Background

C & D Production Inc. was founded in 1998 and is currently one of the largest professional advertisement production company in Taiwan. We primarily produce and distribute commercial advertisements for large-scale multinational companies such as Ford, Honda, Toyota, Mazda, Jaguar, Wrigley's, 7-11 Convenience Stores, Republic of China, Mild Seven Times, Sony, Ericsson, Gillette, Makoto Bank, China Airlines, Yamaha and the Government of Thailand. We also offer a broad range of services including video and film production, motion graphic design, 3-D computer design and animation. We also plan to aggressively expand our business to the Mainland Chinese Market.

C&D Production Inc., formerly Huile Oil & Gas, Inc., was incorporated on October 24, 1997 under the laws of the State of Nevada. On September 4, 2003, C&D Production Group Inc. became a wholly owned subsidiary of C&D Production Inc. through an Exchange Agreement, whereby C&D Production Inc. acquired all of the issued and outstanding capital stock of C&D Production Group Inc. in exchange for 13,828,500 shares of C&D Production Inc. (the "Acquisition"). C&D Production Group Inc., was incorporated on May 23, 2003 under the laws of the British Virgin Islands. C&D Production International was incorporated on November 6, 1998 under the laws of Republic of China. C&D Production Group Inc. owns 100% of the capital stock of C&D Production International. Collectively the three corporations are referred to herein as the "Company". When used in these notes, the terms "Company," "we," "our," or "us" mean C&D Production Inc. and its subsidiaries.

Advertising Market

The Asia Pacific region has the fastest growing advertising market in the world and its advertising expenditure year-on-year growth rate is expected to be greater than 5% during the period from 2002 to 2006 according to Zenith Optimedia. On the other hand, the growth in advertising expenditure in Europe countries is expected to lag behind the USA during the period from 2002 to 2006 according to Zenith Optimedia. According to the statistics from CMR Strategy, the aggregate US advertising expenditure for all media amounted to approximately US$54,548 million in 2003, compared to that of approximately US$50,957 million in 2002, which represented a year-on-year growth rate of approximately 7%. The aggregate advertising expenditure in the Asia Pacific region in which the Company competes for top 10 most spending US advertisers amounted to approximately US$7,626 million in 2003, compared to that of approximately US$6,591 million in 2002, which represented a year-on-year growth rate of approximately 16%. C&D has 80% of the market share of Taiwan's commercial films and Taiwan has 35% of the market share of the Asia Chinese market, according to the CTR market research report.

Current Target Industry Areas

While there are diverse markets and opportunities for our television advertisements, we are currently focused on servicing customers in the following industries:

o Consumer Electronics o Automotive o Financial Services & Investments o Airlines and Transportation o Food and Beverage o Landscape and Architecture

Current Operations

We decided to discontinue our Television Broadcasting and Feature Film and Documentary operations in December 2004 because of Taiwanese laws that prevented us from doing business in China. In addition, we were dissatisfied with the quality of work of our subcontractors in China. We believe that we will be reimbursed for the entire amount we spent for the production of feature films and documentaries by the end of the year. We may attempt to produce feature films or documentaries in the future, but currently have no plans to do so.

Advertising Projects

As a film and multimedia production company, we provide a wide array of services in connection with filming and producing television commercials. There are generally three phases to producing a television commercial: pre-production, filming, and post-production. As the first step in the pre-production process, we meet with the client to understand the client's creative direction and budget for a particular commercial project. We then provide the client with a proposal, which sets forth an estimate of the costs and expenses for the project. Following approval of our proposal, we then hold a pre-production meeting with the client to review specific aspects of the commercial shoot. We then shoot the commercial and manage all post-production matters, which include editing and adding any special effects, musical scores and voice-overs. Once our proposal is accepted by a client, the average commercial takes six to eight weeks to complete.

The following is a list of the major services we provide in connection with filming and producing a commercial:

o scouting set locations and procuring all required licenses, paying all related fees and rental costs associated with using a particular set location;

o hiring the director, art director, film crew, stylists, editors, and all other persons involved in filming and producing the commercial;

o procuring and/or providing all of the equipment necessary to film the commercial, including lighting and cameras;

o designing and constructing sets;

o designing and procuring wardrobe and props;

o arranging for transportation to and from the set location;

o providing catering at the set location;

o obtaining any required film or picture stock footage;

o hiring and managing animators or special effects persons; and

o overseeing all aspects of video and audio post-production.

We leverage our knowledge of the film and television commercial industry to produce high quality, technically sophisticated commercials in a cost efficient manner. We are able to meet a broad range of our clients' needs, from highly technical projects with special effects to more basic, cost sensitive projects.

Our clients generally are advertising companies and agencies. We work primarily with 8 advertising agencies, for which we produced over 95% commercial advertisements in 2004. Through these advertising agencies, in 2004 we produced commercials for internationally known companies such as Honda, to regionally prominent companies such as Wan-Tai Bank and Oley.

Customer List

Through our advertising agency clients, we have filmed and produced television commercials for the following companies, among others.

o Ford o Sony Ericsson o Toyota o ASUS Computers o Mazda o Gillette o Jaguar o Wear Fashion Wear o KGI Securities o Macoto Bank o 7 - 11 Convenience Stores o China Airlines o Government of Republic of China o Yamaha o Mild Seven Times o Chang Hwa Bank o Honda o Super Supau

Sales and Marketing

We have not commenced an advertising or publicity campaign to promote our name or business. All of our business comes through personal contacts that we have made, through recommendations by present clients and through word of mouth.

Competition

The market for television advertising and independent film production is relatively new in Taiwan and Mainland China, constantly evolving, and competitive. Our competitors include both emerging companies with limited operating histories and companies with longer operating histories, greater name recognition and/or significantly greater financial, technical and marketing resources than we do. We expect that competition will intensify in the near future. However, we believe there are significant barriers to entry for our potential competitors.

Intellectual Property

Our trademarks, service marks, trade secrets, proprietary technology and other intellectual property rights distinguish our products and services from those of our competitors, and contribute to its competitive advantage in our target markets. To protect our brand, products and services we rely on a combination of trademark and trade secret laws as well as confidentiality agreements and licensing arrangements with our employees, customers, independent contractors, sponsors and others.

We strategically pursue the registration of our intellectual property rights, including the copyrights to 434 films and two Company logos. However, effective patent, trademark, service mark, copyright and trade secret protection may not always be available. Existing laws do not provide complete protection, and monitoring the unauthorized use of our intellectual property.

Employees

We currently have 39 full time employees, of which 19 are engaged in product development, eight in sales and marketing, two in finance and ten in general administration.

RISK FACTORS

Reliance On Key Personnel

The Company is dependent on the continued employment and performance of its executive officers and key employees, particularly Mr. Michael Chou, its chief executive officer, secretary and chairman of the board of Directors. The Company currently does not have employment agreements with its key employees. Like other companies in the advertising and publishing industry, the Company faces intense competition for qualified personnel. Many of its competitors have greater resources for qualified personnel than the Company has. The Directors cannot be certain that the Company will be able to maintain salaries at market levels. Therefore, the Directors cannot be certain that the Company will be successful in attracting or retaining qualified personnel in the future.

Plagiarism Or Infringement Of the Company's Intellectual Property Rights

The Company seeks to protect its intellectual property rights through the application for registration of certain copyrights and a number of trademarks and service marks and in the future it intends to apply for new trademarks and service marks.

Nevertheless, the Company cannot be certain that the Company will be able to adequately protect its intellectual properly rights or that intellectual property laws will be adequate to protect its intellectual property rights. Furthermore, policing the unauthorized use of the Company's intellectual property is difficult, and expensive litigation may be necessary to enforce such rights. Accordingly, the Company cannot be certain that the Company will be able to protect its proprietary rights against unauthorized third party copying or use. If the Company is unsuccessful in protecting its intellectual property, it may have a disadvantage over competitors.

A Limited Operating History

The Company has a limited operating history upon which potential investors may base an evaluation of its prospects and there can be no assurance that the Company will achieve its objectives. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in a rapidly evolving market such as the market for television advertising and independent films. Such risks include, but are not limited to, the Company's ability to obtain and retain customers and attract a significant number of new customers and its ability to implement its growth strategy, especially its sales and marketing efforts.

Fluctuations In Quarterly Operating Results

The Company may experience significant fluctuations in future quarterly operating results that may be caused by many factors, including, among others: (i) delays in producing or filming television commercials, feature films and documentaries; (ii) costs and expenses associated with producing and filming television commercials, feature films and documentaries; (iii) the size, sophistication and timing of individual projects; (iv) competition and pricing in its industry; (v) fluctuations in its clients' advertising budgets; (vi) changes in its personnel and/or the subcontractors it use; (vii) changes in regulatory requirements; (viii) the mix of television commercials, feature films and documentaries it produces; and (ix) general economic conditions. As a result, the Directors believe that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance.

Development In The Advertising Market In Prc

The success of the Company is highly dependent on the continued growth of the television advertising market in the Asia Pacific region. The television advertising market in the Asia Pacific region is relatively new and rapidly evolving. Therefore, the Company cannot assure that the television advertising and film production market in the Asia Pacific region will continue to emerge or become sustainable. If the market for the Company's products fails to grow, develops more slowly than it expects or becomes saturated with competing products or services, then the Company's revenues will not increase and its financial condition may be materially adversely affected.

Reliance On Qualified Subcontractors

In order to meet the requirements under the Company's contracts, the Company relies on the efforts and skills of subcontractors for production services. There is great competition for the most qualified and competent subcontractors. If the Company is unable to afford or hire qualified subcontractors, the quality of its television advertisements, feature films and documentaries could decline. If such a decline were to occur, it would limit the Company's ability to perform under contracts it has and will have with its customers and could cause certain customers to not work with the Company in the future.

The Modification Of Business Strategies

The Company's rapid growth has placed, and is expected to continue to place, a significant strain on its managerial, technical, operational and financial resources. To manage its expected growth, the Company will have to implement and improve its operational and financial systems, and the Company will have to train and manage its growing employee base. The Company will also need to maintain and expand its relationships with customers, subcontractors and other third parties. If the Company is unable to effectively manage its growth, its business may become inefficient and it might not be able to effectively compete with competitors.

Requirement For Additional Capital

Based on the Company's estimates of currently available funds and resources, including sales, the Company believes that the Company has sufficient cash to continue operations for at least the next 12 months. The Company may incur unplanned expenses, or the Company may seek to find more aggressive brand promotion and more rapid expansion, which may require the Company to raise additional capital. The Company cannot be certain that additional financing will be available when the Company requires it and to the extent that the Company requires it. If additional funds are unavailable to the Company, or are not available on acceptable terms, the Company may be unable to fund its expansion, develop or enhance its products or respond to competitive pressures.

Competition

The market for television advertising and independent film production in Asia is rapidly evolving and highly competitive. Many of the Company's competitors and potential competitors have substantially greater financial, technical, and managerial and marketing resources, longer operating histories, greater name recognition and more established relationship than the Company. The Company expects competition from these and other types of competitors to increase significantly.

The Company competes with companies that deliver content through similar platforms and with companies that operate in different media businesses. There can be no assurance that the Company can remain as competitive as it currently is with companies that have greater resources or that offer alternative entertainment and information options.

Laws And Regulations

The Company is currently not required to comply with direct regulation by any domestic or foreign governmental agency. However, it is possible that additional laws may be adopted regarding advertising and film production, any of which could materially harm its business.

Dilution Of Shares

The Company has issued common stock, and in the future the Company may issue additional shares of common stock, options, warrants, preferred stock or other securities exercisable for or convertible into its common stock. Holders of the Company's common stock do not have preemptive rights. Therefore, issuances of additional securities will dilute the percentage ownership of the Company's stockholders.

Disruptions in Taiwan's political environment

Most of our assets and operations are located in Taiwan and customers providing us with approximately 100% of our net income are located in Taiwan. Accordingly, our business and financial condition may be affected by changes in local governmental policies and political and social instability.

Taiwan has a unique international political status. The government of the Peoples Republic of China asserts sovereignty over mainland China and Taiwan and does not recognize the legitimacy of the government of Taiwan. The government of the Peoples Republic of China has indicated that it may use military force to gain control over Taiwan if Taiwan declares independence or a foreign power interferes in Taiwan's internal affairs. The recent political uncertainty relating to a potential attack from the Peoples Republic of China and related developments could adversely affect the prices of our common stock.