With strong interest and support of the PRC government and favorable macro-economic factor, we are confident and determined in our continual pursuit of our growth strategy.

In the water purification segment of our business, we will seek to reduce our reliance on traditional powerplant water treatment projects by pursuing more large-scale municipal wastewater treatment projects, while simultaneously expanding our business in nuclear power plant water treatment project. Revenue generated from wastewater treatment, as a percentage of our total revenue, has notably increased from 11% to 25%, indicating success in this direction.

We will also seek to broaden our customer base and market share in tapwater treatment within municipalities.

In all segments of our business, we will maintain technological leadership by continuing to pursue technological advancement through in-house research & development and collaborative alliances with international partners and academic institutions. In this respect, we will endeavour to complete and patent our wastewater research project in FY2006 and utilise it in future wastewater projects, resulting a bid to achieve substantial cost-savings and efficiency in operation.

Our directors believe that with the growth of the PRC's economy, the PRC faces increasing pressure for the need to protect its environment. Such pressure will boost the demand for the type of services we currently provide . Our directors believe that the prospects for the growth and expansion of our business in the foreseeable future are positive based on the following:-

Increase in demand for wastewater treatment plants

The Ministry of Water Resources in the PRC revealed that 364 of the PRC cities are facing acute water shortages. As a result of severe water shortages, the overall PRC industrial sector is estimated to suffer RMB230 billion (US$28 billion) worth of lost production annually. In view of the water shortage situation, it is becoming increasingly important to tap treated wastewater as a source of water.

The water shortage problem is exacerbated by the severe inadequacy of water treatment facilities. The Ministry of Water Resources in the PRC noted that out of the 60 billion tons of wastewater generated annually, industrial wastewater accounts for 69% while municipal wastewater accounts for 31%. Only 23% of the total wastewater generated by industrial and urban users is treated before being discharged. Hence, there is a large and expanding market for wastewater treatment in the PRC.

Under the PRC's 10 th Five-Year Plan (the "Plan"), the PRC government has allocated US$30 billion for the purpose of water pollution control. The objective is to raise the national wastewater treatment rate to above 60% in all cities by 2010. The Plan also indicates that the PRC government plans to build water treatment facilities in all cities and treat 45% of sewage water by 2005. In the Plan, government spending on environmental protection is projected to reach RMB700 billion (US$85 billion) or 1.2% of GDP. In particular, RMB250 billion (US$30 billion) will be allocated for water pollution control during the period from 2001 to 2005 - RMB100 billion to build sewage treatment plants and RMB150 billion to control industrial point-source pollution.

With the above factors, our directors believe that the wastewater treatment industry presents a huge market and therefore good opportunities for us.

Increase in demand for power stations

Power consumption in industries and residences in the PRC has increased rapidly due to the growth of the national economy. Our directors are confident that electricity consumption rate in the PRC will continue to increase rapidly in tandem with the growth of the economy. Based on this expected trend and given that water treatment systems are essential to the operation of power generators, the Directors believe that the demand for water treatment systems is expected to increase.

Scalability of our capabilities

Our existing technologies are scalable such that they can be applied in a diverse number of industries, such as the seawater desalination industry.

We believe that the increasing demand for potable water, especially in the coastal cities of the PRC, creates an increased and sustainable demand for seawater desalination plants. Such increase in demand will present good prospects for our Group.