobile to provide services on China Mobile’s network and Beijing Wisecom had entered into agreements with China Unicom to provide services on China Unicom’s network. As the primary ICP within Newpalm, Beijing Newpalm continues to enter into various agreements with China Mobile to provide services on China Mobile’s network, and except for a few provinces, Beijing Newpalm has replaced Beijing Wisecom to renegotiate with China Unicom to provide services on China Unicom’s network.

Beijing He He has entered into agreements with China Mobile and China Unicom to provide MVAS services using either China Mobile’s or China Unicom’s network.

Shenzhen KK has entered into agreements with China Mobile to provide MVAS services using China Mobile’s network.

Beijing China.com holds an Internet Content Provider License and has been authorized to operate an Internet portal with the URL www.china.com. Beijing China.com also holds various licenses which are attached to the Internet Content Provider License, such as an Internet advertisement license and an Internet news reporting license.

Beijing Inter Connected holds one Internet content provider licenses and has been authorized to operate two Internet portals with the URL www.17game.com. and the URL www.yxwz.com for all its online games. Beijing Inter Connected also holds various licenses which are attached to the Internet content provider license which are particularly applied for each game imported into and operated in China.

Use of Wholly Foreign Owned Enterprises

The ICPs Beijing Newpalm and Beijing Wisecom (for Newpalm), Beijing China.com (for the China.com Portal) and Beijing He He (for Go2joy) act as the primary revenue generating entities of each business unit. In order to provide, among other things, more effective controls over such ICPs, each of the respective beneficiaries of the trusts under the trust deed arrangements for these business units has formed and invested in a wholly foreign owned enterprise, or WFOE, to act as a long term exclusive partner of the ICP. WFOEs are limited liability companies established under the Chinese Company Law, the shareholders of which are permitted to be 100% foreign.

As the long term exclusive partner of the ICP, the respective WFOE for the ICP provides technical and logistical support for the day to day operations of the ICP, including sales and marketing, billing, and administrative services. To facilitate the delivery of the technical and logistical support, the WFOE owns the physical assets, including servers, switches and computers, and employs the technical, sales and administrative personnel necessary to deliver these services. In exchange for such services, the WFOE charges the ICP a fee.

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The WFOE formed to provide services for Beijing Newpalm, Beijing Wisecom and Shenzhen KK is Newpalm (China) Information Technology Co., Limited, and such WFOE charges a fee of approximately 90% of the gross revenue of each of Beijing Newpalm, Beijing Wisecom and Shenzhen KK for its services.

The WFOE formed to provide services for Beijing China.com is Chinadotcom Communications Technology Development (Beijing) Limited, and such WFOE charged a fee for 2005 averaging approximately 49% of the gross revenue of Beijing China.com for its services.

The WFOE formed to provide services for Beijing He He is Beijing He He IVR Mobile Technology Ltd. For 2005, such WFOE had not charged Beijing He He a fee.

The WFOE formed to provide services for Beijing Inter Connected is Beijing 17game Network Technology Co., Ltd., and such WFOE is able to directly sell the final online game products to the consumers instead of charging a service fee via Beijing Inter Connected.

D. Property, Plants and Equipment As of March 31, 2006, our executive headquarters occupy approximately 2,500 square feet of gross office space under various leasing arrangements at Suite I, 5/F, Building A, East Gate Plaza, 9 Dongzhong Street, Dongcheng District, Beijing, People’s Republic of China. As of March 31, 2006, we owned no real estate. Among our major subsidiaries:

• Ross has its corporate headquarters, research and development, sales, marketing, consulting and support facilities in Atlanta, Georgia where it occupies approximately 27,000 square feet. Ross also maintains a leased facility for product development in San Marcos, California and maintains leased office space in the following additional locations: England (Northampton); The Netherlands (Zeist); and Spain (Barcelona).

• Pivotal maintains its principal, professional services, education and research and development facilities in Vancouver, British Columbia where it leases approximately 135,000 square feet of office space, approximately 71,400 square feet of which is sublet. The principal office for Europe, the Middle East and Africa is located in leased space shared with Ross and IMI in Northampton, England. Pivotal also has a development center in Bangalore, India in leased space. As of December 31, 2005, Pivotal has also leased offices in Auckland, New Zealand; Belfast, Northern Ireland; Paris, France; Tokyo, Japan; Toronto, Ontario; Atlanta, Georgia; Bethesda, Maryland; Chicago, Illinois; Dallas, Texas; Mountain View, California; and Westborough, Massachusetts. Pivotal also leases shared workspaces in various locations in Australia, Europe and the United States.

• IMI has its principal product development facilities and its Nordic service, support, sales and marketing offices in Stockholm, Sweden in approximately 13,500 square feet of leased space. In addition, IMI also leases an aggregate of approximately 39,000 additional square feet of space elsewhere in Sweden in Globen, Linköping and Hässleholm. IMI also leases office space in Mt. Laurel, New Jersey.

• China.com maintains its administrative, marketing and development facilities in Beijing, Hong Kong and Singapore where it leases office space. China.com also leases office space elsewhere in China, including Guangzhou, Shenzhen, Hangzhou, Lanzhou, Liaoning, Nanjing, Sichuan and Tianjin, as well are in Korea.

We and our subsidiaries also lease other office space in various other locations in the United States, Canada, Europe, Asia and Australia. During the fourth quarter of 2005 and continuing into 2006, we elected to expand our remote work model to reduce our overall reliance on leased facilities. By the end of the second quarter of 2006, we expect to only occupy four offices in North America in Atlanta, Vancouver, Chicago and Mt. Laurel. The amount of cost benefit from this reduction in leased facilities will depend upon the success of our sublease program.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on the Form 20-F/A. For a further discussion of the restatements, see the “Explanatory Note” at the beginning of this Form 20-F/A and Note 2 in the accompanying notes to consolidated financial statements. As discussed above, the Company is amending its OriginalForm 20-F filed on June 21, 2006 for the year ended December 31, 2005 to restate its consolidated financial statements as of December 31, 2005, 2004 and 2003 and for each of the three years in the period ended December 31, 2005. This Annual Report on Form 20-F/A also includes the restatement of the selected financial data as of and for the three years ended December 31, 2005, 2004 and 2003. The restated selected financial data as of and for the years ended December 31, 2005, 2004 and 2003 and the selected financial data as of and for the years ended December 31, 2002 and 2001, have been derived from the audited financial statements and, in the opinion of management, have been prepared in accordance with GAAP and reflect all adjustments, which are necessary for a fair presentation of results for these periods. Effects of the restatement on the consolidated financial statements as of and for the years ended December 31, 2005, 2004 and 2003 are reflected in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those anticipated in these forward-looking statements as a result of factors including, but not limited to, those set forth under Item 3.D. of this Annual Report on the Form 20-F/A, “Key Information – Risk Factors” and Item 11 of this Annual Report, “Quantitative and Qualitative Disclosures About Market Risk”.

A. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Products and Services

CDC Corporation, with facilities in the People’s Republic of China, North America, Europe and Australia, is a global provider of enterprise software, mobile services and applications and internet and media services. The Company offers the following products and services to customers in Hong Kong, Taiwan, the PRC and other parts of Asia, Australia, North America, New Zealand, South America, the United Kingdom and the rest of Europe:

• Software. Our enterprise software business is a global provider of enterprise software applications and related services. Our products are designed to support and automate the processes of an organization to achieve company-wide integration of business and technical information across multiple divisions and organizational boundaries, such as finance, manufacturing, logistics, human resources, marketing, sales and customer service, by utilizing common databases and programs that share data real time across multiple business functions. Our products seek to help companies worldwide fulfill their business growth objectives through increased operational efficiencies, improved profitability, strengthened customer relationships and improved regulatory compliance. The software suite includes Enterprise Resource Planning (“ERP”), Customer Relationship Management (“CRM”), Supply Chain Management (“SCM”), Order Management Systems (“OMS”), Human Resources and Payroll Management (“HRM”) and Business Intelligence (“BI”) products.

• Business Services. The Company’s business services offering includes information technology services, eBusiness consulting, web development and outsourcing in Hong Kong, Australia, Korea, and the U.S., and a marketing database and marketing support service offered principally in Australia and New Zealand through Mezzo Business. The Company’s business services companies provide program management, outsourcing services, application development and ongoing support services using a wide range of technologies. These services are principally offered through our subsidiaries, Ion Global, Ascent SGI, Praxa and PK Information Systems.

• Mobile Services and Applications. Our mobile services and applications business provides news and mobile applications services targeting the consumer market in China. It offers wireless services including Short Message Service (“SMS”), Interactive Voice Response (“IVR”), Multimedia Message Service (“MMS”) and Wireless Application Protocol (“WAP”). We have established strong local direct connectivity with provincial mobile network operators in 29 provinces, which facilitates the marketing and promotional activities of our wireless services. Our mobile services and applications business is primarily operated through Newpalm and Go2joy, both of which are held through our subsidiary, China.com.

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• Internet and Media. Our Internet and Media business encompasses a range of businesses, including our Internet media business which is focused on online entertainment and Internet products and services that target users in China via our portal network (www.china.com and www.hongkong.com) and a Singapore-based travel trade publisher and organizer serving the travel and tourism industry in the Asia Pacific region operated by TTG.

Our business model has evolved away from a pan-Asian Internet company over the past two years in large part through strategic acquisitions and investments. In the enterprise software area, we made two significant acquisitions in 2004. In February 2004, we acquired Pivotal, an international CRM software provider. In August 2004, we completed the acquisition of Ross Systems, Inc. (“Ross”), an internationally established process manufacturing ERP software provider. In the mobile services and applications business, in May 2004 we acquired Go2joy, a mobile services and applications provider in China. The contribution of Pivotal, Ross and Go2joy to our consolidated financial statements, combined with a full year of contribution in 2004 from companies acquired in 2003, have resulted in a significant increase in annual revenues in 2004 and 2005 as compared to 2003.

Competitive Advantages

Our competitive advantages in our two key segments, Software and Mobile Services and Applications, are:

Software

• We offer a range of enterprise software products which enable businesses to increase revenues, margins and customer loyalty.

• We have developed industry products for specific industry segments (“micro-verticals”).

• Our products can be implemented rapidly, can be easily customized and are relatively easy to learn, all of which help to yield a low total cost of ownership but high return on investment.

• Our products can be scaled with the needs of our customers.

Mobile Services and Applications

• We have integrated mobile and portal platforms.

• We have a scalable, high-margin business model which allows us to deliver our products to a large mobile subscriber base quickly and at a low cost.

• We have extensive China-wide network coverage with direct local connectivity with China Mobile in 28 provinces and with China Unicom in 26 provinces.

• Our management team has extensive experience in the mobile data applications market in China.

Key Trends and Uncertainties Affecting our Revenue and Results of Operations

The following trends are currently affecting our revenue and results of operations:

• Improving Economic Conditions – Our operating performance for any period of time is impacted by global macroeconomic trends. An important factor affecting our ability to generate revenue is the effect of general economic conditions on our customers’ willingness to spend on our products and services. Over the past year as economic conditions have gradually improved, our customers have been more willing to invest in software products and services. It is not certain, however, whether economic conditions will continue to

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improve or whether enterprises will increase spending on enterprise software, business services, or our other product offerings in the near term. Although the global economy impacts all of our businesses, the Chinese economy in particular has an impact on our mobile services and applications business. There can be no assurance that growth of the Chinese economy will be steady or that any slow down will not have a negative effect on our business. The Chinese economy affects our results as customer spending on mobile services and applications depends on customers in less economically developed provinces of China being able to achieve income levels that allow them to spend on our services.

• Software Technology Changes – Our enterprise software products compete in a market characterized by rapid technological advances in hardware and software development, evolving standards in computer hardware and software technology and frequent new product introductions and enhancements. We continually seek to expand and refresh our product offerings to include newer features or products, and enter into agreements allowing integration of third-party technology into our products. Expanding and refreshing our product offerings impacts our results of operations because of continuing high levels of investment required in research and development.

• Changes in Operating Practices of the Mobile Operators in China – Recent changes in policies or guidelines of the mobile operators such as the change to new billing systems for 2G services which require users to make two confirmations to order services via the Internet or mobile phone, enable users to more easily cancel services and prevent service providers from billing inactive users for subscription-based services, or the recent change in billing policy on undeliverable MMS messages have resulted in and may further result in lower mobile services and applications revenues or additional operating costs for us.

• Higher Operating Expenses – We will continue to incur significant operating expenses in the foreseeable future as a result of (i) recurring acquisition-related expenses including amortization of acquired intangibles and stock compensation expense; (ii) research and development required to keep our enterprise software business competitive; and (iii) targeted investments in certain businesses.

• Lower Interest Income – Interest income, which has historically had a significant positive impact on our results, is expected to continue to decrease as a result of (i) continuing acquisitions and investments in our business which have reduced the overall cash balance over the past three years and will continue to reduce cash balances in 2006 and (ii) a continuation of our strategy of reducing the overall tenure of our investments in debt securities to shorter-term, highly rated securities.

• Higher Non-cash Tax Expense – In 2004, we incurred significant deferred tax expenses resulting from the utilization of deferred tax assets related to net operating loss carryforwards at Ross and Pivotal for which a valuation allowance had been made on acquisition. If future events allow us to realize more of our deferred tax assets than expected, an adjustment to these deferred tax assets would result in a reduction of goodwill and higher tax expense.

We believe the following uncertainties exist regarding our results:

• Ability to Integrate the Operations of Businesses Acquired – Our ability to realize cost savings, synergies or revenue enhancements may be affected by the extent, timing and efficiency with which we can consolidate operations, reduce overlapping personnel, and achieve compatibility or integrate acquired technology, all of which are difficult to predict. We may not be able to realize cost savings, synergies or revenue enhancements from such integration, and we may not be able to realize such benefits within a reasonable time frame.

• Ability to Increase Revenues – Although our revenue base has increased significantly as a result of the Ross, Pivotal and Go2joy acquisitions in 2004 and the Newpalm, Praxa and IMI acquisitions in 2003, if we are unable to continue to grow our revenues or experience a decline in revenues, our results will be negatively affected. Our ability to grow revenue depends on a number of factors including the speed with which we adapt to new technologies and introduce new products, regulatory actions, and the actions taken by our competitors.

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In our software business, our failure to successfully introduce, market and sell new products and technologies, enhance and improve existing products in a timely manner, and properly position or price our products, as well as undetected errors or delays in new products or new versions of a product or the failure of anticipated market growth could individually and/or collectively have a material adverse effect on our business, results of operations or financial position. In our mobile services and applications business, the imposition of fines or other penalties, such as a temporary suspension of service, for violation of current or future PRC laws, rules or regulations regarding Internet related services and telecom related activities, such as that experienced by our Go2joy subsidiary during 2004, can have a significant impact on our ability to generate incremental revenues.

• Ability to Manage Costs – Our cost base has also increased significantly as a result of the Ross, Pivotal and Go2joy acquisitions in 2004 and the Newpalm, Praxa and IMI acquisitions in 2003. In addition, we may incur significant integration costs which have and could continue to adversely affect our results of operations. If we are unable to manage costs and reduce operating expenses, our results will be adversely affected.

• Future Acquisitions – In the future, we may make additional acquisitions and could incur additional integration costs and acquisition-related charges which affect our results, including amortization of acquired intangible assets, deferred tax expense, write-offs of acquired deferred revenue, stock compensation expense, and restructuring expenses.

Effect of acquisitions

During 2003 and 2004, we made the following material business acquisitions, by business segment, the results of which have been consolidated from the respective dates of acquisition. There were no material acquisitions during 2005.

Software

Acquired company	Date
Industri-Matematik International Corp. (“IMI”)	September 2003
Pivotal Corporation (“Pivotal”)	February 2004
Ross Systems, Inc. (“Ross”)	August 2004

Business Services

Acquired company	Date
Praxa Limited (“Praxa”)	February 2003

Mobile Services and Applications

Acquired company	Date
Palmweb Inc. (holds Newpalm (China) Information Technology Co., Ltd. (“Newpalm”))	April 2003
Group Team Investments Limited (holds Beijing He He Technology Co. Ltd. (“Go2joy”))	May 2004

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Operating Segments and Discontinued Operations

We report operating results in four business segments, “Software,” “Business Services,” Mobile Services and Applications” and “Internet and Media”. During 2005 the Company reorganized these segments into two core business units, CDC Software and China.com Inc. The operations of Software and Business Services is included in the CDC Software business unit and the operations of Mobile Services and Applications and Internet and Media is included in the China.com Inc business unit.

In 2004, we reported operating results in five business segments, “Software,” “Business Services,” “Mobile Services and Applications,” “Advertising/Marketing” and “Others”. These segments were based primarily on the different production, manufacturing and other value-added processes that we performed with respect to our products and services and, to lesser extend, the differing nature of the ultimate end use of our products and services. Prior to 2004, we reported operating results in “Software and Consulting Services”, “Mobile Services and Applications”, “Advertising and Marketing Activities” and “Others”.

All amounts in this Annual Report on Form 20-F/A reflect the reclassification of the pre-2005 segments and the reclassification of certain discontinued components so that they are comparable with the current year’s presentation.

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Results of Operations

The following table summarizes our restated historical results of operations in U.S. dollars and as percentages of total revenues for the years ended December 31, 2003, 2004 and 2005.

	Restated(1)
	Year ended December 31,
	2003					2004					2005
	(in thousands, except percentage data)
Revenues
Software	$	12,891		17	%	$	107,648		59	%	$	158,804		65	%
Licenses		1,157		1	%		28,581		16	%		38,541		16	%
Maintenance and consulting services		11,734		15	%		79,067		43	%		120,263		49	%
Business Services		40,477		52	%		42,927		24	%		42,686		17	%
IT products		6,083		8	%		2,083		1	%		2,079		1	%
Consulting services		31,159		40	%		37,308		20	%		37,139		15	%
Advertising		3,235		4	%		3,536		2	%		3,468		1	%
Mobile Services and Applications		16,876		22	%		23,694		13	%		34,389		14	%
Internet and Media		5,606		7	%		8,173		4	%		8,995		4	%
Others		2,001		3	%		10		0	%		—		0	%
		77,851		100	%		182,452		100	%		244,874		100	%
Cost of revenues
Software		(9,588	)	12	%		(46,725	)	26	%		(68,070	)	28	%
Licenses		(362	)	0	%		(3,486	)	2	%		(6,750	)	3	%
Maintenance and consulting services		(8,995	)	12	%		(39,754	)	22	%		(55,792	)	23	%
Amortization of purchased technologies		(231	)	0	%		(3,485	)	2	%		(5,528	)	2	%
Business Services		(23,311	)	30	%		(28,076	)	15	%		(27,168	)	11	%
IT products		(5,318	)	7	%		(1,879	)	1	%		(1,671	)	1	%
Consulting services		(16,754	)	22	%		(24,871	)	14	%		(24,338	)	10	%
Advertising		(1,239	)	2	%		(1,326	)	1	%		(1,159	)	0	%
Mobile Services and Applications		(2,247	)	3	%		(4,597	)	3	%		(15,262	)	6	%
Internet and Media		(3,073	)	4	%		(3,319	)	2	%		(3,449	)	1	%
Others		(889	)	1	%		—		0	%		—		0	%
		(39,108	)	50	%		(82,717	)	45	%		(113,949	)	47	%
Gross margin and gross margin %		38,743		50	%		99,735		55	%		130,925		53	%
Selling, general and administrative expenses		(31,606	)	41	%		(80,326	)	44	%		(100,549	)	41	%
Research and development expenses		—		0	%		(13,825	)	8	%		(22,605	)	9	%
Depreciation and amortization expenses		(6,829	)	9	%		(8,919	)	5	%		(9,937	)	4	%
Restructuring expenses		—		0	%		(3,760	)	2	%		(1,667	)	1	%
Total operating expenses		(38,435	)	49	%		(106,830	)	59	%		(134,758	)	55	%
Operating loss		308		0	%		(7,095	)	4	%		(3,833	)	2	%
Interest income		13,412		17	%		9,653		5	%		8,156		3	%
Interest expense		(1,070	)	1	%		(1,895	)	1	%		(1,257	)	1	%
Gain on disposal of available-for-sale securities		4,599		6	%		167		0	%		525		0	%
Gain (loss) on disposal of subsidiaries and cost investments		(1,263	)	2	%		892		0	%		483		0	%
Other non-operating gains		934		1	%		—		0	%		—		0	%
Other non-operating losses		(143	)	0	%		—		0	%		—		0	%
Impairment of cost investments and available-for-sale securities		—		0	%		(1,362	)	1	%		—		0	%
Share of loss in equity investees		(124	)	0	%		(467	)	0	%		(1,172	)	0	%
Total other income		16,345		21	%		6,988		4	%		6,735		3	%
Income before income taxes		16,653		21	%		(107	)	0	%		2,902		1	%
Income tax benefit (expense)		448		1	%		(3,375	)	2	%		(4,957	)	2	%
Income (loss) before minority interests		17,101		22	%		(3,482	)	2	%		(2,055	)	1	%
Minority interests in income of consolidated subsidiaries		(2,257	)	3	%		(925	)	1	%		(1,409	)	1	%
Income (loss) from continuing operations		14,844		19	%		(4,407	)	2	%		(3,464	)	1	%
Discontinued operations
Loss from operations of discontinued subsidiaries, net of related tax benefit		(1,203	)	2	%		(610	)	0	%		(47	)	0	%
Gain (loss) on disposal/dissolution of discontinued subsidiaries, net		2,127		3	%		(950	)	1	%		(3	)	0	%
Net income (loss)	$	15,768		20	%	$	(5,967	)	3	%	$	(3,514	)	1	%

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

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Year ended December 31, 2005 Compared to Year ended December 31, 2004

Net Revenues

Consolidated. Consolidated revenues increased 34%, or approximately $62.4 million, from $182.5 million in 2004 to $244.9 million in 2005. Consolidated net revenues increased primarily from the inclusion of Ross, Pivotal and Go2Joy for the full year in 2005 and increased sales volumes in certain key products discussed below. The table below sets forth the revenues from our principal business segments and revenues as percentages of our total revenues for the periods presented:

	Restated(1)
	Year ended December 31,
	2004				2005
	(in thousands, except percentage data)
Revenues
Software	$	107,648	59	%	$	158,804	65	%
Licenses		28,581	16	%		38,541	16	%
Maintenance and consulting services		79,067	43	%		120,263	49	%
Business Services		42,927	24	%		42,686	17	%
IT products		2,083	1	%		2,079	1	%
Consulting services		37,308	20	%		37,139	15	%
Advertising		3,536	2	%		3,468	1	%
Mobile Services and Applications		23,694	13	%		34,389	14	%
Internet and Media		8,173	4	%		8,995	4	%
CDC Games		10	0	%		—	0	%
	$	182,452	100	%	$	244,874	100	%

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

The following table sets forth the revenues contributed for the years ended December 31, 2004 and 2005 by material subsidiaries acquired in 2004, by principal business segment:

	Restated(1)
	Year ended December 31,
	2004		2005
	(in thousands)
Software - Ross, Pivotal	$	71,821	$	119,514
Mobile Services and Applications - Go2joy		2,055		2,538
	$	73,876	$	122,052

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

Our top 10 customers accounted for 28%, 20% and 18% of our revenues for 2003, 2004 and 2005, respectively. No single customer accounted for 10% or more of the revenues during any of 2003, 2004 or 2005.

Software. Software revenues increased from $107.7 million in 2004 to $158.8 million in 2005 primarily due to the increased customer base during 2005 and full year inclusion of Ross and Pivotal, which were acquired in 2004. Collectively, these two companies contributed total revenues of $119.5 million in 2005. As a percentage of total revenues, this segment generated 65% of the total in 2005, increasing from 59% in 2004.

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License revenues increased from $28.6 million in 2004 to $38.5 million in 2005, an increase of $9.9 million, primarily due to the increased customers base during 2005 and full year inclusion of 2004 acquisitions in the Software segment. In 2005, the Software segment signed approximately 300 new customers. New customers represented approximately 40% of total license revenues while repeat customers represented approximately 60% of license revenues. New software sales were strong in global vertical industries including financial services, discrete and process manufacturing, and homebuilding. Maintenance and consulting services revenues increased from $79.1 million in 2004 to $120.3 million in 2005, an increase of $41.2 million, also due to a full year inclusion of 2004 acquisitions. As a percentage of total software revenues, license revenues comprised 24% of Software revenues in 2005 compared to 27% in 2004, and maintenance and consulting services revenues comprised 76% of the total in 2005 compared to 73% in 2004.

Business Services. Business Services revenues slightly decreased from $42.9 million in 2004 to $42.7 million in 2005 primarily as a result of the closure of our branch in Canberra, Australia, as a major government contract that supported the branch was not renewed. The revenue stream in both hardware sales and consulting services from this contract was lost in 2005, however revenues generated by other business units in the Business Services segment increased in 2005 due to new consulting projects. As a percentage of total revenues, this segment generated 17% of the total in 2005, decreasing from 24% in 2004 mainly due to the relatively higher revenue growth in other segments compared to the Business Services segment.

IT product revenues remained relatively stable at $2.1 million in 2004 and 2005, respectively, as our Business Services segment continues to focus on providing services rather than a mix of product and service sales. Consulting services revenues decreased from $37.3 million in 2004 to $37.1 million in 2005, a decrease of $0.2 million. During 2004 and 2005, Praxa Limited increased its focus on consulting services. In 2003 and 2004 third party hardware and software sales accounted for 38% and 8% of the company’s revenues, respectively. The decision to concentrate on services was due to the reduced margin on third party sales. Large consulting contracts were established with new clients as well as with new projects with existing clients. As a percentage of total Business Services revenues, IT product revenues comprised 5% of the total in 2005 and 2004, and consulting services revenues comprised 87% of the total in 2005 and 2004.

Revenues from advertising services remained relatively stable at $3.5 million in 2004 and 2005, respectively, as our Business Services segment continues to focus on providing software services rather than advertising services.

Mobile Services and Applications. Mobile services and applications revenues increased from $23.7 million in 2004 to $34.4 million in 2005, an increase of $10.7 million, primarily due to the full year inclusion of Go2joy, which was acquired in 2004 and other factors described below. As a percentage of total revenues, this segment generated 14% of the total in 2005, increasing from 13% in 2004.

Our product mix has continued to shift in 2005 as we grow new types of services in the areas of IVR and MMS that had been introduced in 2004. In 2004, sales of SMS services generated 81% of mobile services and applications revenues while revenues from IVR, WAP and MMS provided 10%, 7% and 2%, respectively. In 2005, SMS contributed 48% of mobile services and applications revenues, while revenues from IVR, WAP and MMS provided 24%, 20% and 12% of mobile services applications revenues, respectively.

Mobile services and applications revenues were negatively impacted in the second half of 2004 by tighter regulatory controls and enforcement by the mobile operators. Various service providers, including Go2joy, were sanctioned during this period. In 2005, revenues increased primarily due to the change, as of January 1, 2005, from a net (excluding the portion of the mobile services and applications revenue paid to the mobile operators) to a gross (including the portion of the mobile services and applications revenue paid to the mobile operators as an addition to revenues and as an additional cost of revenues) basis of presentation of revenues and costs of revenues in response to significant changes in operations of the mobile services and applications business in China. On a comparable gross basis, MVAS revenues increased 45% from $23.7 million in 2004 to $34.4 million in 2005 as this segment embarked on a diversification program for its MVAS services, moving away from SMS-based MVAS services, utilizing older technology, to Advance Mobile Products, which include MMS, IVR and WAP services, which allow for more advanced service offerings demanded by customers.

Internet and Media. Internet and Media revenues increased from $8.2 million in 2004 to $9.0 million in 2005, an increase of $0.8 million, primarily due to the increased Portal revenue as a result of targeted investments made in 2004 to establish the Portal as an influential player in China. As a percentage of total revenues, this segment generated 4% of the total in both 2005 and 2004, respectively.

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Others. We had no revenues from other products and services in 2005, a decrease from $0.01 million in 2004 and $2.0 million in 2003 primarily a result of scaling down the activities of under-performing and/or unprofitable businesses in this segment in 2003 and 2004.

Cost of Revenues

Consolidated. Consolidated cost of revenues increased 38%, or approximately $31.2 million, from $82.7 million in 2004 to $113.9 million in 2005. The increase in 2005 was primarily due to the full year inclusion of Ross, Pivotal and Go2joy, which were acquired in 2004. Gross margin percentage remained relatively stable and slightly decreased from 55% in 2004 to 53% in 2005. The following table sets forth the cost of revenues from our principal business segments and costs of revenues as a percentage of our total revenues for the periods presented:

	Restated(1)
	Year ended December 31,
	2004				2005
	(in thousands, except percentage data)
Cost of revenues
Software	$	46,725	26	%	$	68,070	28	%
Licenses		3,486	2	%		6,750	3	%
Maintenance and consulting services		39,754	22	%		55,792	23	%
Amortization of purchased technologies		3,485	2	%		5,528	2	%
Business Services		28,076	15	%		27,168	11	%
IT products		1,879	1	%		1,671	1	%
Consulting services		24,871	14	%		24,338	10	%
Advertising		1,326	1	%		1,159	0	%
Mobile Services and Applications		4,597	3	%		15,262	6	%
Internet and Media		3,319	2	%		3,449	1	%
Other		—	0	%		—	0	%
	$	82,717	45	%	$	113,949	47	%

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

The following table sets forth the cost of revenues contributed for the years ended December 31, 2004 and 2005 by material subsidiaries acquired in 2004, by principal business segment:

	Restated(1)
	Year ended December 31,
	2004		2005
	(in thousands)
Software - Ross, Pivotal	$	27,220	$	46,954
Mobile Services and Applications - Go2joy		591		1,248
	$	27,811	$	48,202

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

Software. Cost of revenues from software sales increased from $46.7 million in 2004 to $68.1 million in 2005, an increase of $21.4 million, principally due to the full year inclusion of Ross, Pivotal and Go2joy, which we acquired in 2004. Collectively, cost of revenues for Ross, Pivotal and Go2joy were $48.2 million in 2005. As a percentage of software revenues, cost of revenues for software were relatively consistent at 43% of the total in 2005 and 2004.

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Cost of revenues for license sales increased from $3.5 million in 2004 to $6.8 million in 2005, an increase of $3.3 million, primarily as a result of our acquisitions in the Software segment. Cost of revenues for consulting services was $55.8 million in 2005, an increase of $16.0 million from $39.8 million in 2004. Amortization of purchased technologies increased $2.0 million to $5.5 million in 2005 compared to $3.5 million in 2004 due to the full year amortization in 2005 related to companies acquired in 2004. As a percentage of total license revenues, cost of license revenues comprised 18% of license revenues in 2005 compared to 12% in 2004. As a percentage of total maintenance and consulting services revenues, cost of maintenance and consulting services revenues comprised 46% of the total in 2005 compared to 50% in 2004.

Business Services. Cost of revenues in the Business Services segment decreased from $28.1 million in 2004 to $27.2 million in 2005, a decrease of $0.9 million, primarily as a result of the decrease in consulting services revenues in this segment. As a percentage of Business Services revenues, our cost of Business Services revenues decreased to 64% of the total in 2005 from 65% in 2004.

Cost of revenues from IT product sales decreased from $1.9 million in 2004 to $1.7 million in 2005, a decrease of $0.2 million, primarily as a result of our business services companies continuing to focus on provision of services in 2005. Cost of revenues for consulting services decreased from $24.9 million in 2004 to $24.3 million in 2005, a decrease of $0.6 million, primarily as a result of the closure of the Canberra branch reducing consulting staff by 13. Also, higher reliance on contract staff rather than permanent staff to fulfill short term consultancy needs, resulted in the decreased cost of revenues from IT products sales. As a percentage of total IT product revenues, cost of IT product revenues comprised 80% of the total in 2005 compared to 90% in 2004. As a percentage of total consulting services revenues, cost of consulting services revenues comprised 66% of the total in 2005 compared to 67% in 2004.

Cost of revenues from advertising services sales, historically included in Advertising/Media segment and reclassified in this Annual Report on form 20-F/A for the comparative purposes, decreased from $1.3 million in 2004 to $1.2 million in 2005, a decrease of $0.1 million, primarily as a result of lower volume in advertising services in 2005 compared to 2004. As a percentage of total advertising revenues, cost of advertising revenues comprised 33% of the total in 2005 compared to 38% in 2004.

Mobile Services and Applications. Cost of revenues from Mobile Services and Applications sales increased from $4.6 million in 2004 to $15.3 million in 2005, an increase of $10.7 million, primarily a result of the change from net to gross presentation of revenues and cost of revenues as described above. This change also caused a decrease in gross profit percentage, although the absolute amount of gross profit did not change. As a percentage of total Mobile Services and Applications revenues, cost of Mobile Services and Applications revenues comprised 44% of the total in 2005 compared to 19% in 2004.

Internet and Media. Cost of revenues from Internet and Media sales increased from $3.3 million in 2004 to $3.4 million in 2005, an increase of $0.1 million. The rate of increase in costs of revenues in this segment was lower than the rate of revenue increase in the same segment primarily as a result of revenues from our Portal services which have higher gross margins. As a percentage of total Internet and Media revenues, cost of Internet and Media revenues comprised 38% of the total in 2005 compared to 41% in 2004.

Operating Expenses

Consolidated. Total operating expenses increased from $106.8 million in 2004 to $134.8 million in 2005, an increase of $28.0 million or 26%, primarily due to a full year of contribution from Ross, Pivotal and Go2joy. Operating expenses were also impacted by acquisition-related expenses, including amortization of acquired intangibles, restructuring expenses, and stock compensation expense.

Selling, General and Administrative Expenses (“SG&A” expenses). SG&A expenses increased by $20.2 million, or 25%, to $100.5 million in 2005. The increase in SG&A expenses was principally a result of a full year of SG&A expenses from Ross, Pivotal and Go2joy in 2005. Collectively, Ross, Pivotal and Go2joy contributed $66.8 million of SG&A expenses in 2005.

As a percentage of revenues, SG&A expenses decreased to 41% of the total in 2005 from 44% in 2004. The decrease in SG&A expenses as a percentage of revenues in 2005 is attributable to the rationalization and integration initiatives at our corporate office and IMI and higher rate of increase in revenues compared to the rate of increase in SG&A expenses.

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Research and Development Expenses. Research and development expenses increased from $13.8 million in 2004 to $22.6 million in 2005, an increase of $8.8 million or 64%, principally as a result of the acquisitions of Ross and Pivotal in 2004.

Depreciation and Amortization. Depreciation and amortization expenses increased from $8.9 million in 2004 to $9.9 million in 2005, an increase of $1.0 million or 11%, primarily as a result of the acquisitions of Pivotal, Ross and Go2joy in 2004.

Restructuring Expenses. Restructuring expenses decreased from $3.8 million in 2004 to $1.7 million in 2005, a decrease of $2.1 million or 55%. See “Note 25- Restructuring Costs” in Item 18- Financial Statements for further discussion of restructuring expenses.

Interest Income

Interest income decreased to $8.2 million in 2005 from $9.7 million in 2004. The reduction was principally the result of the following factors: (i) earn-out payments related to past acquisitions during 2005 which reduced the overall cash balance during the year as compared to 2004 and (ii) a continuation of our strategy of reducing the overall tenor of our investments in debt securities to shorter-term securities. On a quarterly basis, our interest income ranged from approximately $1.9 million to $2.1 million.

As of December 31, 2005, we had generated nearly all of our interest income from $148.2 million in debt securities.

The treasury management program in 2005 involved investments in debt securities that were funded with our credit facilities. Our credit facilities and related risks are further disclosed under caption “Liquidity and Capital Resources” in Item 5.B – Operating and Financial Review and Prospects.

The weighted average interest rates on short-term borrowings as of December 31, 2004 and 2005 were 2.0% and 3.6% per annum, respectively.

Interest Expense

Interest expense decreased to $1.3 million in 2005 from $1.9 million in 2004. This decrease in interest was principally due to the decrease average balance in short-term loans outstanding during 2005.

Other Gains and Losses

Gain on disposal of available-for-sale securities was $0.5 million in 2005 compared to $0.2 million in 2004. We recorded a gain on disposal of subsidiaries and cost investments of $0.9 million in 2004 compared to $0.5 million in 2005. We had no other non-operating gains or losses in 2004 or 2005. We recorded $1.4 million in impairments on available-for-sale securities and cost investments in 2004, compared to no such impairments in 2005. We recorded a loss of $0.5 million for our share of losses in equity investees in 2004 compared to $1.0 million in 2005.

Income Taxes

We recorded $5.0 million in income tax expenses in 2005, compared to $3.4 million in 2004. The change was principally a result of a pretax income in 2005 compared to a pretax loss in 2004. In addition, the fluctuations in pretax income at the entity level in various taxing jurisdictions also affected the fluctuation in income tax expense in 2005 compared to 2004.

Net Income (Loss)

We generated a full year net loss of $3.5 million in 2005 compared to a net loss of $6.0 million in 2004, which represented a $2.5 million, or 42%, decrease from 2004. The principal factors contributing to the loss were (i) expenses related to the acquisitions in 2003, 2004 and 2005, including amortization of acquired intangibles and purchased technologies, restructuring expenses, deferred tax expenses and stock compensation expenses; (ii) an increase in operating expenses primarily as a result of acquisitions; and (iii) a decrease in other income as a result of share of loss in equity investees as well as lower interest income.

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In 2005, we generated a net loss from operations of discontinued operations of $0.05 million compared to $0.6 million in 2004. We recorded a net loss on disposal/dissolution of such discontinued operations of $0.003 million in 2005 compared to $1.0 million in 2004.

Year ended December 31, 2004 Compared to Year ended December 31, 2003

Net Revenues

Consolidated. The increase in consolidated net revenues during 2004 was principally a result of the acquisitions of Ross, Pivotal and Go2joy, as well as a full year of results from Newpalm, Praxa, PK Information Systems and IMI each of which we acquired in 2003. The following table below sets forth the revenues contributed for the years ended December 31, 2003 and 2004 by material subsidiaries acquired in 2003, by principal business segment:

	Restated(1)
	Year ended December 31,
	2003		2004
	(in thousands)
Software - IMI, Ross, Pivotal	$	11,223	$	105,368
Business services – Praxa, PK Information Systems		23,489		23,000
Mobile services and applications - Newpalm, Go2joy		16,876		23,694
	$	51,588	$	152,062

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

Software. Software revenues increased by $94.8 million, or 735%, from $12.9 million in 2003 to $107.7 million in 2004 due principally to the acquisitions of Pivotal and Ross in 2004 and a full year of IMI’s results which we acquired in September 2003. Collectively, these three companies contributed total revenues of $105.4 million in 2004. As a percentage of total revenues, this segment generated 59% of revenues during 2004, increasing from 17% during 2003.

License revenues were $28.6 million in 2004, up $27.4 million from $1.2 million in 2003 primarily as a result of our acquisitions in the software segment. Maintenance and consulting services revenues were $79.1 million in 2004, up $67.4 million from $11.7 million in 2003, also as a result of acquisitions. As a percentage of total software revenues, license revenues comprised 27% in 2004 compared to 9% in 2003, and maintenance and consulting services revenues comprised 73% in 2004 compared to 91% in 2003.

Business Services. Business Services revenues increased by $2.4 million, or 6.0%, from $40.5 million in 2003 to $42.9 million in 2004 primarily due to improved revenues at PK Information Systems in Australia and our web integration businesses in Korea and San Francisco which was partly offset by lower revenue due to the closure of unprofitable offices in Australia, Singapore, Hong Kong, the United Kingdom and China. This segment generated 24% of revenues in 2004, decreasing from 52% in 2003. The decline in the percentage of overall revenues was primarily a result of the increase in total revenue after the acquisitions of Ross and Pivotal.

IT product revenues were $2.1 million in 2004, down $4.0 million from $6.1 million in 2003 as our business services companies continue to focus on provision of services rather than a mix of product and service sales. Consulting services revenues were $37.3 million in 2004, up $6.1 million from $31.2 million in 2003. As a percentage of total Business Services revenues, IT product revenues comprised 5% of the total in 2004 compared to 15% in 2003, and consulting services revenues comprised 87% of the total in 2004 compared to 77% in 2003.

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Mobile Services and Applications. Mobile Services and Applications revenues increased by $6.8 million, or 40%, to $23.7 million in 2004 from $16.9 million in 2003. The increase in revenues was attributable to the full year of Newpalm’s results and the acquisition of Go2joy. This segment generated 13% of consolidated net revenues in 2004, decreasing from 22% in 2003 due to the increased amount of software revenues relative to total consolidated net revenues.

Our product mix shifted in 2004 as we introduced new types of services in the areas of IVR and MMS. In 2003, sales of SMS services generated 97% of mobile services and applications revenues with the remaining 3% generated by WAP services. In 2004, SMS contributed 81% of mobile services and applications revenues, while revenues from IVR, WAP and MMS provided 10%, 7% and 2%, respectively.

Mobile Services and Applications revenues were negatively impacted in the second half of 2004 by tighter regulatory controls and enforcement by the mobile operators. Various service providers, including Go2joy, were sanctioned during this period.

Internet and Media. Internet and Media revenues increased by $2.6 million, or 46%, to $8.2 million in 2004 from $5.6 million in 2003. The increase in Internet and Media revenues was primarily attributable to increased Portal revenue as a result of targeted investments made in 2004 to establish the Portal as an influential player in China. This segment generated 4% of our total consolidated revenues in 2004, decreasing from 7% in 2003. The decline in Internet and Media revenues as a percentage of total revenues is attributable primarily to the increase in Software revenues after the acquisitions of Ross and Pivotal.

Others. Revenues from other products and services were $0.01 million in 2004 compared to $2.0 million in 2003. The decrease was primarily a result of scaling down the activities of under-performing and/or unprofitable businesses in 2004.

Cost of Revenues

Consolidated. Consolidated cost of revenues increased from $39.1 million in 2003 to $82.7 million in 2004 principally due to the acquisitions of Pivotal and Ross and a full year results from IMI. The following table below sets forth the cost of revenues contributed for the years ended December 31, 2003 and 2004 by material subsidiaries acquired in 2003, by principal business segment:

	Restated(1)
	Year ended December 31,
	2003		2004
	(in thousands)
Software - IMI, Ross, Pivotal	$	7,937	$	45,940
Business services – Praxa, PK Information Systems		16,152		16,230
Mobile services and applications - Newpalm, Go2joy		2,247		4,597
	$	26,336	$	66,767

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

Software. Cost of revenues in the Software segment increased by $37.1 million, or 386%, to $46.7 million for the year ended December 31, 2004 from $9.6 million in 2003, principally as a result of the acquisitions of Pivotal and Ross and a full year of results from IMI. Collectively, cost of revenues for Ross, Pivotal and IMI were $45.9 million in 2004. As a percentage of software revenues, cost of revenues for software decreased to 43% in 2004 from 74% in 2003 mainly due to the addition of Ross and Pivotal, and decreases in cost of revenues at our existing software businesses.

Cost of revenues for license sales were $3.5 million in 2004, up $3.1 million from $0.4 million in 2003 primarily as a result of our acquisitions in the software segment. Cost of revenues for maintenance and consulting services was $39.8 million in 2004, up $30.8 million from $9.0 million in 2003. Cost of revenues for amortization of purchased technologies

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were $3.5 million in 2004, up $3.3 million from $0.2 million in 2003 primarily as a result of our acquisitions in the software segment. As a percentage of total license revenues, cost of license revenues comprised 12% in 2004 compared to 31% in 2003. As a percentage of total maintenance and consulting services revenues, cost of maintenance and consulting services revenues comprised 50% in 2004 compared to 77% in 2003.

Business Services. Cost of revenues in the Business Services segment increased by $4.8 million, or 21%, to $28.1 million in 2004 from $23.3 million in 2003, primarily as a result of the increase in consulting services revenues for the business. As a percentage of Business services revenues, our cost of revenues increased to 65% in 2004 from 58% in 2003 mainly due to a drop in the gross margin percentage at Praxa.

Cost of revenues for IT product sales were $1.9 million in 2004, down $3.4 million from $5.3 million in 2003 primarily as a result of our business services companies focusing on providing services, as opposed to providing products and services, in 2004. Cost of revenues for consulting services was $24.9 million in 2004, up $8.1 million from $16.8 million in 2003. As a percentage of total IT product revenues, cost of IT product revenues comprised 90% of the total in 2004 compared to 87% in 2003. As a percentage of total consulting services revenues, cost of consulting services revenues comprised 67% in 2004 compared to 54% in 2003.

Mobile Services and Applications. Cost of revenues in Mobile Services and Applications segment increased by $2.4 million, or 109%, to $4.6 million in 2004 from $2.2 million in 2003. This increase was primarily a result of the inclusion of a full year of Newpalm’s cost of revenues. Although this segment contributed 13% of total revenues in 2004, its gross margin of 81% resulted in cost of revenues of only $4.6 million, or only 6% of total cost of revenues for the company during 2004.

Internet and Media. Cost of revenues in Internet and Media segment increased by $0.2 million, or 6%, to $3.3 million in 2004, from $3.1 million in 2003. The gross margins in this segment have improved primarily as a result of revenues from our Portal which has a high gross margin. Consequently, as a percentage of total Internet and Media revenues, cost of revenues decreased to 41% of the total in 2004 from 55% in 2003.

Others. We incurred no cost of revenues from other revenue sources in 2004 compared to $0.9 million in 2003. The decrease is a result of scaling down the activities of under-performing and/or unprofitable businesses in 2004.

Operating Expenses

Total operating expenses increased by $68.4 million, or 178%, in 2004 to $106.8 million, from $38.4 million in 2003. The increase was primarily due to the Ross and Pivotal acquisitions during 2004, a full year of IMI’s operating expenses in the software segment, the acquisition of Go2joy in 2004 and a full year of Newpalm’s operating expenses in the mobile services and applications segment. Operating expenses were also impacted by acquisition-related expenses, including amortization of acquired intangibles, restructuring expenses, and stock compensation expense.

Selling, General and Administrative Expenses (“SG&A” expenses)

SG&A expenses increased by $48.7 million, or 154%, to $80.3 million in 2004. The increase in SG&A expenses was principally a result of the acquisitions of Ross and Pivotal in 2004, a full year of IMI’s SG&A expenses in the Software segment, the acquisition of Go2joy in 2004 and a full year of Newpalm’s SG&A expenses in the Mobile Services and Applications segment. Collectively, Ross, Pivotal and IMI contributed $57.6 million of SG&A expenses in 2004. Newpalm and Go2joy contributed $7.3 million of SG&A expenses in 2004.

As a percentage of revenues, SG&A increased to 44% in 2004 from 41% in 2003. The increase in SG&A expenses as a percentage of revenues is attributable primarily to the impact of the acquisition of Pivotal and inclusion of a full year of Newpalm’s results, both of which have high SG&A expenses as a percent of revenues.

Research and Development Expenses. Research and development expenses were $13.8 million in 2004, principally a result of the acquisitions of Ross and Pivotal in 2004 and inclusion of a full year of IMI’s results. We did not incur any research and development expenses in 2003.

Depreciation and Amortization. Depreciation and amortization expenses increased by $2.1 million, or 31%, from $6.8 million in 2003 to $8.9 million in 2004. The increase was primarily due to the acquisitions of Pivotal and Ross in 2004.

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Restructuring Expenses. Restructuring expenses were $3.8 million in 2004 compared to Nil in 2003. In 2004, the restructuring expenses were related to IMI and Praxa Limited and Pivotal. At IMI, restructuring costs of $2.9 million were comprised of $1.9 million related to terminations of employees, $0.5 million for write-off of acquired software, $0.4 million related to closure of offices, and $0.1 million in other costs. At Praxa Limited, restructuring costs of $0.5 million were comprised of $0.3 million for terminations of employees, $0.2 in contract exit fees and other costs. At Pivotal, restructuring costs of $0.4 million were for accruals relating to the fair value of lease contract exit fees. IMI and pivotal are part of the Software segment and Praxa Limited is part of the Business Services segment.

Interest income

Interest income decreased to $9.7 million in 2004 from $13.4 million in 2003. The reduction was principally the result of the following factors: (i) acquisition of new businesses during 2004 which reduced the overall cash balance during the year as compared to 2003; (ii) lower prevailing interest rates in 2004 compared to 2003; and (iii) a continuation of our strategy of reducing the overall tenor of our investments in debt securities to shorter-term securities. On a quarterly basis, our interest income ranged from approximately $1.9 million to $2.8 million.

As of December 31, 2004, we had generated nearly all of our interest income from $179.9 million in debt securities.

The treasury management program in 2004 involved investments in debt securities that were funded with our credit facilities.

The weighted average interest rates on short-term borrowings as of December 31, 2003 and 2004 were 1.4% and 2.0% per annum, respectively.

Interest expense

Interest expense increased to $1.9 million in 2004 from $1.1 million in 2003. This increase in interest expense was principally due to an increase in short-term loans.

Other Gains and Losses

Gain on disposal of available-for-sale securities was $0.2 million in 2004 compared to $4.6 million in 2003. We recorded a gain on disposal of subsidiaries and cost investments of $0.9 million in 2004, compared to a loss of $1.3 million in 2003. We had no other non-operating gains or losses in 2004, compared to a non-operating gain of $0.9 million and a non-operating loss of $0.1 million in 2003. In 2004 we recorded $1.4 million in impairments on cost investments and available-for-sale securities compared to no such impairments in 2003. We recorded a loss of $0.5 million for our share of losses in equity investees in 2004 compared to $0.1 million in 2003.

Income taxes

We recorded $3.4 million of income tax expenses in 2004 compared to an income tax benefit of $0.5 million in 2003. This significant change was principally a result of the majority of our pretax income in 2003 being generated in non-taxing jurisdictions.

Net Income (Loss)

We generated a full year net loss of $6.0 million in 2004 compared to net income of $15.8 million in 2003, which represented a $21.8 million, or 138%, decrease from 2003. The principal factors contributing to the loss were (i) expenses related to the acquisitions in 2004 and 2003, including amortization of acquired intangibles and purchased technologies, restructuring expenses, deferred tax expenses and stock compensation expenses; (ii) an increase in operating expenses primarily as a result of acquisitions; and (iii) a decrease in other income as a result of impairment of investments and available-for-sale securities as well as lower interest income.

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During 2004, we generated net loss from operations of discontinued operations of $0.6 million compared to $1.2 million during 2003. We recorded a net loss on disposal/dissolution of such discontinued operations of $1.0 million in 2004 and a net gain of $2.1 million in 2003.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). The preparation of these financial statements requires us to make estimates and judgments 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, including those related to revenue recognition, goodwill and intangible assets, business combinations, capitalization of software costs, investments, accounts receivable and allowance for doubtful accounts, deferred tax valuation allowance, stock based compensation, and contingencies. We base our estimates on historical experience and on 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. Our significant accounting policies are described in “Note 3- Summary of Significant Accounting Policies” in Item 18- Financial Statements.

We believe the following critical accounting policies are some of the more critical judgment areas in the application of our accounting policies that affect our financial condition and results of operations.

Revenue Recognition

We generally recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is probable. If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. The Company’s agreements with its customers, resellers and distributors do not contain product return rights. If the fee is not fixed or determinable due to the existence of extended payment terms, revenue is recognized periodically as payments become due, provided all other conditions for revenue recognition are met.

We generate revenues from four primary sources: Software, Business Services, Mobile Services and Applications, and Internet and Media services. We recognize revenue in accordance with US GAAP. The specific literature that we follow in connection with revenue recognition is the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 Revenue Recognition, the American Institute of Certified Public Accountants Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9 Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, FASB Emerging Issues Task Force (“EITF”) 00-21, Revenue Arrangements with Multiple Deliverables, and in certain instances EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent and SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.

In addition to these basic criteria, the following are the specific revenue recognition policies we follow for each major stream of revenue by reporting segment.

Software

We generate software revenues from the sale of software licenses, and the maintenance and services for such software licenses. Such sales often include a combination of software consulting and integration services, implementation training and maintenance services. We allocate the arrangement fee in these multi-element arrangements to each individual element using its relative fair value as based on vendor specific objective evidence (“VSOE”). VSOE is typically determined by the customary price charged for each element when sold separately after the application of any standard approved discount. In the case of an element not yet sold separately, VSOE is the price established by authorized management if it is probable that the price, once established, will not change before market introduction. Where fair value exists for all undelivered elements of the arrangement but not the delivered elements, we apply the “residual” method of accounting and defer revenue allocated to the undelivered elements while recognizing the residual revenue

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allocated to the delivered elements. In the absence of VSOE for any undelivered element, we defer the entire arrangement fee and recognize revenue when all undelivered elements are delivered assuming all other basic criteria for revenue recognition have been met. We generally recognize revenues from services separately from license fees revenues because the service arrangements qualify as “service transactions” as defined by SOP 97-2. The factors considered in determining whether the revenues should be accounted for separately include the nature of the services and whether the services are essential to the functionality of the licensed product, availability of services from other vendors, and the impact of payment timing on the realizability of the software license fee.

Software license revenues are normally generated through licensing with end-users, value-added resellers (“VARs”) and distributors, and through the sale of the software with or incorporating third-party products. VARs and distributors do not have rights of return, price protections, rotation rights, or other features that would preclude revenue recognition. Pursuant to SOP 97-2, the fee relating to VARs transactions are not fixed or determinable until the software is sold by the VARs to the end users. Consequently the Company does not recognize any revenue for VARs transactions until all the criteria specified under paragraph 8 of SOP 97-2 are met which coincides with the sell-through to the end-users because at that point, the Company has persuasive evidence of an arrangement (signed contract with VARs), the fee is fixed or determinable, delivery has occurred and collection is reasonably assured. License revenues from distributors are calculated at an agreed upon percentage of the distributors’ net selling price to the end-user. We typically do not earn any portion of fees for services provided by the distributor to the end-user. We earn maintenance fees based on an agreed upon percentage of the maintenance fees that the distributor earns from the end-user. VARs have a sole discretion and responsibility to determine and negotiate the sales price of the Company’s software with the end-users. VARs are also responsible for billing and collecting from the end-users and assume all credit risks.

When software licenses incorporating third-party software products are sold or sold with third-party products that complement our software, we recognize as revenue the gross amount of sales of third-party products. The recognition of gross revenue is in accordance with criteria established in EITF 99-19 because we are ultimately responsible for the fulfillment and acceptability of the products purchased, have full latitude in establishing pricing and assume all credit and general inventory risks.

Revenues related to consulting and integration services and the provision of training services for software products are deferred and recognized as the services are delivered, assuming all other basic criteria for revenue recognition have been met.

Revenues related to maintenance agreements on software products are deferred and recognized ratably over the terms of the agreements which are normally one year.

We make provisions for discounts and rebates to customers and other adjustments in the same period in which the related revenues are recorded. Such provisions are calculated after considering relevant historical data.

Recognition of revenues from the licensing of our software products requires management judgment with respect to determination of fair values and in determining whether to use the gross versus net method of reporting for certain types of revenue. The timing of our revenue recognition could differ materially if we were to incorrectly determine the fair value of the undelivered elements in an arrangement for which we are using the “residual” method. The composition of revenues and cost of revenues would change if we made a different assessment on the gross versus net method of reporting sales of software licenses which incorporate third-party software products.

Business Services

We generate business services revenues from information technology services, eBusiness consulting, web development and outsourcing.

We recognize revenues from time and materials outsourcing contracts as the services are delivered assuming all other basic criteria for revenue recognition have been met.

We recognize revenues from the design, development and integration of Internet web sites and mobile phone devices using contract accounting based on either client acceptance of completed milestones or using the cost-to-cost

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percentage-of-completion method. We use the cost-to-cost method based on hours incurred as a percentage of the total estimated hours to complete the project because our historical experience has demonstrated that it produces a reliable indication of the progress on each engagement. We regularly reevaluate estimates of total projected contract costs and revise them if appropriate. Any adjustments to revenues due to changes in estimates are accounted for in the period of the change in estimate. When estimates indicate that a loss will be incurred on a contract upon completion, a provision for the expected loss is recorded in the period in which the loss becomes evident. Historically, we have not experienced material losses on fixed-price contracts. The majority of our contracts are short term in duration, and the use of the completed contract method would not result in a material difference in the timing of revenue recognition. Some projects include acceptance clauses requiring customers’ sign-off at the conclusion of the projects. Historically, we have not experienced projects where sign-off or acceptance has been withheld by a customer resulting in a material loss on a project. Recognition of revenues using contract accounting requires judgment with respect to the method used. The timing of our revenue recognition could differ if we were to use a different methodology for estimating progress to completion, such as an output method based on milestones for contracts where we currently use an input method such as hours incurred.

Revenues from Internet web site maintenance agreements are deferred and recognized ratably over the terms of the related agreements, which are usually for periods of six months or one year.

Database and marketing support services include list rental, database development and supply, data analysis and call center services. Revenue is recognized when the service or list has been delivered assuming all other basic criteria for revenue recognition have been met.

Advertising revenues arising from direct mailing or placement of print advertising are recognized when the advertisements are sent or published, assuming all other basic criteria for revenue recognition have been met.

We derive advertising and marketing services revenues from consulting services, marketing database and support services, online and print advertising, and our Internet media business which is focused on online entertainment and Internet products services that target users in China via our portal network.

Advertising and marketing consulting services revenues for fixed price contracts are recognized using the proportional performance method based on hours incurred. This method is specified in the contracts along with pricing, payment terms and project timetable. Revenues from time and materials outsourcing contracts are recognized as the services are delivered, assuming all other basic criteria for revenue recognition have been met.

Mobile Services and Applications

We generate mobile services and applications revenues from a comprehensive suite of mobile data applications, including dating, chatting, fortune telling, entertainment, information-related content and community services to mobile subscribers in China utilizing SMS, MMS, WAP and IVR services. We rely on mobile network operators in China to bill mobile phone users for our subscription fees. We have revenue sharing arrangements with China Mobile and China Unicom under which we receive 70% to 85% of the subscription fee collected from a mobile subscriber, with the balance being retained by the mobile operators. In addition to our charges, the mobile operators separately charge their subscribers RMB0.10 to RMB1.00 for every SMS, MMS or WAP message sent. These amounts are collected by the mobile operators and are not shared with us.

Mobile services and applications revenues are recognized in the month in which the services are performed, provided that all other basic criteria for revenue recognition have been met. The mobile operators provide statements after month-end indicating the amount of fees that were charged to users for mobile services and applications services that we provided during that month and the portion of fees that are due to us in accordance with our contractual arrangements with the mobile operators. We typically receive these statements within 30 to 90 days following month-end, and we typically receive payment within 30 to 90 days following receipt of the statement. We also maintain an internal system that records the number of messages sent to and messages received from mobile users. Generally, there are differences between the expected value of delivered messages based on our system records and our portion of the fees confirmed by the mobile operators for the delivered messages. These differences may result from the user’s phone being turned off, problems with the mobile operators’ networks or our billing system or other issues which prevent delivery of our services to users. These are known in the industry as billing and transmission failures. We do not recognize revenues for services which result in billing and transmission failures. Billing and transmission failures can vary significantly from month to month, province to

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province and between mobile operators. At the end of each reporting period, where an operator fails to provide us with a monthly statement confirming the amount of charges billed to their mobile phone users for that month, we use the information generated from our internal system and historical data to make estimates of the billing and transmission failures and accrue as revenue the estimated amount of collectable mobile services and applications fees. If an actual discrepancy varies significantly from our estimate, it could result in an overstatement or understatement of revenues and costs of revenues.

We are also required to pay some of our content providers either monthly fee or a percentage of the revenue received from or confirmed by the mobile operators, with or without a minimum guaranteed payment, with respect to services incorporating the content providers’ products. In calculating the fees payable to these providers, we reduce the amount of the fee payable by our estimate of account billing and transmission failures which may have been applicable to the services incorporating these products. If we receive confirmation of billing or transmission failures which differ from our estimate after we make payments, we do not ask for refunds, make additional payments, or make adjustments with respect to fees payable for future periods. If the assumptions we use in making such estimates prove inaccurate, we may have paid, and may continue to pay, fees to such providers which are disproportionate to the amount we have been paid for the services.

Prior to 2005, we recognized mobile services and applications revenues net of the mobile phone operator’s share of revenue and uncollectible amounts because we considered the mobile operators to be the primary obligors based on the fact that the mobile operators set maximum prices that we could charge and that the mobile operators also had the right to set requirements and procedures associated with using their platform. Prior to 2004, we relied on the mobile operators to advertise our services, and customers were not necessarily aware the services to which they were subscribing were being provided by us because they did not receive confirmations after subscribing to such services. This situation changed in 2005 as a result of (i) beginning in 2005, a large portion of our revenues are being generated on a new transmission platform which requires direct confirmation of every service ordered by customers and makes it clear to customers that we are responsible for providing such services; (ii) a substantial increase in direct advertising of our services; (iii) enhanced ability to select suppliers due to a shift from primarily using internally-produced content to purchasing content; and (iv) changes in mobile operators’ practices such as shifting their credit risk to us by taking an additional percentage of revenues from the arrangement to cover expected bad debts. Based on these recent changes, we changed our revenue presentation to the gross method on a prospective basis as of January 1, 2005.

Recognition of mobile services and applications revenues requires judgment with respect to the estimation of revenues not yet confirmed by the mobile operators at the end of a period, and whether to use the gross versus net method of reporting revenue. The company regularly re-evaluates its EITF 99-19 assessment as the mobile services environment continues to evolve with the transition to new platforms and significant changes in the operating practices of the network operators. The composition of revenues and cost of revenues would change if we made a different assessment on the gross versus net basis of reporting. Our estimates also rely to some extent on our historical experience. We believe we have the ability to make reasonable estimates. However, material differences in the amount and timing of our revenue and cost of revenue could result during any period because of differences between the actual billing and transmission failure rate per the mobile operators’ statements and our estimates based on our internal records and historical experience, or if we were to use a different methodology for estimating the billing and transmission failure rate applicable to unconfirmed revenues. In the future we may also change our estimation methodology based on future experience or if there are changes in the manner in which the mobile operators confirm revenue.

Internet and Media

Revenue from internet and media mainly represents revenue from advertising, which is recognized on a straight-line basis over the period in which the advertisement is displayed, and when collection of the resulting receivable is probable, provided that no significant obligations of the Company remain. Advertising service fees from direct mailings are recognized when each advertisement is sent to a target audience.

Goodwill and Intangible Assets

Our long-lived assets include goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of net intangible assets of businesses acquired. Goodwill and indefinite lived intangible assets are not amortized. All other intangible assets are amortized over their estimated useful lives.

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Goodwill is assigned to reporting units based on the reporting unit classification of the entity to which the goodwill is attributable. We have determined our reporting units based on an analysis of our operating segments. In 2004, after acquiring Ross and Pivotal, we performed an assessment of our businesses and sub-divided our reporting units into additional reporting units based on (a) the nature of products and services; (b) the nature of the production process; (c) the type and class of customers; (d) the method to distribute products or provide services; and (e) the nature of regulatory environment. We reallocated goodwill among the new reporting units based on the relative fair value of each new reporting unit compared to the fair value of the reporting unit in which it was classified before the sub-division.

Intangible assets represent trademarks and service marks, uniform resource locators (“URLs”), software applications and programs, customer base and contracts, and business licenses and partnership agreements. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives of the intangible assets are as follows:

Trademarks	Indefinite
URLs	20 years
Software applications and programs	2 to 15 years
Customer base and contracts	1 to 10 years
Business licenses and partnership agreements	1 to 7 years

We test goodwill and intangible assets with an indefinite useful life for impairment on an annual basis as of December 31. This testing, carried out using the guidance and criteria described in SFAS No. 142, “Goodwill and Other Intangible Assets,” compares carrying values to fair values at the reporting unit level and, when appropriate, the carrying value of these assets is reduced to fair value. Factors that could trigger an impairment charge include, but are not limited to, significant changes in our overall business or in the manner or use of the acquired assets, underperformance against projected future operating results, and significant negative industry or economic trends. Any impairment losses recorded in the future could have a material adverse impact on our financial condition and results of operations for the periods in which such impairments occur.

During 2004 and 2005, we performed the required impairment tests on goodwill and intangibles with an indefinite useful life and were not required to record any impairment. Management judgment is required with respect to the identification of reporting units based on our internal reporting structure that reflects the way we manage our business or operations, assigning assets and liabilities to reporting units, and assigning goodwill to reporting units. Significant judgment is also required to estimate the fair value of reporting units including estimating future cash flows, determining appropriate discount rates, estimating the applicable tax rates, projecting future industry trends and market conditions, and making other assumptions. The use of different estimates and assumptions could materially affect the determination of fair value for each reporting unit. If we change our estimates and assumptions in the future based on changes in our overall business or in the manner or use of the acquired assets, underperformance against projected future operating results, or significant negative industry or economic trends, such changes might result in an impairment charge.

We also annually review and adjust the carrying value of amortized intangible assets if facts and circumstances suggest they may be impaired. If this review indicates that amortized intangible assets may not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying value of intangible assets will be reduced by the estimated shortfall in discounted cash flows. Management judgment is required in the assessment of useful lives of amortized intangibles, and our estimates of future cash flows require judgment based on our historical and anticipated results and are subject to many factors including our assessment of the discount rate used and the amounts and timing of future cash flows. During 2004 and 2005, we performed the required impairment reviews and were not required to record any material impairment on amortized intangible assets. The use of different estimates and assumptions might have resulted in an impairment charge, or might result in an impairment charge in the future. As of December 31, 2005, $65.6 million of our identifiable intangible assets were subject to amortization.

Business Combinations

We have made a number of acquisitions and may make strategically important acquisitions in the future. When recording an acquisition, we allocate the purchase price of the acquired company to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. For significant acquisitions we have obtained

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independent appraiser valuation reports to assist in determining the fair values of identifiable intangibles, including acquired technology, customer lists and trademarks. These valuations require us to make significant estimates and assumptions which include future expected cash flows from license sales and customer contracts and acquired technologies, discount rates, and assumptions regarding the period of time the acquired technology or customer relationships will continue. Such assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions and estimates.

In addition, acquired deferred revenue is recognized at fair value to the extent it represents a legal obligation assumed by us in accordance with EITF 01-03, “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” We consider service contracts and post-contract customer support contracts to be legal obligations of the acquired entity. We estimate the fair value of acquired deferred revenue based on prices paid by willing participants in recent exchange transactions. At December 31, 2004 and 2005 we had deferred revenue balances of $35.4 million and $37.2 million, respectively, which is primarily related to our acquisitions during 2004 and 2005. Management judgment is also required in determining an appropriate fair value for deferred revenue. If the fair values we determined for deferred revenues acquired in prior years were lower, our revenue for the year would have been lower.

Capitalization of Software Costs

We capitalize computer software product development costs incurred in developing a product once technological feasibility has been established and until the product is available for general release to customers in accordance with SFAS No. 86, “Accounting for the Costs of Software to be Sold, Leased, or Otherwise Marketed.” We evaluate realizability of the capitalized amounts based on expected revenues from the product over the remaining product life. Where future revenue streams are not expected to cover remaining unamortized amounts, we either accelerate amortization or expense the remaining capitalized amounts. Amortization of such costs is computed as the greater of the amount calculated based on (1) the ratio of current product revenues to projected current and future product revenues or (2) the straight-line basis over the expected economic life of the product (not to exceed five years). Software costs related to the development of new products incurred prior to establishing technological feasibility or after general release are expensed as incurred. When technological feasibility of the underlying software is not established until substantially all product development is completed, including the development of a working model, we expense the costs of such development because the impact of capitalizing such costs would not be material.

Management judgment is required with respect to the determination of technological feasibility and the determination of the expected product revenues used to assess realizability of the capitalized amounts. If we were to determine that technological feasibility occurs at a different stage of the process, we may capitalize more or less software development costs. If our assumptions about realizability were to change, our reported operating expenses could increase in the short-term by any amounts we write off. As of December 31, 2004 and 2005, capitalized software development costs were $3.5 million and $10.3 million respectively, and related accumulated amortization totaled $0.5 million and $1.6 million respectively.

Investments

Debt and equity investments in available-for-sale securities are stated at fair value. Unrealized holding gain or loss, net of tax, on available-for-sale securities is reported in Other comprehensive income (loss) in the accompanying consolidated balance sheets and is included in a separate component of shareholders’ equity. Realized gains and losses and any decline in fair value judged to be other-than-temporary on available-for-sale securities are included in gain (loss) on disposal of available-for-sale securities and impairment of available-for-sale securities, respectively. Gains or losses on sales of investments and amounts reclassified from accumulated other comprehensive income to earnings are computed based upon specific identification. Interest on securities classified as available-for-sale is included in interest income.

When determining whether an impairment of investments exists or a decline in value of an available-for-sale security is other-than-temporary, we evaluate evidence to determine whether the realizable value is less than the current market price for the securities. Such information may include the investment’s financial performance, the near term prospects of the investment, the current and expected future financial condition of the investment’s issuer and industry, and our investment intent. Management judgment is required in determining fair value of investments, and in determining whether an impairment is other-than-temporary. The use of different estimates and assumptions could affect the determination of fair value for each investment, and could result in an impairment charge.

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All other investments for which we do not have the ability to exercise significant influence (generally, when we have an investment of less than 20% ownership and no representation on the company’s board of directors) and for which there is not a readily determinable fair value, are accounted for using the cost method. Dividends and other distributions of earnings from equity investees or investments, if any, are included in income when declared. We periodically evaluate the carrying value of our investments accounted for under the cost method of accounting and any impairment is included in the consolidated statement of operations.

Accounts Receivable and Allowance for Doubtful Accounts

As we have operations in many countries, there are variations in our credit terms between countries and between revenue segments. The allowance for doubtful accounts is established based on our credit control policies. Allowances are made based upon regular reviews of all significant outstanding invoices, and we make specific provisions for bad debts if there is strong evidence that the receivable is not likely to be recoverable. In addition, invoices not specifically reviewed are provided for at differing rates, based upon the age of the receivable. Generally, when an account receivable is 90, 120 or 180 days overdue, we establish a provision for bad debts equal to 25%, 50% and 100% of the amount of the accounts receivable, respectively. The determination of these rates is based on our historical collection experience and assessment of the economic environment in which the customer is situated. If our assessment and the data used to calculate the allowance for doubtful accounts does not reflect our actual ability to collect outstanding receivables, or if the financial condition of our customers were to deteriorate resulting in their potential inability to make payments, additional provisions for doubtful accounts may be needed, and future results of operations could be materially affected.

Deferred tax valuation allowance

We record a valuation allowance to reduce our deferred tax assets if, based on an estimate of our future taxable income, it is more likely than not that some or all of our deferred tax assets will not be realized. As of December 31, 2004 and 2005, we had deferred tax assets of $85.6 million and $91.5 million, respectively. We provided a valuation allowance of $69.2 million and $77.1 million as of December 31, 2004 and 2005, respectively, to cover our deferred tax assets. Our largest deferred tax asset item relates to our loss carry-forwards. If future events, such as a sustained trend of profitability in companies with a history of generating losses, allow us to realize more of our deferred tax assets than the previously recorded net amount, an adjustment to the deferred tax asset would increase our net income when those events occur, except with respect to acquired companies for which the realization of pre-acquisition deferred tax assets through a reduction of valuation allowance would reduce goodwill and would increase deferred tax expense. At December 31, 2005, a maximum of $59.9 million of the valuation allowance for which tax benefits are subsequently recognized will be allocated to reduce goodwill.

Stock-based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related Interpretations, and complies with the disclosure provisions of SFAS 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”). Under APB 25, stock compensation expense is recognized over the vesting period of the stock options based on the difference, if any, between the fair value of the underlying Company’s/China.com Inc’s shares at the date of grant and the exercise price of the stock options. While accounting for options under APB 25, the Company used the accelerated expense attribution method under FASB Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option Award Plans”, to recognize the stock compensation expense. We grant stock options with an exercise price equal to the fair market value on the date of grant and, accordingly, through December 31, 2005 no compensation expense had been recorded for stock options except for options which were issued as part of acquisitions. On January 1, 2006, we adopted the provisions of SFAS No. 123R (revised 2004) “Share-Based Payment,” (“SFAS 123R”) pertaining to accounting treatment for employee stock options, which require us to treat the fair value of the stock options granted to employees as compensation expense. The Company expects that the adoption of SFAS 123R will have a material impact on its results of operations.

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Contingencies

We regularly assess the estimated impact and probability of various uncertain events, or contingencies, and account for such events in accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”). Under SFAS 5, contingent losses must be accrued if available information indicates it is probable that the loss has been or will be incurred given the likelihood of the uncertain event, and the amount of the loss can be reasonably estimated.

Management judgment is required in deciding the amount and timing of accrual of a contingency. For example, legal proceedings are inherently uncertain, and in order to determine the amount of any reserves required, we assess the likelihood of any adverse judgments or outcomes in pending and threatened litigation, as well as potential ranges of probable losses. As of December 31, 2005 we had $1.1 million accrued for legal fees and contingencies. We use internal and external experts, as necessary, to help estimate the probability that a loss has been incurred and the amount or range of the loss. A determination of the amount of loss accrual required for these contingencies is made after analysis of each individual matter. The amount of such accruals may change in the future due to changes in approach or new developments in each case.

Impact of Certain Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 123R (revised 2004) “Share-Based Payment,” (“SFAS 123R”) which is a revision or SFAS 123. SFAS 123R supersedes APB 25 and amends SFAS No. 95, “Statement of Cash Flows.” The approach in SFAS 123R is generally similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. Pro forma disclosure will no longer be an alternative.

We adopted SFAS 123R as of January 1, 2006 using the modified prospective method. Under this transition method, compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. As permitted by SFAS 123, through December 31, 2005 we accounted for share based payments to employees using APB 25’s intrinsic value method and, as such, generally have not recognized compensation cost for employee stock options. The Company expects that the adoption of SFAS 123(R) will have a material impact on its results of operations.

In June 2005, the FASB issued Statement of Financial Accounting Standards No. 154 (“SFAS 154”), “Accounting Changes and Error Corrections.” SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. In addition, this Statement requires that a change in depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This new accounting standard is effective January 1, 2006. The Company will apply the provision of SFAS 154 when applicable.

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 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 adoption of EITF 04-13 is not expected to have a material impact on the Company’s financial statements.

In November 2005, the FASB issued FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” (“FSP 115-1”), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary and on measuring such impairment loss. FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005. We are currently evaluating the effect that the adoption of FSP 115-1 will have on our consolidated results of operations and financial condition but we do not expect that it will have a material impact.

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In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140”. It allows financial instruments that have embedded derivatives that otherwise would require bifurcation from the host to be accounted for as a whole, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. The standard also clarifies which interest-only strips and principal-only strips are not subject to the requirement of SFAS 133; establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued by the Company after January 1, 2007. The Company is evaluating the effect of the adoption of SFAS 155. It is not expected to have a material impact on the Company’s consolidated financial statements.

B. Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods presented:

	Year ended December 31,
						Restated(1) 2005
	2003			2004
	(in thousands)
Net cash provided by operating activities	$	13,195		$	10,790	$	11,948
Net cash provided by investing activities		118,119			3,629		8,614
Net cash provided by (used in) financing activities		(108,959	)		40,246		(36,353	)
Effect of exchange rate changes on cash		—			33		(696	)
Net increase (decrease) in cash and cash equivalents		22,355			54,698		(16,487	)
Cash and cash equivalents at beginning of period		33,153			55,508		110,206
Cash and cash equivalents as at end of period	$	55,508		$	110,206	$	93,719

(1) See Note 2, “Restatement of Financial Statements”, to the Company’s consolidated financial statements which are included in this Amendment No.1.

During 2005, we generated positive operating cash flows. Our cash and cash equivalents decreased to $93.7 million as of December 31, 2005 from $110.2 million as of December 31, 2004, primarily as a result of the repayment of bank loans and earnout payments. This decrease in cash and cash equivalents was partly offset by the proceeds from maturities of available for sale securities and by the positive cash flows from our operating activities. At December 31, 2005, we held $148.2 million in available-for-sale debt securities, the majority of which are issued by U.S. government-sponsored enterprises, which mature at various dates through 2008. Our total debt was $26.2 million at December 31, 2005 compared to $63.8 million at December 31, 2004.

Sources and Uses of Cash for the Year ended December 31, 2005

Operating Activities

Our net cash provided by operating activities was $11.9 million in 2005, compared to $10.8 million in 2004. Our cash flows from operating activities increased by 10% principally as a result of the following:

• Net Loss – We incurred a net loss of $3.5 million in 2005 compared to net loss of $6.0 million in 2004, representing a $2.5 million year-over-year decrease. This decrease was due to (i) an increase in gross profit, (ii) a decrease in restructuring expenses, and (iii) non-cash expenses related to our acquisitions in 2004 which did not impact cash flows, including amortization of acquired intangibles and purchase technologies, deferred tax expense and stock compensation expense.

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• Accounts Receivable – Our accounts receivable balances increased by $12.5 million and $5.0 million in 2004 and 2005, respectively. Lower increase in accounts receivables in 2005 compared to 2004 is due to the acquisitions of Ross and Pivotal in 2004.

Other factors that had a negative impact on the year-over-year change in cash flows from operating activities included the following:

• Deferred Revenues – Our deferred revenues increased by $6.5 million and $3.8 million in 2004 and 2005, respectively, primarily from higher deferred revenues as a result of the acquisition of Ross and Pivotal in 2004.

• Accounts Payable, Tax Payable, and Other Liabilities – Certain of our payables balances increased after the acquisitions of Ross and Pivotal in 2004 resulting in cash inflows from these categories in 2004 compared to cash outflows in 2005.

Investing activities

Net cash provided by investing activities was $8.6 million in 2005, compared with $3.6 million in 2004. In 2005, large outflows included payments of $15.5 million for purchases of subsidiaries, net of cash acquired and $7.8 million in acquired intangible assets. These decreases in cash were more than offset by $30.6 million generated by maturity/disposal of available-for-sale securities. In 2004, large outflows of cash included payments of $112.7 million for purchases of subsidiaries, net of cash acquired, and $80.3 million for purchases of available-for-sale securities. These decreases in cash were offset by $212.1 million generated by maturity/disposal of available-for-sale securities.

Financing activities

Net cash used in financing activities was $36.4 million in 2005, compared with net cash provided by financing activities of $40.2 million in 2004. Cash used during 2005 consisted primarily of loan repayments of $42.5 million, partly offset by new loans of $5.1 million and issuance of common shares, mainly related to the stock options exercises, of $1.1 million.

Future cash requirements and sources of liquidity

Future cash requirements

In the future, we expect that our primary cash requirements will be to fund working capital including payment of contractual obligations and research and development expenses, repay debts, and fund contingent consideration payable for certain of our acquisitions.

The following table summarizes our contractual obligations as of December 31, 2005:

	Payments due by period, in thousands
	Total		Less than 1 Year		1 –3 years		3-5 years		More than 5 years
Operating lease obligations (1)	$	41,319	$	9,797	$	13,731	$	9,480	$	8,311
Short-term debt obligations		26,249		26,249		—		—		—
Pension liability		1,673		1,673		—		—		—
Total	$	69,241	$	37,719	$	13,731	$	9,480	$	8,311

(1) Operating lease obligations consist of future minimum payments under non-cancelable operating leases.

In other areas, we expect our primary cash requirements for fiscal 2006 to be as follows:

• Acquisitions – We may be required to make earnout payments relating to future acquisitions.

• Debt Repayments – During 2005, we used cash of $42.5 million to repay loans. The remaining balance at December 31, 2005 of $26.2 million is due in 2006.

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• Investments in our Business – In 2006, we will be spending on targeted investments in certain businesses such as CDC Software Asia Pacific and our Portal, as well as investing in research and development required to keep our software business competitive.

Future sources of liquidity

We believe that cash flows from operating activities, combined with our existing cash and cash equivalents of $93.7 million and our available-for-sale debt securities of $148.2 million as of December 31, 2005, the majority of which will mature at various dates through 2008, will be sufficient to meet our future cash requirements described above.

The following table summarizes the expected maturity dates of our debt securities as of December 31, 2005:

	Expected maturities, in thousands
	Total		Less than 1 year		1 –3 years
Unsecured fixed rate debt securities	$	115,881	$	23,118	$	92,763
Secured fixed rate debt securities		32,270		11,838		20,432
Total	$	148,151	$	34,956	$	113,195

Our ability to meet our expected cash requirements will depend on our ability to generate cash in the future, which is subject to financial, competitive, economic, regulatory and other factors that are beyond our control. If we do not generate sufficient cash from operations or do not otherwise have sufficient cash and cash equivalents, we may need to borrow against our lines of credit or issue other long- or short-term debt or equity, if the market and the terms of our existing debt instruments permit.

Lines of credit

We have primary lines of credit with two banks, Fortis Bank and Standard Chartered Bank, which provide for a maximum borrowing capacity of $350.0 million.

In August 2001, we entered into a line of credit agreement with Fortis Bank which provides for a maximum borrowing capacity of $250.0 million. The Company’s line of credit with Fortis Bank is a repurchase agreement pursuant to which the Company sold certain debt securities to the bank at a discounted price, and the bank agreed to sell the same debt securities back to the Company at that same price at the termination of the agreement. Throughout the term of the agreement, Fortis Bank will pay to the Company any income associated with the debt securities and the Company will pay to the bank interest calculated using the London Inter-Bank Offered Rate (“LIBOR”) plus 0.2% per annum.

In August 2004, we entered into a $100.0 million collateralized credit facility with Standard Chartered Bank under which the Company deposits certain debt securities as collateral in exchange for cash. During the term of the agreement, the bank maintains a charge on such debt securities. The bank will pay to the Company any income associated with the collateralized debt securities and the Company shall pay to the bank interest calculated using the LIBOR plus 0.3% per annum. In February 2005, this rate was renegotiated to LIBOR plus 0.2% per annum.

These banking facilities provide a source of reasonably priced capital and flexibility to finance operational working capital and acquisitions, without having to liquidate our investment portfolio at short notice. Since these banking facilities only allow us to borrow a percentage of our deposited collateral (usually 85%), our true borrowing capacity will be significantly less than the stated available credit line of $350.0 million, and our borrowing capacity would be affected if the value of our collateral were to decline. As of December 31, 2005, the carrying value of securities available for deposit as collateral was $115.9 million. At December 31, 2005, the unused portion of our lines of credit was $324.0 million.

Except for bank loans of $26.2 million to be repaid in 2006, these arrangements do not have termination dates, but are reviewed annually for renewal. We believe our lines of credit provide us with an important source of backup liquidity.

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Restrictions on our Liquidity

While we have cash and cash equivalents of $93.7 million and total debt securities of $148.2 million as of December 31, 2005, $49.3 million of the cash and cash equivalents and $81.0 million of the total securities are held at China.com, as of April 2006, an 77% owned subsidiary listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. Although we have the ability to appoint a majority of the board of directors of China.com, the board of directors of China.com owes fiduciary duties to the shareholders of China.com to act in the best interests of and use the assets of China.com, including the cash and cash equivalents balance and securities, for the benefit of such shareholders. As a result, aside from the board of directors of China.com declaring a dividend to its shareholders for which we would receive a pro rata portion as an 77% shareholder of China.com or a related party inter-company loan or similar transaction from China.com to us which would likely require the approval of the minority shareholders of China.com, we have limited ability to transfer or move the cash, cash equivalents and securities balance to, or to use the amounts of the cash, cash equivalents and securities balance for the benefit of, CDC Corporation at the parent entity level or our other subsidiaries outside of the China.com chain of subsidiaries.

In addition to $93.7 million of cash and cash equivalents at December 31, 2005, we hold $1.9 million in restricted cash which is pledged for banking facilities. Restricted debt securities comprise $32.3 million of our total debt securities of $148.2 million at December 31, 2005 as such securities are pledged as collateral pursuant to drawdowns under our credit and repurchase facilities.

Uncertainties regarding our liquidity

We believe the following uncertainties exist regarding our liquidity:

• Ability to Grow Revenues and Manage Costs – Both our revenue and cost base have increased significantly as a result of the Ross, Pivotal and Go2joy acquisitions in 2004 and the Newpalm, Praxa and IMI acquisitions in 2003. If we are unable to continue to grow our revenues or experience a decline in revenues, or if we are unable to manage costs and reduce operating expenses, our ability to generate positive cash flows from operating activities in a sufficient amount to meet our cash needs would be adversely affected.

• Integrating the Operations of Acquired Businesses – Integration of our acquired businesses could affect our liquidity as continuing integration of the businesses and operations into ours may require significant cash resources.

• Future Acquisitions – Our existing cash and cash equivalents and net cash provided by operating activities may be insufficient if we face unanticipated cash needs such as the funding of a future acquisition. In addition, if we acquire a business in the future that has existing debt, our cash requirements for servicing debt may increase.

Fair value of Financial Instruments

The total fair values of available-for-sale equity securities in listed companies as of December 31, 2004 and 2005 were $0.5 million and $0.7 million, respectively, based on the market values of publicly traded shares as of December 31, 2004 and 2005.

The total fair values of our available-for-sale debt securities as of December 31, 2004 and 2005 were $179.9 million and $148.2 million, respectively, based on the market values of publicly traded debt securities and the estimated fair values of unlisted debt securities, as determined by management having regard to the prices of the most recent reported sales and purchases of the securities as of December 31, 2004 and 2005.

The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, deposits, prepayments and other receivables, accounts payable, other payables, purchase consideration payable, accrued liabilities, short-term debts and long-term debt approximate their fair values because of their short maturity.

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The fair value of our $25.0 million loan to Symphony, see Item 10.C. – “Additional Information – Material Contracts – Symphony Note”, was estimated at $24.6 million and $25.2 million at December 31, 2004 and 2005, respectively, based on discounting the future cash flows, considering borrowing rates available for loans with similar terms and maturity at December 31, 2004 and 2005.

The carrying amount of the variable portion of our variable long-term bank loans approximate their fair value because the interest rates of the loans are close to the prevailing bank interest rate.

C. Research and Development, Patents and Licenses, etc.

In 2004 and 2005, after acquiring Ross and Pivotal, we incurred significant research and development expenses. As discussed in Item 5.A – “Operating and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Capitalization of software costs”, we capitalize certain software development costs and expense others. In 2003, 2004 and 2005, research and development costs recorded in the statements of operations represented approximately nil, 8% and 9% of revenues, respectively. In 2003, 2004 and 2005, research and development costs in total, including costs which were capitalized, represented approximately nil of consolidated revenues in 2003 and 8% of consolidated revenues in 2004 and 9% of consolidated revenues in 2005. As part of our overall strategy to develop and introduce more proprietary products to sell across our business lines and service offerings, we anticipate that our research and development costs may increase on an absolute basis, but not as a percentage of overall revenues.

D. Trend Information

Our focus on the enterprise software and mobile services and applications industries has positioned us within industry sectors which continued to undergo rapid change over the course of fiscal 2005.

In our CDC Software business unit, we made progress during 2005 in our continued integration and focus on operational improvements in relation to our acquisitions of Pivotal and Ross made in 2004. Pivotal’s CRM front-office software and Ross’s comprehensive, modular suite of enterprise software have enlarged our product portfolio; however, we believe it will take several more quarters for us to leverage the synergies that we consider are inherent within our enlarged software businesses. We will continue to execute our software strategy through targeted acquisitions and investments in our CDC Software business unit and through entering strategic partnerships with leading software vendors.

In our China.com Inc business unit, the operating environment for the MVAS sector continued to be challenging in 2005, with sanctions and new policies imposed by the regulators and mobile operators. Our Short Message Service (SMS) business continued to be seriously impacted in 2005. We expect regulatory volatility to remain a characteristic of China’s mobile and communications industry for some time to come, so being nimble and able to proactively manage risks are essential factors of business sustainability. The addition in June 2005 of Shenzhen KK Technology Ltd, a MVAS provider in China, has broadened our service offerings and platform capabilities in nation-wide WAP businesses. Further, we continue to execute our online games strategy through the targeted buy-out of 100% of Equity Pacific Limited (which holds Beijing 17Game Network Technology Co. Ltd) in 2005 and early 2006, a leading massive multiplayer online role-playing games provider with a track record in launching and distributing online games in the China market. In the future, we may add investments in online game and mobile services and applications related companies which will allow us to broaden our service offerings, subscriber base, or platform capabilities.

In 2006, we expect continued growth in revenue in the software, business services, mobile services and applications, and internet and media segments as a result of targeted acquisitions and investments, developing strategic partnerships, product development and organic growth.

In light of the many risks and uncertainties surrounding our company and the geographies and markets in which we operate, shareholders, investors and prospective investors should keep in mind that we cannot guarantee that the forward-looking statements described in this Annual Report will or can materialize.

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E. Off-balance Sheet Arrangements

We do not have any outstanding derivative financial instruments, nor have we entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third parties. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangements that serve as credit, liquidity or market risk support to such an entity. Finally, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

F. Tabular Disclosure of Contractual Obligations

See Item 5.B – “Operating and Financial Review and Prospects – Liquidity and Capital Resources – Future cash requirements and sources of liquidity” above.

G. Safe Harbor

See “General Introduction – Forward-Looking Statements”.

ITEM 8. FINANCIAL INFORMATION

The consolidated financial statements of CDC Corporation were included as pages F-1 to F-62 of the Annual Report. The amended and restated consolidated financial statements of CDC Corporation are included as pages F-1 to F-70 of this Amendment No. 1, and the 17game Group Financial Statements are included as pages FF-1 to FF-20 of this Amendment No. 1.

PART II.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

In the Company’s Annual Report on Form 20-F for the year ended December 31, 2005 (the “Annual Report”), filed with the Securities and Exchange Commission on June 21, 2006, in the section entitled “Item 15—Controls and Procedures,” management stated its belief that as of December 31, 2005, the Company maintained disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed in its reports under the Securities Exchange Act of 1934 was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information was accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

After the Company filed the Annual Report, the Company identified errors in its previously filed consolidated financial statements and concluded that the Company’s financial statements for the years ended December 31, 2003, 2004 and 2005 included in the Annual Report should be restated, as discussed in Note 2 to the consolidated financial statements included elsewhere in this Amendment No. 1 on Form 20-F/A to the Annual Report (“Amendment No. 1”).

Subsequent to filing the Annual Report and in connection with the restatement of its financial statements for the years ended December 31, 2003, 2004 and 2005, the Company reevaluated its disclosure controls and procedures. The evaluation was performed under the supervision and with the participation of Company management, including its CEO and CFO, to assess the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Exchange Act). Based on that evaluation, the Company’s management, including its CEO and CFO, concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2005 because of material weaknesses in its internal controls over financial reporting. This conclusion is different from the conclusion disclosed in the Annual Report.

A material weakness is defined as a significant deficiency or a combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected by company personnel in the normal course of performing their assigned functions.

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The Company has identified material weaknesses relating to insufficient resources with the appropriate level of expertise in the accounting and finance organizations to ensure appropriate application of GAAP, particularly in the areas of accounting for income taxes, foreign currency translation adjustments related to goodwill and intangible assets and the accounting for certain of the Company’s non-routine transactions. As discussed above these material weaknesses resulted in the restatement outlined in the explanatory note to this Amendment No. 1 and Note 2 to the consolidated financial statements included elsewhere in this Amendment No. 1.

Remediation Plans for Material Weaknesses

Since 2006, the Company has implemented, or plans to implement, certain measures to remediate the identified material weaknesses and to enhance the Company’s internal control over its financial reporting processes. As of the date of the filing of this Amendment No. 1, the Company has implemented, or is in the process of implementing, the following measures:

• Increased the size, expertise and training of its finance and accounting staff to include adequate resources for ensuring GAAP compliance, particularly in the areas of accounting for income taxes, foreign currency translation adjustments and the accounting for certain of its non-routine transactions.

• Assigned individuals with significant industry experience and increased the involvement of its senior finance team members in the preparation and review of financial statements.

• Integrated financial reporting and internal controls, including the continued implementation of its standard accounting information system across all locations.

• Enhanced its accounting policies and procedures to provide adequate, sufficient, and useful guidance to its staff in the area of routine and non-routine transactions.

• Corrected its methodologies with respect to calculating the provision for income taxes and foreign currency translation adjustments.

• Increased the level of interdepartmental communication in a way that will foster information sharing between its finance staff and operational personnel.

• Improved its financial organization and control environment.

The Company believes that these remediation actions represent ongoing improvement measures. Additionally, the Company has commenced the implementation of the reporting requirements of Section 404 of the Sarbanes-Oxley Act of 2002. While the Company has taken steps to remediate its material weaknesses, the Company believes that, as of December 31, 2006, these steps were not adequate to fully remediate those material weaknesses and additional measures will be required. The effectiveness of these additional remediation efforts will not be known until the Company performs a test of these additional controls in connection with management’s tests of internal controls over financial reporting that the Company will undertake as of December 31, 2007.

Changes in Internal Controls

During the year ended December 31, 2005, other than the remedial actions discussed above which relate to the filing of this Amendment No. 1 and have been implemented or are in the process of being implemented since such date, there have not been any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART III.

ITEM 18. FINANCIAL STATEMENTS

The consolidated financial statements of CDC Corporation were included as pages F-1 to F-62 of the Annual Report. The amended and restated consolidated financial statements of CDC Corporation are included as pages F-1 to F-70 of this Amendment No. 1, and the 17game Group Financial Statements are included as pages FF-1 to FF-20 of this Amendment No. 1.

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ITEM 19. EXHIBITS

No.	Description
1.1	Conformed copy of the Amended and Restated Memorandum of Association. ***
1.2	Conformed copy of Amendment No. 1 to the Amended and Restated Memorandum of Association. ****
1.3	Conformed copy of the Amended and Restated Articles of Association. ***
1.4	Conformed copy of Amendment No. 1 to the Amended and Restated Articles of Association. ****
2(a).1	1999 Employee Stock Option Plan, as amended. *
2(a).2	2004 Employee Share Purchase Plan.**