================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2003

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

                         Commission File No.: 000-32053

                      INDUSTRIES INTERNATIONAL INCORPORATED
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Nevada                   3600                 87-0522115
          ------                   ----                 ----------
     (State or other         (Primary Standard       (I.R.S. Employer
       jurisdiction             Industrial          Identification No.)
   of incorporation or      Classification Code
      organization)               Number)

                     4/F Wondial Building, Keji South 6 Road
                Shenzhen High-Tech Industrial Park, Shennan Road
                                 Shenzhen, China
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


                               011-86-755-26520839
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

Title of each class                   Name of each exchange on which registered
----------------------------------    -----------------------------------------

           Securities registered pursuant to Section 12(g) of the Act:


                                  Common Stock
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                                (Title of class)

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.                          [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10K or
any amendment to this Form 10-K.                            [X]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).                          [ ] Yes [X] No

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
June 27, 2003: $10,350,524

The number of shares of common stock outstanding as of March 25, 2004 was
29,992,944 shares

================================================================================
Industries International Incorporated (the "Company") reported the historical
financial information in US Dollars instead of RMB in the amendment. The Company
will report all future audited financial information in US Dollars.


<PAGE>

                                TABLE OF CONTENTS

NOTE REGARDING FORWARD-LOOKING STATEMENTS

                                     PART I

ITEM 1.     BUSINESS                                                    5

            Overview                                                    5
            Business Segments                                           7
            Risks Attendant to the Company's Foreign Operations         22

ITEM 2.     PROPERTY                                                    26

ITEM 3.     LEGAL PROCEEDINGS                                           26

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         26

                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS                                        27

            Equity Compensation Plan Information                        27

ITEM 6.     SELECTED FINANCIAL DATA                                     30

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS                        30

            Results of Operations                                       30
            Liquidity and Capital Resources                             36
            Trends and Uncertainties                                    37
            Off-Balance Sheet Arrangements                              40
            Contractual Obligations                                     40
            Critical Accounting Policies and Estimates                  40

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  41

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                 41

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE                                    42

ITEM 9A.    CONTROLS AND PROCEDURES                                     43

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT          43

ITEM 11.    EXECUTIVE COMPENSATION                                      47

                                       2
<PAGE>

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT                                                  51

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              52

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES                      53

                                     PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
            OF FORM 8-K                                                 53

                                       3
<PAGE>

                    NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains "forward-looking statements" which are
based on our current expectations, assumptions, estimates and projections about
our business and our industry. Words such as "believe," "anticipate," "expect,"
"intend," "plan," "will," "may," and other similar expressions identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking statements.

Factors that might cause such a difference include, but are not limited to,
those discussed in the section of this Annual Report titled "Management's
Discussion and Analysis of Financial Condition and Results of Operation-Factors
Affecting Business, Operating Results and Financial Condition", as well as other
factors, such as a decline in the general state of the Chinese economy, which
will be outside our control. You are cautioned not to place undue reliance on
these forward-looking statements, which relate only to events as of the date on
which the statements are made. We undertake no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. You should refer to and carefully review the information
in future documents we file with the Securities and Exchange Commission.



                                       4
<PAGE>

                                     PART I

ITEM  1. BUSINESS

OVERVIEW.

Industries International, Incorporated ("Industries", "IDUL" or the "Company")
is a holding company whose subsidiaries are focused on the research,
development, manufacture and commercialization of telecommunication equipment,
lithium and lithium-ion batteries, and battery testing equipment in the People's
Republic of China ("PRC" or "China") and globally. IDUL's wholly-owned
subsidiary Broad Faith Limited is a leading China-based company engaged in,
through its subsidiaries, the research, development, production and distribution
throughout China of communications terminal products such as corded and cordless
telephones and their core components like printed circuit boards (PCB) and
design and radio frequency modules. According to the 2002 "Market Research &
Consultation Report on Telephones in Chinese Cities" provided by Beijing Guneng
Market Research Center, the Company ranks among the top three companies in the
Chinese cordless telephone market. The same report also listed the Company's
WONDIAL(R) brand name as a well-established brand name in the Chinese telephone
market. The Company, through Broad Faith and it subsidiaries, distributes its
products through a network of over 5,100 points of sale in more than 200 cities
and 28 provinces in China.


HISTORY, REORGANIZATIONS AND CORPORATE STRUCTURE.

Industries International, Incorporated was incorporated on January 11, 1991
under the laws of the state of Nevada. Its original business was in a field
unrelated to its current operations, and was a public shell without operations.
The telecommunication equipment manufacturer, Shenzhen Wonderland Communication
Science and Technology Co. Limited ("Wonderland"), the operating company
purchased in the Company's Broad Faith Limited reverse merger, was established
in July 1993 as a Sino-Foreign Equity Joint Venture in the PRC. During the past
five years neither Industries nor Wonderland experienced any bankruptcy
proceedings or major reorganizations other than those described herein.

Broad Faith Limited

On February 10, 2003, the Company completed the acquisition of Broad Faith
Limited, a company incorporated in the British Virgin Islands ("Broad Faith").
At the time of the acquisition, Broad Faith held a 95% interest in Shenzhen
Kexuntong Industrial Co. Ltd. ("Kexuntong"), a Sino-Foreign Equity Joint Venture
(a Chinese entity used as a vehicle for foreign investment in China) established
in 1994. Kexuntong, in turn, holds 68.73% ownership in its consolidated PRC
subsidiary, Wondial, which is engaged in the research, development, production
and distribution of communication terminal products such as corded and cordless
telephones and core components such as printed circuit boards and radio
frequency modules in China. Kexuntong has a renewable 15-year operating tenure
pursuant to regulations of Shenzhen Foreign Investment Bureau, which can be
renewed at the Company's option by March 29, 2009.

The acquisition of Broad Faith resulted in a change of control of the Company.
Pursuant to an Amended and Restated Agreement and Plan of Share Exchange dated
as of February 10, 2003 (the "Exchange Agreement") by and among Broad Faith, Dr.
Kit Tsui, an Individual who was then the sole stockholder of Broad Faith ("Dr.
Tsui"), the Company, Daniel Shuput, an Individual who was then the holder of at

                                       5
<PAGE>

least a majority of the Company's outstanding capital stock ("Shuput"), William
Roberts ("Roberts") and Gayle Terry ("Terry"), each Individual stockholders of
the Company, the Company agreed to issue to Dr. Tsui 7,032,986, shares of its
common stock, par value $.01 per share (the "IDUL Common Stock"), in exchange
for each share of Broad Faith's common stock, par value $1.00 per share (the
"Broad Faith Common Stock"), issued and outstanding on the date of the
consummation of the exchange. Prior to the closing, approximately 71% of all the
Company's issued and outstanding shares were held directly by Shuput. At the
closing, Dr. Tsui was issued an aggregate of 3,750,187 authorized and unissued
shares of IDUL Common Stock, which shares represented approximately 75% of the
total then issued and outstanding shares of the Company. As part of its
obligations under the Exchange Agreement, the Company was required to increase
its authorized capital stock to at least 100,000,000 shares and to issue to Dr.
Tsui and his designees an additional 10,315,187 shares. The Company subsequently
increased its authorized shares and issued the required additional shares to Dr.
Tsui, resulting in Dr. Tsui's ownership of 92% of the Company, and Shuput's
ownership of approximately 5.5% of the issued and outstanding shares of the
Company. Pursuant to the Exchange Agreement, on the closing date, the Company's
three officers, Shuput, Roberts and Terry, resigned as the Company's officers
and appointed Dr. Tsui as the Chairman of the Board and Chief Executive Officer
and Mr. Weijiang Yu as the President. In addition, Shuput, Roberts and Terry
resigned as the Company's directors and nominated Dr. Tsui, Mr. Yu and Mr.
Zhiyong Xu as the Company's new board of directors, the majority of the
Company's Shareholders approved the nomination. On February 14, 2003 the Board
of Directors appointed Mr. Xu as Secretary of the Company and Ms. Guoqiong Yu as
the Chief Financial Officer and Treasurer of the Company.

On June 10, 2003, the Company acquired an additional 4.24% interest in
Wonderland from Shanghai Sanfeng Investment Management Co., Ltd. in exchange for
665,860 shares of the Company's common stock (par value of $4.00 per share),
valued at $2.65 million, thereby increasing the Company's direct and Indirect
ownership interest in Wonderland to 69.53%.

      Li Sun Power

On March 10, 2003, the Company entered into a sale and purchase agreement for
shares in Li Sun Power International Limited, a company incorporated in the
British Virgin Islands ("Li Sun") with Dr. Kit Tsui, the Company's Chief
Executive Officer, majority shareholder and a director. Dr. Tsui was then also
the sole shareholder of Li Sun, as well as sole shareholder of four
companies who collectively held a 72.84% Wuhan Lixing Power Sources Co., Ltd.
("Lixing Power") as trustees for the benefit of Li Sun. (These trustee
companies are Wuhan Hanhai High Technology Limited, Wuhan City Puhong Trading
Limited, Shenzhen City Xing Zhicheng Industrial Limited and Shenzhen Kexuntong
Industrial Co. Ltd.) Dr. Tsui disclosed his interest in Li Sun to the Company's
Board of Directors prior to conducting the acquisition. After review and
consideration of the terms of the transaction, the Company's Board of Directors
unanimously approved the transaction. Dr. Tsui abstained from the Board approval
of the transaction.

The Company's acquisition of Li Sun was completed on May 14, 2003, and consisted
of the Company's purchase of 100% of the capital stock of Li Sun in exchange for
3,941,358 shares of the Company's common stock valued at $7,567,407.36 as well
as an unwritten promissory note in the amount of $7,662,000, without expiration,
maturity date or interest, payable in cash or the Company's common stock based
on mutual agreement. As a result of this acquisition, the Company now holds a
72.84% interest in Lixing Power.

Lixing Power was incorporated in China in 1993. According to the Lithium Battery
Branch of Physical and Chemical Institute of China, Lixing Power is one of the


                                       6
<PAGE>

pioneers in China's battery industry, specializing in the production and
distribution of lithium and lithium-ion batteries mainly through its subsidiary,
Wuhan Lixing (Torch) Power Sources Co., Limited.

Through its wholly-owned subsidiary, Li Sun Power, and its majority business
interest in Lixing Power, the Company manufactures and markets lithium and
lithium-ion batteries under its own Lixing(R) and Lisun(R) brand-names. It is
also an original equipment manufacturer for more than 15 battery brands,
including ASUSU, Maxon(Korea), Legend, MiTAC, Giga, and Panasonic. These brands
are sold both domestically and overseas. The Company's batteries are marketed
for use in various types of electronic products including calculators, personal
digital assistants, laptop computers, mobile phones and hybrid electric
vehicles. Additionally, the Company manufactures battery testing equipment,
which is sold in both Chinese and global markets.

      Reverse split

On May 12, 2003, the Board of Directors of the Company approved and declared a
one-for-four reverse split of the Company's common stock, effective for all
holders of record on June 2, 2003. As a result of the reverse split, the Company
decreases the number of issued and outstanding shares and increased the market
value of each share commensurately.

CORPORATE STRUCTURE

The Company's corporate structure is as follows:

<TABLE>
<CAPTION>
                                  ----------------------------------
                                    Industries International, Inc.
                                  ----------------------------------
                                                    |
                                   100%             |                  100%
                                    |               |                   |
          ------------------------------------------------------------------
          |                         |                                   |
          |                         |                                   |
          |                         |                                   |
 ------------------   ------------------------------      ------------------------------
<C>                    <C>                                <C>                        <C>
Sunbest Industries        Broad Faith Limited             Li Sun Power International
      Limited                                                         Limited
 ------------------   ------------------------------      ------------------------------
          |                         |                                   |               \
          |                 95%     |                          72.84    |          90%   \
          |           ------------------------------      --------------------     -------------------------
          |               Shenzhen Kexuntong               Wuhan Lixing Power       Shenzhen Chuang Lixing
          |4.24%          Industrial Co. Ltd.               Sources Co. Ltd.        Power Sources Co. Ltd.
          |           ------------------------------      --------------------     -------------------------
          |                         |                                   |
          |               63.73%    |                          70.7%    |
          |           ------------------------------      ------------------------------
          |               Shenzhen Wonderland               Wuhan Lixing (Torch)Power
          -----------    Communication Science                   Sources Co., Ltd.
                         & Technology Co., Ltd.
                      ------------------------------      ------------------------------


</TABLE>


BUSINESS SEGMENTS

The Company has three main business segments: Communications terminal products,
battery products, and battery testing equipment.

      COMMUNICATIONS TERMINAL PRODUCTS

            Products

The Company develops, produces and distributes corded and cordless telephones,
walkie-talkies, hand-to-hand radios and digital voice repeaters that are sold
under the trademark WONDIAL(R).

According to statistics provided by The International Electronic Business
Network of CHINA (www.ebnchina.com), Broad Faith is one of the largest telephone
manufacturers in China. The Company's management believes it ranks among China's
top three cordless telephone producers in terms of assets and production scale.

CORDED TELEPHONES. The Company produces two series of corded telephones, the
HA9000 series and the HCD9000 series of telephone, currently with a total of 17
models in the market ranging in price from $5 to $150. The HA9000 series include
models with relatively little functionality. The HCD9000 series provides more
functionality, including: caller identification display, time display, phone
book, incoming and outgoing call history, a calculator, speed dialing, alarm and
various other features.

CORDLESS TELEPHONES. The Company produces a line of cordless telephones
categorized under its HWCD series, currently offering 12 different models. The
functionalities include channel selection, call history for incoming and
outgoing phone calls, speed dialing, programmable International Direct Dialing


                                       7
<PAGE>

("IDD") lock, auto redial, ringer selection, record and play handset options,
intercom, caller identification display and multiple handset capability. The
models are differentiated by their functions and by the number of handsets that
come with the base unit.

RADIOS AND REPEATERS. We also produce walkie-talkies and hand-to-hand radios
under our WT series of products and, under our FW series of products, we produce
digital voice repeaters for use by students of foreign languages. The digital
voice repeaters are designed to play back words, phrases and sentences in
foreign languages.

AFTER-SALES SERVICE SUPPORT. The Company operates an after-sales service network
in each province and in each major city within China. It also authorizes sales
distributors to set up their own after-sales service networks in such
distributors' business areas. The set up and operation of these service networks
must be approved by the Company and must pass a strict review process. Wondial's
service center and other branch organizations provide technical support to these
networks. Currently there are 28 service centers with more than 200 service
terminals.


            Market, Customers and Distribution

Our products are targeted to consumers and businesses within the People's
Republic of China. According to the National Bureau of Statistics of China, as
of year end 2002, the number of fixed line telephone subscribers reached 214
million subscribers, an increased of 34 million subscribers from year end 2001.
As of the end of the first quarter 2003, statistics revealed that the number of
subscribers reached 225 million, an increase of 11.2 million during just the
first three months of 2003. The Ministry of Information Industry of China
anticipates that the number of fixed line telephone subscribers will be over 490
million by 2010.

The Company supplies the products in this segment to both distributors and
directly to end customers. Industries maintains a nationwide distribution
network that includes 28 independent regional distributors that account for more
than 5,100 points-of-sale in 200 major cities in China. The Company maintains a
team of 40 Wondial primary sales representatives who directly communicate with
Company and 300 secondary sales representatives who are working directly with
primary representatives.

The Company's Chinese distribution network includes major telecommunication
companies, including China Telecom (the largest fixed line operator in China, as
projected by CCID IT-economy Research Institute), China Unicom and China Railway
Communications. Chain stores and supermarkets operating throughout China, such
as Wal-Mart China, Sam's Club and Carrefour's, are also major accounts. Of
these, all of our sales from distributors in this segment account for 24.8% of
our total telecom sales in 2003, Wal-Mart, accounting for 3.2% of total telecom
equipment sales in 2003, and Carrefour's, accounting for 0.2% of total telecom
equipment sales in 2003.

We also distribute our communications products to Hong Kong, Korea, and
Singapore. through distributors in China.

The Company maintains sales agreements with all of its distributors, which are
renewed on an annual basis. The Company believes that it would be able to
replace any of its distributors, if circumstances required.


                                       8
<PAGE>

The Company prices its products based on manufacturing costs plus a mark-up
depending on numerous factors including order size, competition, inventory
considerations and technical attributes. Regional sales agents will set the
second-tier sales agent and end-user price based on the local market situation
with reference to the retail price suggested by the Company. If a severe price
gap occurs, the Company has the right to revise the ex-factory price. The
Company may also change its prices in response to an acute price fluctuation of
raw material, volatile market situations or breakpoint pricing mechanisms.

No other distributors or end customers Individually or as an affiliated group
account for more than 10% of our consolidated revenues.

            Raw materials

The primary components used in manufacturing our products in this segment
include transistors, integrated circuits (which account for 20% of the total
cost), liquid crystal displays, printed circuit boards, antennas, adaptors and
switches. The sources of these components are primarily electronics products
suppliers located in or near Shenzhen City, although certain integrated circuit
and micro-controller units are imported from Hong Kong. While we purchase these
components from a few vendors, the components are produced by over 200
manufacturers in China. As of December 2003, we have outsourced our
manufacturing capabilities and we don't purchase these raw materials directly.

            Intellectual property

For the corded and cordless phone products, the Company has obtained three
Chinese patents for its formal product design:

o     No.01331397.5 "HWCD9000(9C) P/TSDL" issued on June 21, 2001;

o     No.01331395.9 "HWCD9000(8E) P/TSDL" issued on June 21, 2001; and

o     No.01354789.5 "HWCD9000(9)P/TSDL" issued on December 14, 2001.

All patents expire 10 years after issuance. We do not believe that the
expiration of these patents will have a material adverse effect on our business,
because we continually develop new product designs. While we may continue to
file patent applications to protect our technology and products, we cannot be
sure that our patents will provide commercially significant protection to our
technology. We have also trademarked the name "Wondial".

We attempt to avoid infringing known proprietary rights of third parties in our
product development efforts. If we were to discover that our products violate
third-party proprietary rights, we may not be able to offer these products
without substantial re-engineering. Efforts to re-engineer might not be
successful, licenses from the owners of the technology may be unavailable on
commercially reasonable terms, if at all, and litigation may not be avoided or
settled without substantial expense and damage awards.

            Seasonality and cyclicality

This segment does not experience material fluctuations in sales or revenues on a
seasonal or cyclical basis.


                                       9
<PAGE>

            Working capital practices

Our working practice represents the industry standard, and, to its knowledge,
the Company does not experience any unusual working capital requirements. The
Company is not required to maintain inventory allotments for any purpose, and
neither customers nor external distributors are generally permitted to return
merchandise after delivery. Company policy permits customer discount if there
are product quality issues. Accounts receivable are generally carried for a
period between 60 and 90 days, and accounts payable are generally carried for a
period of 30 days.

            Backlog

The Company did not have any backlog as of December 31, 2003.

            Government renegotiation

There are no material portions of the Company's business that may be subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any government.

            Revenues

For the fiscal year ended December 31, 2003, the communications terminal
products segment revenues totaled $37.9 million, or 64.5% of net sales.


      BATTERY PRODUCTS

Through Li Sun Power, the Company designs and manufactures disposable and
rechargeable lithium and lithium-ion batteries that are used in instruments,
meters, computers, cameras and similar battery-powered devices. With 47 models
of disposable batteries and 33 models of rechargeable batteries, the Company
currently produces over 20 million batteries annually. Li Sun Power is certified
by International Organization for Standardization as an ISO 9001 and ISO 14001
manufacturers.

            Products

DISPOSABLE LITHIUM BATTERIES. The Company produces 47 different models of
disposable lithium batteries which can be generally divided into the following
three categories: lithium manganese dioxide button-type, lithium manganese
dioxide cylindrical and lithium thionyl chloride. 36 of the 47 models are
currently being marketed . The remaining eleven models are currently in
development stage, as additional engineering is still required.

            Lithium Manganese Dioxide Button-Type

This type of battery provides 3 volts of power (double the amount of
conventional dry batteries) with relatively stable and relatively reliable
discharge of energy. It possesses fast pulse discharge characteristics as well
as an operating temperature range from -20(degree)C to 60(degree)C. This battery
also maintains good storage characteristics with a low self-discharge rate of
less than 2%, which permits a shelf life of up to eight years.


                                       10
<PAGE>

            Lithium Manganese Dioxide Cylindrical

Based on the Company's experimental results, this battery provides voltage
ranging between 2.8 and 3.2, with a high current discharge and no voltage delay,
and an operating temperature range between -40(degree)C and 70(degree)C. This
battery also maintains a long storage life, averaging eight years, due to a low
self-discharge rate, as well as and good safety and zero pollution
characteristics.

            Lithium Thionyl Chloride

This battery provides a voltage of 3.6 with a high specific capacity of
500wh/kg, 1000wh.dm3 and an operating temperature range between -40(degree)C and
85(degree)C. These batteries have a low self-discharge rate (no more than 1%)
providing a shelf life of up to 10 years.


--------------------------------------------------------------------------------
DISPOSABLE LITHIUM
BATTERIES
--------------------------------------------------------------------------------
TYPE                       COMMON APPLICATIONS
--------------------------------------------------------------------------------
Lithium Manganese Dioxide  Watches, calculators, IC cards (plastic cards with
Button-Type Battery        semiconductor chips inside, commonly used as debit
                           cards)and electronic dictionaries

Lithium Manganese Dioxide  Cameras, radios, CMOS memory backup and
Cylindrical Battery        communication devices for both civil and
                           military use

Lithium Thionyl Chloride   Gas meters, clocks, CMOS memory backup and a wide
Battery                    range of electronic devices such as alarms, night
                           latches, range finders, and intelligence instruments
--------------------------------------------------------------------------------

RECHARGEABLE LITHIUM BATTERIES. The Company produces 33 different models of
rechargeable lithium-ion batteries which can be generally divided into the
following three categories: button type lithium-ion, prismatic lithium-ion and
large capacity lithium-ion. 28 of the 33 models are currently being marketed.
The remaining five models are currently in development stage, as additional
engineering is still required.

            Button-Type Lithium-ion

In 2002, the Company successfully developed a proprietary and patented
button-type lithium-ion battery, which the Company believes is one of a few high
capacity button-type batteries available in China. This battery provides an
average voltage of 3.7, with a low self-discharge rate of less than 10%. These
rechargeable batteries have an average of 500 life cycles, and do not have a
"memory effect" (they do not require discharge before recharge). The batteries
have an operating temperature range of -20(degree)C to 60(degree)C.

            Prismatic Lithium-ion

This battery, which is larger than the button-type battery, possesses many of
the same characteristics as the button-type but is packaged in a larger, high
energy density battery pack. This battery provides average voltage of 3.7 with
expedient discharge and charge cycles. This battery has a low self-discharge
rate of less than 10%, no memory effect, and an operating temperature range of
-20(degree)C to 60(degree)C.

                                       11
<PAGE>

            Large Capacity Lithium-ion

The Company also produces and develops a wide range of large capacity
lithium-ion batteries. These batteries have a wide range of continuous discharge
current applications, ranging from small power applications of 3 amperes to high
power applications of 120 amperes. These batteries also maintain an extremely
long life cycle (500 or more times longer than standard capacity lithium-ion
batteries) and an operating temperature range between -20(degree)C to
60(degree)C.

--------------------------------------------------------------------------------
RECHARGEABLE LITHIUM BATTERIES
--------------------------------------------------------------------------------
TYPE                       COMMON APPLICATIONS
--------------------------------------------------------------------------------
Button- Type Battery       Mobile telephones, laptop computers, personal digital
Lithium-Ion Battery        assistants and electronic notebooks

Prismatic Lithium-Ion      Mobile telephones, laptop computers, personal digital
Battery                    assistants and electronic notebooks

Lithium-Ion Power Battery  Motor scooters, miners' lamps, electric bicycles and
                           hybrid electric vehicles
--------------------------------------------------------------------------------

            Market

As a result of its wide range of high-end battery products, the Company has
developed a broad customer base in both Chinese and overseas markets. At
present, about 20% of the Company's battery revenue is generated from export of
products to Hong Kong, Taiwan, U.S., Singapore, New Zealand and other countries.
As an OEM manufacturer of batteries under other brand names, the Company has
established a long-term cooperative relationship with a number of locally and
internationally well-known companies for manufacturing batteries customized to
their specific design and functional requirements.

                  Lithium Manganese Button-Type Battery

The lithium manganese button-type battery has numerous applications, including
electronic gift items, watches, electronic diaries and dictionaries. The Company
estimates total lithium manganese button-type battery demand in China to be
approximately 120 million pieces per year. In 2002, Lixing Power sold
approximately 60 million pieces of lithium manganese button-type batteries to
computer main board manufacturers and the Company anticipates its sales volume
for this battery type will increase to 100 million and 150 million in 2003 and
2004 respectively.

                  Lithium Manganese Dioxide Cylindrical Battery

Major applications for this type of battery include radios, cameras, and civil
and military telecommunication equipment. Based on statistics published by China
Industrial Association of Power Sources (CIAPS) with respect to sales of such
batteries in 2001 and 2002, the Company estimates global market demand for this
type of battery to be about 200 million pieces per year. Lixing Power sold about
500,000 pieces of these batteries in 2002. However, according to sales orders
received, the Company believes that sales volume of 2003 may increase to 1
million pieces.

                  Prismatic Lithium-ion Batteries

A major application for this type of battery is mobile phones. Customers include
mobile phone manufacturers and battery pack manufacturers. According to the 20th
International Seminar & Exhibit on Primary & Secondary Batteries on March 17,
2003 in Florida, USA, it is estimated that the global production of prismatic


                                       12
<PAGE>

lithium-ion batteries is approximately 1.255 billion batteries and the
production of the prismatic lithium-ion batteries for cell phone use is
approximately 700 million batteries in 2003. Lixing Power anticipates sales of
approximately six million prismatic lithium-ion batteries in 2003. Additional
applications for this type of battery are PDAs and other handheld devices. The
Development Research Center of the State Council of China estimates that the
production of prismatic lithium-ion batteries in China will reach 100 million
pieces in 2003. While NiCh rechargeable batteries have traditionally been used
in portable equipment, the prismatic lithium-ion battery is quickly replacing
the NiCh rechargeable battery and, as a result, the Company believes that the
market share of the prismatic lithium-ion battery will substantially increase.

                  Lithium-ion Button Type Batteries

These batteries are mainly used in such micro portable equipment as mobile
phones, laptop computers, PDAs and electronic diaries. Lixing Power's patented
batteries are also used to power wireless earphones. Lixing Power will upgrade
its existing LIR2450 II battery (110 MAH) to LIR2450 [II] which has a capacity
of 180 to 240 MAH. Lixing Power also plans to upgrade the capacity of its
LIR2450 II battery from 110 MAH to 180~240 MAH. The Company has enjoyed
proprietary technology and competitive advantage due to early entry into this
market niche. With the increased use of blue tooth technology, the Company
believes this market will increase rapidly.

                  Lithium-ion Power Battery

The applications of these batteries are categorized by application in (1) high
capacity batteries which are mainly used in electric tools and bicycles; and (2)
high power batteries which are mainly used for hybrid electric vehicles.
According to a report on www.ntem.com.cn, it is estimated that approximately 300
million vehicles will use high power batteries by 2020. Lixing Power's new
lithium-ion power batteries have passed Chinese national certification and are
in the expansion phase of development. The Company's sales of lithium-ion power
batteries for the first six months of 2003 are approximately 20,000 pieces. The
Company believes that it is a leader in this technology, with more than 3 years
of marketing experience and is the only company that has passed military
certification for this type of battery. As a result, the Company believes there
are very few competitors that can compete with the Company with respect to this
technology. The Company believes that it can capture approximately 50% of the
market share for this type of battery in the near future.

The Company prices its products based on manufacturing costs plus a mark-up
depending on numerous factors including order size, competition, inventory
considerations and technical attributes. Regional sales agents will set the
second-tier sales agent and end-user price based on the local market situation
with reference to the retail price suggested by the Company. If a severe price
gap occurs, the Company has the right to revise the ex-factory price. The
Company may also change its prices in response to an acute price fluctuation of
raw material, volatile market situations or breakpoint pricing mechanisms.

                  Raw materials

The primary components used in manufacturing our products in this segment
include cobalt acid lithium, polymer organic foam, graphite and protection
shields. The sources of these components are primarily chemical suppliers
located in or near China. If a source for one or more of the components was to
fail, we believe that we can find several other cobalt acid lithium suppliers in


                                       13
<PAGE>

China. We primarily import our cobalt from South Africa. In case there is a
shortage of cobalt, all of the batteries manufactures will be affected
negatively.

One of the materials required for production is the protection shield, which is
used in manufacturing rechargeable lithium-ion batteries. The protection shield
is a common chemical material, but processing equipment requires a high
investment, as it needs to be processed into a thinner shield with a high
precision requirement. As a result, there are very few manufacturers in the
world who are willing and able to produce this kind of shield, resulting in
periodic supply shortages. In the event of a supply shortage, the Company can
find alternative vendors who can provide us with the protection shield.

With respect to all other materials required for the production of batteries,
all materials are widely available, and restrictions in supply are generally not
anticipated.

None of the Company's suppliers accounts for 10% or more of inventory or 10% or
more of expenditures.


                  Intellectual property

For the batteries products, the Company has obtained 12 Chinese patents for
product design and production methodologies for making lithium and lithium-ion
batteries:

o     No. 96211676 "Siren Lights for Bicycles" issued on May 10, 1996;
o     No. 97241178.X "Button- Type Lithium Ion Battery" issued on August 18,
      1997;
o     No. 97241378.2 "Automatic Assembling Equipment for Button-Type Battery"
      issued on October 15, 1997;
o     No. 99238457.5 "Lithium Battery with Safety Shield" issued on September 8,
      1999;
o     No. 99238456.7 "Safety Shield for Lithium Battery" issued on September 8,
      1999;
o     No. 00229552.0 "Automatic Cleaning Machine for Button-Type Battery" issued
      on March 31, 2000;
o     No. 01250166.2 "Fixing Device for Mobile Phone Batteries" issued on July
      25, 2001;
o     No. 01251640.6 "Button-Type Lithium-ion Battery" issued on August 22,
      2001;
o     No. 01252383.6 "Explosion-Proof Lithium-ion Batteries" issued November 8,
      2001;
o     No. 02228570.9 "Explosion-Proof Lithium Batteries" issued on March 7,
      2002;
o     No. 02228572.5 "Cross-Folded Core for Button-Type Lithium Ion Batteries"
      issued on March 7, 2002; and
o     No. 02228571.7 "Electrode for Button-Type Batteries" issued on March 7,
      2002.

All patents expire 10 years after issuance. We do not believe that the
expiration of these patents will have a material adverse effect on our business,
because we continually develop new product designs. While we may continue to
file patent applications to protect our technology and products, we cannot be
sure that our patents will provide commercially significant protection to our
technology.

We attempt to avoid infringing known proprietary rights of third parties in our
product development efforts. If we were to discover that our products violate
third-party proprietary rights, we may not be able to offer these products
without substantial re-engineering. Efforts to re-engineer might not be
successful, licenses from the owners of the technology may be unavailable on
commercially reasonable terms, if at all, and litigation may not be avoided or
settled without substantial expense and damage awards.

                                       14
<PAGE>

                  Seasonality and cyclicality

In general, there is no clear seasonality affect on our revenues. Sales are
slightly lower during the first quarter due to Chinese New Year holiday. Export
sales are usually higher in the second quarter. Sales generally increase in the
fourth quarter due to the Christmas holiday.

                  Working capital practices

Our working practice represents the industry standard, and, to its knowledge,
the Company does not experience any unusual working capital requirements. The
Company is not required to maintain inventory allotments for any purpose, and
neither customers nor external distributors are generally permitted to return
merchandise after delivery. Company policy permits customer discount if there
are product quality issues. Accounts receivable are generally carried for a
period between 60 and 90 days, and accounts payable are generally carried for a
period of 30 days.

                  Customers and Distribution

We supply the products in this segment to both distributors and directly to end
customers. We have sales agreements with all of our distributors and contracts
are usually renewed on an annual basis. Li Gao International Company d/b/a Team
Sirplus Limited accounted for over 10% of our battery revenue in 2003. We
believe that we would be able to replace this distributor, or any of our
distributors, if circumstances required.

No other distributors or end customers Individually or as an affiliated group
account for more than 10% of our consolidated revenues.

                  Backlog

The Company did not have any backlog as of December 31, 2003.

                  Government renegotiation

There is no material portion of the company's business that may be subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any government

                  Revenues

For the fiscal year ended December 31, 2003, the batteries segment revenues
totaled $13.4 million, or 22.7% of net sales.

      BATTERY TESTING EQUIPMENT

Through Li Sun Power, the Company designs and manufactures program-controlled
specialized testing equipment for use in laboratories and technology research
institutes for high-precision testing of chemical composition and functioning
capacity of batteries. The professional testing equipment is specially designed
for use in laboratories and technology research institutes for high-precision
testing of electrode and electric capacity.

                                       15
<PAGE>

            Products

--------------------------------------------------------------------------------
BATTERY TESTING EQUIPMENT
--------------------------------------------------------------------------------
TYPE                        TESTING APPLICATIONS
--------------------------------------------------------------------------------
Professional Testing       High precision electrode and electric capacity of use
Equipment                  in laboratories and technology research institutes.

Large-Scale Chemical       Chemical composition and/or capacity testing of
Composition Testing        Lithium-ion and NiMH batteries.
Equipment

Mobile Phone Battery       All prismatic Lithium-ion, NiCd and NiMH rechargeable
Testing Equipment          batteries.
---------------------------------------------------------------------------


                  Market and Distribution

The Company markets its testing equipment to research institutes and batteries
manufacturers.

The Company also uses its testing equipment internally for its communications
and battery operations.

The Company prices its products based on manufacturing costs plus a mark-up
depending on numerous factors including order size, competition, inventory
considerations and technical attributes. Regional sales agents will set the
second-tier sales agent and end-user price based on the local market situation
with reference to the retail price suggested by the Company. If a severe price
gap occurs, the Company has the right to revise the ex-factory price. The
Company may also change its prices in response to an acute price fluctuation of
raw material, volatile market situations or breakpoint pricing mechanisms.


We distribute our products through local sales offices. Company sales offices
are located in various cities around the country. The obtained the orders from
customers or distributors and the Company deliver products directly to the
distributors or customers. No distributor accounts for more than 10% of the
Company's consolidated revenues.

                  Raw materials

The primary components used in manufacturing our products include frequency
stabilizer, integrated circuit and other basic electronic components The sources
of these components are primarily electronics products suppliers located in or
near China. Battery testing equipment is composed of several basic electronic
components and automation core software, therefore, we usually do not experience
any shortage of supplies. With respect to all other materials required for the
production of testing equipment, all materials are widely available, and
restrictions in supply are generally not anticipated.

There is no supplier contract accounting for more than 10% of the Company's
inventory or expenditures.

                                       16
<PAGE>

                  Intellectual property

For the testing equipment products, the Company has obtained 1 Chinese patent
for battery testing equipment:

o     No. 01251641.4 "Digital Intelligent Battery Testing Instrument" issued on
      August 22, 2001.

This patent expires 10 years after issuance. We do not believe that the
expiration of these patents will have a material adverse effect on our business,
because we continually develop new product designs. While we may continue to
file patent applications to protect our technology and products, we cannot be
sure that our patents will provide commercially significant protection to our
technology.

We attempt to avoid infringing known proprietary rights of third parties in our
product development efforts. If we were to discover that our products violate
third-party proprietary rights, we may not be able to offer these products
without substantial re-engineering. Efforts to re-engineer might not be
successful, licenses from the owners of the technology may be unavailable on
commercially reasonable terms, if at all, and litigation may not be avoided or
settled without substantial expense and damage awards.

                  Seasonality and cyclicality

This segment does not experience material fluctuations in sales or revenues on a
seasonal or cyclical basis.

                  Working capital practices

Our working practice represents the industry standard, and, to its knowledge,
the Company does not experience any unusual working capital requirements. The
Company is not required to maintain inventory allotments for any purpose, and
neither customers nor external distributors are generally permitted to return
merchandise after delivery. Company policy permits customer discount if there
are product quality issues. Accounts receivable are generally carried for a
period between 60 and 90 days, and accounts payable are generally carried for a
period of 30 days.

                  Customers

We supply the batteries testing equipment to research institutes and batteries
manufacturers, as well as a number of our battery manufacturing competitors.

No customers Individually or as an affiliated group account for more than 10% of
our consolidated revenues. .

                  Backlog

The Company did not have any backlog as of December 31, 2003.

                  Government renegotiation

There is no material portion of the company's business that may be subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any government.

                                       17
<PAGE>

                  Revenues

For the fiscal year ended December 31, 2003, the testing equipment segment
revenues totaled $7.64 million, or 12.9% of net sales.


FUTURE PRODUCTS

                  The Company has its own in-house design team for new product
                  development. The Company is currently developing new products,
                  and it expects to introduce into a series of new products into
                  the market during the next 12 months. These include:

High-end Corded and Cordless Telephones

The Company has designed and plans to develop Internet Phones that enable the
user to surf the Internet, corded telephones with extended features and a number
of new cordless phones with additional functionalities. The functionalities
include a new model phone with message recorders, one with an integrated desk
lamp for office use and a specialized 900MHz model for the export market. The
Company also plans to introduce new models of voice dialing corded and cordless
phones, which provide the user with the option to utilize voice activation
functionality.

Digital Cordless Telephones

The Company designed and plans to develop a 2.4 GHz Digital Signal Spread
("DSS") cordless telephone for both residential and commercial users. For
commercial users, the model will comply with the DSS-WPBX standard that will
enable the users to communicate with each other within the same area PBX using
his cordless headsets without incurring any charges, except when used to call an
external number. The DSS digital cordless phones will provide users with higher
quality communications and better security within a longer distance and wider
range.

Multi-Function Videophones

The Company plans to design and develop a line of videophones. The phones will
integrate the existing function of ordinary telephone networks and computer
terminals by utilizing the PC as the operation platform and the USB connector to
connect a telephone to such PC. In addition, software will be developed for the
videophone and synchronizing data transmission. The Company believes that the
design provides a low cost solution to the requirements of video transmission
under the existing narrow band telecommunication network.

New Walkie-Talkies

The Company has designed and plans to develop three new models of
walkie-talkies. The models include units with additional features, including a
built-in radio for public radio broadcast, a weather forecast message display
and an increased communication range of 15 kilometers.

Polymer Lithium-ion Battery

Polymer lithium-ion batteries use solid organisms as a medium. Its features
include small size, easy to transform, large capacity and low weight. The
Company believes that this type of battery will be widely used in the electric
car, the mobile telephone, laptop, digital camera and other portable electric


                                       18
<PAGE>

products This battery's capacity is higher than the liquid lithium-ion battery,
is easier to decrease, easier to transform and safer to use.

High-Power Motor Battery

The high-power motor battery is a type of the lithium-ion battery. This
battery's monocase power can be over 2AH, making it useful for powering lighting
and driving motors. High-power motor batteries are used in mine lamps, field
lightening power, laptop computers, electric bikes, electric cars and military
radios. With global trends leaning toward clean energy, the Company believes
that this battery will replace small and medium-sized lead-acid batteries in the
near future and will be widely used in consumer electronics, field
telecommunications and lighting.

Test equipment for high-power lithium-ion battery and fuel battery

As high-power lithium-ion batteries and fuel batteries become the
environmentally-friendly standard, battery manufacturers will require test
equipment for these markets.

QUALITY CONTROL

The Company has always paid significant attention to the quality assurance
systems and all performance Indicators meet international standards and pass the
examination of the national level includes GB12196-90, GB/T15279-94, GB12198-90,
and GB/T17113-1997. The GB2828-2829-87 standard was adopted for export goods.
The Company's production is in compliance with ISO9002. During the production
process, the Company pays significant attention to quality control and cost
control. According to production flow requirements, quality control points have
been set up in key production processes and professionals are assigned to
monitor the quality and flow of these processes. The Company has employed
significant labor and capital investment to set up the comprehensive quality
control system to ensure the quality of its products. Production of primary
lithium batteries is fully automated and performed by machineries, while
secondary lithium battery production is performed by automated assembly lines,
which are highly engineered and closely monitored to ensure product quality.

The Company holds vendor qualification committee meetings every three months.
The vendors are assessed according to their quality improvement notice,
purchasing order and procure agreement in the previous three months to verify
such terms as quality, delivery and co-operation status. All manufacturers are
required to meet ISO9001 quality standards. Vendors meeting the Company's
stringent requirements will be placed on a qualified vendor list. Unqualified
vendors will be eliminated from the qualified vendor list temporarily or
permanently. For the new vendors, the Company will have comprehensive
assessments on their production scale, equipment and quality control. As soon as
the sample material has been approved and confirmed by the testing, the vendor
is listed in the qualified vendor list as a potential supplier.

GOVERNMENTAL APPROVAL AND COMPLIANCE

China has enacted regulations governing telephones and telephone communications.
Pursuant to these regulations, Individuals or entities wanting to sell telephone
equipment or connect to the telephone network in China must obtain certain
permits from the Ministry of Posts and Telecommunications and all
telecommunications equipment must have a network access license. In the past,
the Company has not encountered any difficulty in obtaining such permits and
licenses and is currently holding all the permits and licenses necessary for
manufacturing and selling its products.

                                       19
<PAGE>

No other government regulations or compliance regimes, including environmental
regulations, apply to the Company's business. It cannot be assured that new or
additional regulations will not be enacted which might adversely impact its
operations.

COMPETITION

Many of our competitors are substantially larger than we are and have
significantly greater name recognition and financial, sales and marketing,
technical, customer support, manufacturing and other resources. These
competitors may also have more established distribution channels and may be able
to respond more rapidly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products. Our competitors may enter our existing or future markets with
products that may be less expensive, that may provide higher performance or
additional features or that may be introduced earlier than our products. In the
fiscal year ended December 31, 2003, we continued to be price competitive. We
attempt to differentiate our company from our competitors by working to increase
our brand name recognition, maintaining and enhancing product quality, providing
adequate after-sale service, developing products with appealing functions,
enhancing our distribution channels and keeping our production costs controlled.

There can be no assurance that the Company will be able to compete successfully
with its existing or new competitors. If the Company fails to compete
successfully against current or future competitors, its business could suffer.

      Communications Terminal Products

Competition in the communications equipment market in China is intense. The
market is continually evolving and is subject to changing technology. Our
competitors in China include TCL, Bu Bu Gao and Qiao Xing.

The focus of the competition among these players has changed from one of
advertising and price wars in the past to one of style, image and design today.
The Company's competitive strategy is to focus on innovation in product design
and quality customer services.

Based on a market research conducted by Beijing Guneng Consultancy Co., Ltd.,
the Company estimates that it has captured approximately an 18% market share in
the fixed-line telephone market in China.

      Battery Products

According to the Lithium Battery Branch of Physical and Chemical Institute of
China, the Company is one of the largest lithium and lithium-ion battery
manufacturers in China. Its major competitors include Shenzhen BYD, Tianjin
Lisen, Shenzhen Shun Wo and Shenzhen HYB. Shenzhen BYD is considered to be the
largest battery manufacturer in China with daily production capacity of 300,000
units of Lithium-ion, NiCd and NiMH batteries (Source: Prospectus of Shenzhen
BYD). The Company estimates that the major overseas competitors in the global
market for batteries are Sanyo (about 25% global market share), SONY (about 20%
global market share), Toshiba, Matsushita, NEC, Hitachi and Samsung.

                                       20
<PAGE>

As noted by the China Battery Industry Association, competition in the battery
industry is intense, with Japanese products currently dominating the global
market, especially in the high-end categories. Domestic rivals are principally
manufacturers of conventional nickel batteries.

      Battery Testing Equipment

With respect to the lithium-ion testing equipment, the Company believes its
primary competitors to be Guangzhou Qingtian Industrial co., Ltd. (Qingtian),
Hangzhou Hanke (Hanke) and Lixing Power. The Company believes that Qingtian's
market share is shrinking due to substantial loss of personnel and Hanke just
entered this market. The Company believes that it is the only enterprise
manufacturing both batteries and formation & testing equipment in China which
gives the Company technical and marketing advantages. Based on actual sales
orders, the Company estimates that its market share in providing equipment for
testing lithium battery by manufacturers is approximately 15% in 2002 and 30% in
2003. The Company anticipates its market share to reach 50% within 3 years.
Other possible target markets for battery testing equipment include quality
inspection authorities, research institutes, universities and mobile phone
retailers. With respect to such markets, the only competitor is Tshinghua
University, which the Company believes has limited marketing resources.
According to actual sales, the Company estimates that its market share in China
for providing battery testing equipment to quality inspection authorities,
research institutes, universities and mobile phone retailers is approximately
60%.

EMPLOYEES

We presently have approximately 1,271 employees, of which approximately 1,271
are full time employees. We consider our relations with our employees to be
good.

FINANCIAL INFORMATION ABOUT REPORTING SEGMENTS

For a summary of the Company's net revenue, earnings from operations and total
assets for each of the Company's business segments in each of the last three
fiscal years, please refer to Note 16 to the Consolidated Financial Statement in
Item 8, which is incorporated herein by reference.

GEOGRAPHIC FINANCIAL INFORMATION

During the 2003 fiscal year, 94.2% ($55.7 million) of the Company's revenue was
derived from China. 5.8% ($3.4 million) was derived from all other foreign
markets in the aggregate. Of the Company's foreign sales, no single country
generated a material amount of revenues for the Company.

During the 2002 fiscal year, 95.3% ($52.5 million) of the Company's revenue was
derived from China. 4.7% ($2.6 million) was derived from all other foreign
markets in the aggregate. Of the Company's foreign sales, no single country
generated a material amount of revenues for the Company.

During the 2001 fiscal year, 96% ($40.3 million) of the Company's revenue was
derived from China. 4.0% ($1.7 million) was derived from all other foreign
markets in the aggregate. Of the Company's foreign sales, no single country
generated a material amount of revenues for the Company.

                                       21
<PAGE>

All of the Company's long-lived assets (excluding financial instruments,
long-term customer relationships of a financial institution, mortgage and other
servicing rights, deferred policy acquisition costs, and deferred tax assets)
are located in China.

RISKS ATTENDANT TO THE COMPANY'S FOREIGN OPERATIONS

The following is a summary of risk factors which result from the Company's
operations overseas. Note that these statements relate to future events or
future financial performance. In some cases, forward-looking statements can be
identified by terminology such as "may," "will," "should," "could," "expects,"
"hopes," "believes," "plans," "anticipates," "estimates," "predicts,"
"projects," "potential," or "continue," or the negative of such terms and other
comparable technology. These statements are only predictions. In evaluating
these statements, actual or potential investors should specifically consider
such factors, including the risks outlined below. These factors may cause the
Company's actual results to differ materially from any forward-looking statement
contained herein.

THE COMPANY'S OPERATIONS ARE PRIMARILY LOCATED IN CHINA AND MAY BE ADVERSELY
AFFECTED BY CHANGES IN THE POLICIES OF THE CHINESE GOVERNMENT.

The Company's business operations may be adversely affected by the political
environment in the PRC. The PRC has operated as a socialist state since 1949 and
is controlled by the Communist Party of China. In recent years, however, the
government has introduced reforms aimed at creating a "socialist market economy"
and policies have been implemented to allow business enterprises greater
autonomy in their operations. Changes in the political leadership of the PRC may
have a significant effect on laws and policies related to the current economic
reforms program, other policies affecting business and the general political,
economic and social environment in the PRC, including the introduction of
measures to control inflation, changes in the rate or method of taxation, the
imposition of additional restrictions on currency conversion and remittances
abroad, and foreign investment. These effects could substantially impair the
Company's business, profits or prospects in China. Moreover, economic reforms
and growth in the PRC have been more successful in certain provinces than in
others, and the continuation or increases of such disparities could affect the
political or social stability of the PRC.

THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH THE
COMPANY MUST CONDUCT ITS BUSINESS ACTIVITIES.

The PRC only recently has permitted greater provincial and local economic
autonomy and private economic activities. The government of the PRC has
exercised and continues to exercise substantial control over virtually every
sector of the Chinese economy through regulation and state ownership.
Accordingly, government actions in the future, including any decision not to
continue to support recent economic reforms and to return to a more centrally
planned economy or regional or local variations in the implementation of
economic policies, could have a significant effect on economic conditions in the
PRC or particular regions thereof, and could require the Company to divest the
interests it then holds in Chinese properties or joint ventures. Any such
developments could have a material adverse effect on the business, operations,
financial condition and prospects of the Company.

In addition, while the Company believes that it is unlikely, the Chinese
government may decide not to grant a renewal of Kexuntong's renewable operating
tenure upon its expiration on March 29, 2009. While the Company believes that
renewing the operating tenure is a simple administrative matter, a failure to
renew Kexuntong's renewable operating tenure could have material adverse effect
on the business, operations, financial condition and prospects of the Company.

                                       22
<PAGE>

In the event the Company is unable to fulfill all of its obligations (e.g. make
timely payments when due, etc.) to banks owned and operated by the Chinese
government that have loaned money to the Company, the Chinese government may
significantly interfere with the business and ultimately take steps to liquidate
the Company to pay the debts. The Company believes, however, that liquidation is
the very last resort and happens fairly rarely. Thus, the failure of the Company
to fulfill all of its obligations to such banks could have material adverse
effect on the business, operations, financial condition and prospects of the
Company.

FUTURE INFLATION IN CHINA MAY INHIBIT ECONOMIC ACTIVITY IN CHINA AND ADVERSELY
AFFECT THE COMPANY'S OPERATIONS.

In recent years, the Chinese economy has experienced periods of rapid expansion
and high rates of inflation which have led to the adoption by the PRC
government, from time to time, of various corrective measures designed to
restrict the availability of credit or regulate growth and contain inflation.
While inflation has moderated since 1995, high inflation may in the future cause
the PRC government to impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China, and thereby adversely
affect the Company's business operations and prospects in the PRC.

THE COMPANY MAY BE RESTRICTED FROM FREELY CONVERTING THE RENMINBI TO OTHER
CURRENCIES IN A TIMELY MANNER.

The Renminbi is not a freely convertible currency at present. The Company will
receive nearly all of its revenue in Renminbi, which may need to be converted to
other currencies, primarily U.S. dollars, and remitted outside of the PRC.
Effective July 1, 1996, foreign currency "current account" transactions by
foreign investment enterprises, including Sino-foreign joint ventures, are no
longer subject to the approval of State Administration of Foreign Exchange
("SAFE," formerly, "State Administration of Exchange Control"), but need only a
ministerial review, according to the Administration of the Settlement, Sale and
Payment of Foreign Exchange Provisions promulgated in 1996 (the "FX
regulations"). "Current account" items include international commercial
transactions, which occur on a regular basis, such as those relating to trade
and provision of services. Distributions to joint venture parties also are
considered a "current account transaction." Other non-current account items,
known as "capital account" items, remain subject to SAFE approval. Under current
regulations, the Company can obtain foreign currency in exchange for Renminbi
from swap centers authorized by the government. The Company does not anticipate
problems in obtaining foreign currency to satisfy its requirements; however,
there is no assurance that foreign currency shortages or changes in currency
exchange laws and regulations by the Chinese government will not restrict the
Company from freely converting Renminbi in a timely manner. If such shortages or
change in laws and regulations occur, the Company may accept Renminbi, which can
be held or re-invested in other projects.

FUTURE FLUCTUATION IN THE VALUE OF THE RENMINBI MAY NEGATIVELY AFFECT THE
COMPANY'S ABILITY TO CONVERT ITS RETURN ON OPERATIONS TO U.S. DOLLARS IN A
PROFITABLE MANNER AND ITS SALES GLOBALLY.

Until 1994, the Renminbi experienced a gradual but significant devaluation
against most major currencies, including U.S. dollars, and there was a
significant devaluation of the Renminbi on January 1, 1994 in connection with


                                       23
<PAGE>

the replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system. Since 1994, the value of the Renminbi relative to
the U.S. Dollar has remained stable and has appreciated slightly against the
U.S. dollar. Countries, including the U.S., have argued that the Renminbi is
artificially undervalued due to China's current monetary policies and have
pressured China to allow the Renminbi to float freely in world markets.

If any devaluation of the Renminbi were to occur in the future, the Company's
returns on its operations in China, which are expected to be in the form of
Renminbi, will be negatively affected upon conversion to U.S. dollars. The
Company attempts to have most future payments, mainly repayments of loans and
capital contributions, denominated in U.S. dollars. If any increase in the value
of the Renminbi were to occur in the future, the sales of the Company's products
in China and in other countries may be negatively affected.

THE COMPANY MAY BE UNABLE TO ENFORCE ITS RIGHTS DUE TO POLICIES REGARDING THE
REGULATION OF FOREIGN INVESTMENTS IN CHINA.

The PRC's legal system is a civil law system based on written statutes in which
decided legal cases have little value as precedents, unlike the common law
system prevalent in the United States. The PRC does not have a well-developed,
consolidated body of laws governing foreign investment enterprises. As a result,
the administration of laws and regulations by government agencies may be subject
to considerable discretion and variation, and may be subject to influence by
external forces unrelated to the legal merits of a particular matter. China's
regulations and policies with respect to foreign investments are evolving.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks that the Company will not be able to achieve its
business objectives. There can be no assurance that the Company will be able to
enforce any legal rights it may have under its contracts or otherwise.

THE COMPANY MUST OBTAIN LICENSES OR PERMITS FOR ITS PRODUCTS FROM THE CHINESE
GOVERNMENT.

China has enacted regulations governing telephones and telephone communications.
Pursuant to these regulations, individuals or entities desiring to sell
telephone equipment or connect to the telephone network in China must obtain
certain permits from the Ministry of Posts and Telecommunications and all
telecommunications equipment must have a network access license. In the past,
the Company has not encountered any difficulty in obtaining such permits and
licenses and is currently holding all the permits and licenses necessary for
manufacturing and selling its products. The Company intends to work diligently
to assure compliance with all applicable government regulations that impact its
business. The Company cannot assure you, however, that additional regulations
will not be enacted which might adversely impact the Company's operations.

RISKS FROM THE RECENT OUTBREAK OF SEVERE ACUTE RESPIRATORY SYNDROME IN VARIOUS
PARTS OF MAINLAND CHINA, HONG KONG AND ELSEWHERE.

Since early 2003, mainland China, Hong Kong and certain other countries, largely
in Asia, have been experiencing an outbreak of a new and highly contagious form
of atypical pneumonia, now known as severe acute respiratory syndrome, or SARS.


                                       24
<PAGE>

This outbreak has resulted in significant disruption to the lifestyles of the
affected population and business and economic activity generally in the affected
areas. Areas in mainland China that have been affected include areas where the
Company has business and management operations. Although the outbreak is now
generally under control in China, the Company cannot predict at this time
whether the situation may again deteriorate or the extent of its effect on the
Company's business and operations. The Company cannot assure that this outbreak,
particularly if the situation worsens, will not significantly disrupt the
Company's staffing or otherwise generally disrupt the Company's operations,
result in higher operating expenses, severely restrict the level of economic
activity generally, or otherwise adversely affect products, services and usage
levels of the Company's products and services in affected areas, all of which
may result in a material adverse effect on the Company's business and prospects.

CONTROVERSIES AFFECTING CHINA'S TRADE WITH THE UNITED STATES COULD HARM THE
COMPANY'S RESULTS OF OPERATIONS OR DEPRESS THE COMPANY'S STOCK PRICE.

While China has been granted permanent most favored nation trade status in the
United States through its entry into the World Trade Organization, controversies
between the United States and China may arise that threaten the status quo
involving trade between the United States and China. These controversies could
materially and adversely affect the Company's business by, among other things,
causing the Company's products in the United States to become more expensive
resulting in a reduction in the demand for our products by customers in the
United States. Political or trade friction between the United States and China,
whether or not actually affecting our business, could also materially and
adversely affect the prevailing market price of the Company's common shares.

IT MAY BE DIFFICULT FOR SHAREHOLDERS TO ENFORCE ANY JUDGMENT OBTAINED IN THE
UNITED STATES AGAINST THE COMPANY, WHICH MAY LIMIT THE REMEDIES OTHERWISE
AVAILABLE TO THE COMPANY'S SHAREHOLDERS.

Substantially all of the Company's assets are located outside the United States.
Almost all of its current operations are conducted in China. Moreover, most of
the Company's directors and officers are nationals 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 shareholders to effect service of process within the United States
upon these persons. In addition, there is uncertainty as to whether the courts
of China would recognize or enforce judgments of United States courts obtained
against the Company or such officers and/or directors predicated upon the civil
liability provisions of the securities law of the United States or any state
thereof, or be competent to hear original actions brought in China against the
Company or such persons predicated upon the securities laws of the United States
or any state thereof.


REPORTS TO SECURITY HOLDERS AND WHERE YOU CAN FIND MORE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and must file annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission.
Accordingly, the Company files such reports with the U.S. Securities and
Exchange Commission (SEC). In addition, the Company files reports for matters
such as material developments or changes within us, changes in beneficial
ownership of officers and director, or significant shareholders. These filings
are a matter of public record and interested members of the public may read and
copy any materials filed by the Company with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and may obtain


                                       25
<PAGE>

information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers, including the Company, that file
electronically with the SEC.

The Company maintains an administrative office located at 111 Pavonia Avenue,
Suite 615, Jersey City New Jersey. The purpose of the office to maintain
investor relationships in the U.S. and work with corporate and securities
attorneys to comply with SEC rules.

No person is authorized to give you any information or make any representation
other than those contained or incorporated by reference in this Form 10-K. Any
such information or representation must not be relied upon as having been
authorized. Delivery and/or filing of this Form 10-K shall, under no
circumstances, create any implication that there has been no change in the
Company's affairs since the date of filing.

ITEM  2. PROPERTY

The Company owns the six-story Wondial Building located at Keji South 6 Road,
Shenzhen High-Tech Industrial Park, Shennan Road, Shenzhen, China in which our
headquarters offices are located. 72,000 square feet of this building,
representing approximately 72% of its capacity, is rented out to a private
company affiliated with a government agency, Shanghai Sheng Bang Inspection
Ltd., for administrative offices. This lease was executed in September 16, 2003
and expires in November 15, 2006, for which the Company receives a monthly rent
of $17,742. This lease renews at the option of both parties.

The Company has rented a more than 15,000 square feet of manufacturing capacity
for battery production in Shenzen, China. The annual capacity for the facility
is to produce 12 million units of prismatic lithium-ion batteries used on cell
phone. The Company believes the building will be suitable for our needs during
the next twelve months, with annual projected sales of approximately $15
million.

The Company also owns and maintains three operating and manufacturing
facilities: one testing equipment production facility with about 3000 square
feet of manufacturing capacity, and two batteries production facilities for
batteries production with a total of 5000 square feet of manufacturing capacity.
All of the three facilities are located in located in Wuhan City, Hubei Province
of China. In 2003 we produced 94.6 million units of batteries and 16,258 sets of
testing equipment and 6.6 million lithium-ion batteries. In 2002, the Company
produced 82.5 million pieces of primary lithium batteries, 54,000 sets of
battery testing equipment and 3.5 million pieces of lithium-ion batteries.

ITEM  3. LEGAL PROCEEDINGS

The Company is not subject to either threatened or pending litigation, actions
or administrative proceedings.

ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 18, 2003, the Company filed an information statement on Form 14C
authorizing the Company to increase its authorized preferred stock from
2,500,000 to 15,000,000. The matter was approved by joint written consent by the
Board of Directors by a majority of the stockholders on October 29, 2003. The
consenting stockholders consisted of 4 stockholders owning an aggregate of
12,234,929 shares, or 51.52%, of the 23,748,292 shares of common stock issued
and outstanding as of October 29, 2003.

                                       26
<PAGE>

                                     PART II

ITEM  5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Our common stock is traded on OTC Bulletin Board under the symbol
"IDUL.OB". The following table sets forth the range of high and low bid
quotations for each of quarter of the last two fiscal years, adjusted to reflect
the one-for-four reverse split effected May 12, 2003. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.


                                                            HIGH     LOW
                                                            ----     ---
FISCAL YEAR ENDED 2002
   March 31, 2002.........................................
   June 30, 2002..........................................
   September 30, 2002.....................................
   December 31, 2002......................................

                                                            HIGH     LOW
                                                            ----     ---
FISCAL YEAR ENDED 2003
   March 31, 2003.........................................  4.84     0.20
   June 27, 2003  (June 30 is a holiday)..................  6.00     1.01
   September 30, 2003.....................................  3.50     1.30
   December 31, 2003......................................  3.17     2.05

Note: Industries International Inc.'s reverse merger was completed on February
10, 2003.

      Holders

As of March 23, 2004, there were approximately 2100 stockholders of record of
our common stock and no stockholders of record of our Preferred Stock.


      Dividends

The Company has never declared dividends or paid any cash dividends on our
capital stock and currently intends to retain all future earnings, if any, for
use in the operation and development of our business. Shareholders should not
expect the Company to declare or pay any cash dividends on our common stock in
the foreseeable future.

      Equity Compensation Plan Information

As of December 31, 2003, our equity compensation plans were as follows:

During the fiscal year 2003, IDUL has granted various stock options and
stock-based awards under (1) the EI Plan and (2) the PS Plan.

                                       27
<PAGE>

      EI Plan

The EI Plan is an equity incentive plan approved by the Company's stockholders
on April 7, 2003 and registered on Form S-8 on May 9, 2003 (File No.:
333-105117). The EI Plan is intended to provide incentives to attract, retain
and motivate both eligible employees and directors of the Company, as well as
consultants, advisors and independent contractors who provide valuable services
to the Company.

Initially, 3,750,000 shares of IDUL's common stock were reserved for issuance
under the EI Plan. On October 2, 2003, a further 5,000,000 shares of IDUL are
reserved under the EI Plan. Under the EI Plan, awards may consist of grants of
options to purchase our common stock (either Incentive Stock Options (for
eligible persons) or Non-Qualified Stock Options, as each is defined in the
Internal Revenue Code), grants of restricted common stock, or grants of
unrestricted common stock.

Stock options have been granted to officers, other employees and directors to
purchase shares of common stock pursuant to the EI Plan at or above 85% of the
market price of IDUL's common stock at the date of issuance. Generally, these
options, whether granted from the current plans, become exercisable over
staggered periods, but expire after 10 years from the date of the grant. On May
13, 2003, 425,000 and 125,000 unrestricted stock options were issued to
directors of the Company and a non-employee respectively.

      PS Plan

The PS Plan refers to a plan devised by Dr. Kit Tsui, the Company's principal
stockholder, pursuant to which he may grant stock awards to various parties,
including employees and business associates, to enhance or maintain the value of
his investment. This unwritten, informal program was set up solely by Dr. Tsui
to award the Company employees, consultants, middle agents such as accounts,
counsels and professional service providers, and shares are granted from
restricted shares previously issued to Dr. Tsui in conjunction with the reverse
merger. The employee candidates are proposed by management in different areas to
the top management team. The final award decisions are made by Dr. Kit Tsui and
other members of management. None of the shares granted pursuant to the PS Plan
are issued by the Company. Please refer to Note 15 (2) of the Company's
consolidated financial statements for details.

      Equity Compensation Plan Table

The following table sets forth information regarding our compensation plans and
Individual compensation arrangements under which our equity securities are
authorized for issuance to employees or non-employees (such as directors,
consultants, advisors, vendors, customers, suppliers or lenders) in exchange for
consideration in the form of goods or services.


                                       28
<PAGE>



       Plan Category            Number of
                              securities to
                              be issued upon
                               exercise of     Weighted-average     Number of
                               outstanding    exercise price of    securities
                                 options,        outstanding        remaining
                               warrants and   options, warrants   available for
                                  rights          and rights     future issuance

Equity Compensation Plans       8,750,000            5.6             786,115
approved by security
holders.

Equity Compensation Plans
not approved by security
holders.
                       TOTAL    8,750,000                            786,115


      Restricted Offerings

On February 25, 2004, the Company completed a private equity financing pursuant
to which it raised gross proceeds of $5,800,000. The financing was arranged by
HPC Capital Management Corporation, an investment banking firm and fund manager,
which received a net commission of 6.5% of the total gross proceeds. The
transaction was a unit offering, pursuant to which each investor received a unit
comprised of one share of restricted common stock and warrants convertible into
0.3 shares of restricted common stock, resulting in the placement of an
aggregate of 2,521,745 shares of restricted common stock and warrants
convertible into an additional 756,530 shares of restricted common stock. The
warrants have an exercise price of $2.70 per share and expire on February 25,
2007. Twelve investors participated in the transaction. On March 1, 2004, the
Company filed a current report on Form 8-K disclosing that it had completed a
private equity financing pursuant to which it raised gross proceeds of
$5,800,000. In that report, the Company correctly reported that it had issued a
total of 2,521,745 shares of common stock together with warrants to purchase an
additional 756,530 shares of common stock. The price per unit was correctly
reported as $2.30, but the warrant exercise price was incorrectly reported as
$2.70 per share. The warrant exercise price is $2.7601 per share.


Each and all of the investors were accredited, as defined in the Securities Act
of 1933, as amended (the "Securities Act"), and this transaction was conducted
pursuant to Section 4(2) and Regulation D of the Securities Act. Neither the
Company nor HPC Capital Management Corporation conducted a public solicitation
in connection with the offer, purchase and/or sale of these securities, no
advertisement was conducted with respect to this issuance in any public medium
or forum, HPC offered the shares on behalf of the Company only to investors who
(1) qualified as "accredited investors" within the meaning of the Securities Act
of 1933, as amended, and (2) had previously expressed an interest in
participating in an offering of the type and manner conducted, and none of the
shares issued were offered in conjunction with any public offering.


      Repurchase Plan

On December 9th 2003, the Company announced its plan to buy back 500,000 shares
of its outstanding common shares. Subsequently, the Company entered into a
purchase agreement with a shareholder who owned 200,000 shares. Agreement is
attached as an exhibit. The Company purchased the shares and reduced the number
of shares outstanding. The average price paid by the Company is $2.9.

                                       29
<PAGE>

ITEM  6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements. The information set forth below is
not necessarily indicative of results of future operations, and should be read
in conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and notes thereto included in Item 8, "Financial Statements and Supplementary
Data," of this Form 10-K in order to understand fully factors that may affect
the comparability of the financial data presented below.

<TABLE>
<CAPTION>
                                   2003       2002         2001        2000       1999
                                   USD        USD          USD         USD         USD
      For year ended December 31:
<S>                              <C>         <C>         <C>         <C>         <C>
Net sales .................      58,977       54,007      41,941      30,570      28,481
Operating income ..........       5,820       10,224       7,310       4,259       4,492
Net income ................       1,182        5,026       3,786       1,378       1,077
Basic net income per common
  stock (1)                        0.05         0.28        0.21        0.08        0.08
At year end December 31:
Total assets ..............      70,907       64,050      69,323      48,433      43,317
Long-term debts ...........       2,419           --          --          --       3,502
</TABLE>

(1)   Basic net income per common stock has been restated to reflect the
      recapitalization, merger under common control and one-for-four reverse
      split. As of December 31, 2003, the total number of shares of common stock
      issued and outstanding was 27,061,290 (27,511,291 on a fully diluted
      basis)

ITEM  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATION

The following is a discussion and analysis of the Company's financial position
and results of operations for each of the three years in the period ended
December 31, 2003. This commentary should be read in conjunction with the
consolidated financial statements and the notes thereto which appears under
Item 8: Financial Statements and Supplementary Data.

RESULTS OF OPERATIONS

Fiscal Year ended December 31, 2003 Compared to Fiscal Year Ended December 31,
2002

      Revenues

Total revenues for the Company, which include revenues from communications
terminal products, battery products, battery testing equipment and lease income,
totaled $59,093,000 and $55,077,000 in 2003 and 2002, respectively, an increase


                                       30
<PAGE>

of 7.3%. Revenues generated by our communications terminal products operations
totaled $34,865,000 and $34,865,000 in 2003 and 2002, respectively, an increase
of  8.9%, as a result of growth from the release of three new phone products,
which generated sales of $3,875,000, and growth in existing phone sales of
$1,010,000.

Revenues generated by our battery products operations totaled $13,360,000 and
$10,680,000 in 2003 and 2002, respectively, an increase of 25.1%, as a result of
(i) establishing a new production base in Shenzhen. The new factory is occupying
a total of 15,000 square feet which was designed to produce an annual capacity
of 8 million lithium-ion cell phone batteries. The facilities were completed in
November 2003. (ii) new product introduction and (iii) decreasing product prices
in order to obtain increased unit volume sales.

Revenues generated by our battery testing equipment operations totaled
$7,640,000 and $8,607,000 in 2003 and 2002, respectively, a decrease of 11.2%,
as a result of that the Company's focus on developing high profit margin
products. The company also focused on the battery production because the market
is experience rapid growth and easier to expand its market position.

The company generated lease income from the leasing of telephone production
equipment to Shenzhen Yu Da Fu Electronic Company Limited in 2003. We sold the
asset to the leaser in December 2003. The company generated lease income of
$116,000 and $987,000 during 2003 and 2002, respectively, a decrease of
$871,000. The Company leased some capital equipment to its suppliers, who
produces communication terminal products for the Company since 2001. At the
beginning of 2003, the Company sold the equipment and reduced lease income and
depreciation expense both by $871,000.

      Capital Expenditures

      Capital expenditures for the company totaled $830,000 and $1,786,000
during 2003 and 2002, respectively. Expenditures relating to our communications
terminal products operations totaled $383,000 and $829,000 during 2003 and 2002,
respectively. During the year of 2003, we have gradually outsourced our
manufacturing capabilities to other companies. As a result, our product cost
reduced by 14.2% in 2003. As of forth quarter of 2004, we have completely
outsourced our communications terminal products manufacturing capabilities. We
are not planning on making any significant investment on capital assets. Our
strategy is to leverage on our strength in distribution capabilities in China
and open the European and U.S. market. Expenditures relating to our battery
products operations totaled $394,000 and $724,000 during 2003 and 2002,
respectively. The battery factory we established in Shenzhen was leased and the
equipment was transferred from Wuhan. We did not make significant capital
investment in expanding our production capabilities. Expenditures relating to
our battery testing equipment operations totaled $53,000 and $233,000 during
2003 and 2002, respectively. The Company has decided on not to focus our
resources on further developing this relatively low profit margin product line.

      Operating Expenses

Total operating expenses, which include manufacturing and other costs of sales,
sales and marketing expense, general and administrative expense, research and
development expense, depreciation and amortization expense, and other operating
costs and expenses, totaled $53,273,000 and $44,838,000 in 2003 and 2002,
respectively, an increase of 18.8%. Manufacturing and other costs of sales
totaled $42,598,000 and $37,400,000 in 2003 and 2002, respectively, an increase
of 13.9%.

                                       31
<PAGE>

Sales and marketing expenses, which include salesperson salaries and benefits,
advertising expenses, and miscellaneous salespersons' expenses, totaled
$2,199,000 and $2,039,000 in 2003 and 2002, respectively, an increase of 7.8%,
mainly due to a $203,000 increase in advertising expenses that was partially
offset by a decrease in other sales expenses.

General and administrative expenses, which include wages, administrative
benefits and miscellaneous expenses, communication and office equipment,
employee retirement plan fees and medical insurance, products sales tax,
utilities, property insurance, middle agency expenses and bad debt reserve,
totaled $2,495,000 and $2,190,000 in 2003 and 2002, respectively, an increase of
13.9%. The company spent $245,000 on promotion expenses in 2003, while other
expenses all increased slightly at different levels.

Research and development expenses, which include wages and benefits of
development personnel and raw material expenses during research and development,
totaled $1,028,000 and $1,439,000 in 2003 and 2002, respectively, a decrease of
28.6%. The main reason for the decrease is that the production method has
transformed to the method of OEM, and stop using 3% of the total sales revenue
for research and development since November of 2003. The technology we used in
the communications terminal products are mature technologies. We have grasped
the core technologies for new products before 2003. During the year of 2003, we
primarily used the R&D to improve existing products.

Depreciation and amortization expense totaled $557,000 and $1,384,000 in 2003
and 2002, respectively, a decrease of $827,000. During the year of 2003, we
shift our production strategy to OEM methodology. As of December 2003, we
outsourced all of our manufacturing capabilities. At the beginning of 2003, we
sold some of our telephone manufacturing equipment that was leased to the
supplier, S-M EGGA Tele. Communications for 7.82 million at its net the book
value of the asset. No gain or loss was recorded. It reduced our annual
depreciation expenses by $821,000. At the end of 2003, the Company also sold
some telephone manufacturing assets for $726,000. The net book value of the
asset was $695,000. We realized a gain of $31,000 on this transaction.

Other operating costs and expenses, which include stocks issuance costs, totaled
$4,396,000 and $385,000 in 2003 and 2002, respectively. Please see the section
on STOCK-BASED COMPENSATION herein for a discussion of the company's stock and
stock option plans.

      Operating Income

Total operating income for 2003 totaled $5,820,000, or 9.8% of total revenue,
compared to $10,239,000, or 18.6% of total revenue, for 2002. Communication
terminal products operating income for 2003 totaled $4,750,000 compared to
$4,308,000 for 2002. Battery products operating income for 2003 totaled
$3,510,000 compared to $2,480,000 in 2002. Battery testing equipment operating
income for 2003 totaled $1,108,000 compared to $2,144,000 in 2002.

      Operating Profit Margin

Communication terminal products operating profit margin for 2003 totaled 12.5%
of communication terminal products revenue, compared to 12.4% of communication
terminal products revenue for 2002. Battery products operating profit margin for
2003 totaled 26.3% of battery products revenue, compared to 23.2% of battery


                                       32
<PAGE>

products revenue, for 2002. Battery testing equipment operating profit margin
for 2003 totaled 14.5% of battery testing equipment revenue, compared to 24.9%
of battery testing equipment revenue, for 2002. The profit margin for testing
equipment decreased as a result of low demand and decreased price.

      Interest Expense

Interest expense totaled $1,023,000 and $1,602,000 during 2003 and 2002,
respectively, a decrease $579,000. This decrease was due to reduced borrowed
amount. The interest rate did not vary very much each year.

      Other Income, Net

Other net income, which includes rental revenue, bank deposit interest, bank
service charges and remittance of the net income, sales income of raw material,
and sales of fixed assets, totaled $707,000 and $295,000 in 2003 and 2002,
respectively. The increase of $412,000 was due to increased rental income from
leasing part of the building to other companies.

      Provision for Income Taxes

Provision for income taxes totaled $1,008,000 and $888,000 during 2003 and 2002,
respectively, due to increased net income of our operation entities. Please
refer to footnote 14 of the financial statements for a comprehensive discussion
of the company's tax policies and benefits.

      Minority Interest

Minority interest expense totaled $3,314,000 and $3,010,000 in 2003 and 2002,
respectively, as a result of increase in operating income from our operating
subsidiaries. Please refer to the company's financial statements for a complete
discussion of minority interests in its consolidated subsidiaries.

      Net Profit

Net profit for the fiscal year ended December 31, 2003 totaled $1,182,000, or
2.0% of revenue, as compared to $5,034,000, or 9.1% of revenue, for the fiscal
year ended December 31, 2002. The decrease is due to reduced profit margin in
our testing equipment and the stock/option grant program established by the
Company. The total non-cash compensation expense under the PS Plan was
$3,997,000 and reduced our net income by $3,997,000.

Fiscal Year ended December 31, 2002 Compared to Fiscal Year Ended December 31,
2001

      Revenues

Total revenues for the Company, which include revenues from communications
terminal products, battery products, battery testing equipment and lease income,
totaled $55,077,000 and $42,006,000 in 2002 and 2001, respectively, an increase
of 31.1%.

Revenues generated by our communications terminal products operations totaled
$34,865,000 and $33,513,000 in 2002 and 2001, respectively, an increase of 4.0%,
as a result of new product introduction. We introduced five new models of
cordless phones and twelve new models of corded phones to the market place in
2002. We also reduced the price of our phone products by 23.3% and increased our
sales volume by 41.3%.

                                       33
<PAGE>

Revenues generated by our battery products operations totaled $10,680,000 and
$2,301,000 in 2002 and 2001, respectively, an increase of 364%, as a result of
rapidly growing demand for lithium and lithium-ion batteries and battery testing
equipment. We also have quickly established our distribution network all around
in China.

Revenues generated by our battery testing equipment operations totaled
$8,607,000 and $6,301,000 in 2002 and 2001, respectively, an increase of 36.6%,
as a result of increased number of battery manufactures and their demand for
testing equipment.

The company generated lease income from the leasing of production machines of
communication products. We acquired these machines for production use in 2001
and started to lease them to other manufacturers in 2002. The leaser was S-MEGGA
Tele. Communications. The lease generates $987,000 annual lease income. The
lease was for one year and renewable annually. The lease income for 2002 and
2001 are $987,000 and $0 respectively.

      Capital Expenditures

Total capital expenditures for the Company totaled $1,786,000 and $10,298,000
during 2002 and 2001, respectively.

Expenditures relating to our communications terminal products operations totaled
$829,000 and $9,486,000 during 2002 and 2001, respectively, a decrease of 91.3%.
A significant decrease was a result of purchase production machine in 2001 for
$8,640,000. Expenditures relating to our battery products operations remained
fairly steady, totaling $724,000 and $733,000 during 2002 and 2001,
respectively.

Expenditures relating to our battery testing equipment operations totaled
$233,000 and $79,000 during 2002 and 2001, respectively, and increase of 195%.
This increase was the result of purchasing production equipment.

      Operating Expenses

Total operating expenses, which include manufacturing and other costs of sales,
sales and marketing expense, general and administrative expense, research and
development expense, depreciation and amortization expense, and other operating
costs and expenses, totaled $44,838,000 and $34,685,000 in 2002 and 2001,
respectively, an increase of 29.3%. Manufacturing and other costs of sales
totaled $37,400,000 and $28,146,000 in 2002 and 2001, respectively, an increase
of 32.9%.

Sales and marketing expenses, which include salesperson salaries and benefits,
advertising expenses, and miscellaneous salespersons' expenses, totaled
$2,039,000 and $2,665,000 in 2002 and 2001, respectively, a decrease of 23.5%,
due to the fact that we installed customer service centers in every primary
sales representative's office.

General and administrative expenses, which include wages, administrative
benefits and miscellaneous expenses, communication and office equipment,
employee retirement plan fees and medical insurance, products sales tax,
utilities, property insurance, professional expenses and bad debt reserve,
totaled $2,190,000 and $1,648,000 in 2002 and 2001, respectively, an increase of
32.9%, due to increased uncollectible accounts receivables and increased wages
and benefits.

Research and development expenses, which include wages and benefits of
development personnel and raw material expenses during research and development,


                                       34
<PAGE>

totaled $1,439,000 and $1,516,000 in 2002 and 2001, respectively, a decrease of
5.1%, due to the technology we used for our products are generally mature
technology. Our R&D expenses are generally used for improving our existing
technology.

Depreciation and amortization expense totaled $1,384,000 and $258,000 in 2002
and 2001, respectively. The increase of $1,126,000 is primarily due to the
equipment purchased in 2001.

Other operating totaled $385,000 and $451,000 in 2002 and 2001, respectively, a
decrease of 14.6%, due to penalties of the Company's drivers violating traffic
rules.

      Operating Income

Total operating income for 2002 totaled $10,239,000, or 18.6% of total revenue,
compared to $7,321,000, or 17.4% of total revenue, for 2001. Communication
terminal products operating income for 2002 totaled $4,308,000 compared to
$4,011,000 for 2001. Battery products operating income for 2002 totaled
$2,480,000 compared to $596,000 for 2001. Battery testing equipment operating
income for 2002 totaled $2,144,000 compared to $2,574,000 for 2001.

      Profit Margin

Total profit margins remained relatively stable with respect to the Company's
communication terminal products and battery products. Communication terminal
products operating profit margin for 2002 totaled 12.4% of communication
terminal products revenue, compared to 12.0% of communication terminal products
revenue for 2001. Battery products operating profit margin for 2002 totaled
23.2% of battery products revenue, compared to 25.9% of battery products revenue
for 2001.

Battery testing equipment operating profit margin for 2002 totaled 24.9% of
battery testing equipment revenue, compared to 41.6% of battery testing
equipment revenue for 2001. During 2001, we experience very high demand of
testing equipment and we are the only few companies who can make the testing
equipment. As the competition getting intense, we had to lower our price to
maintain volume of sales. As a result, our profit margin decreased.

      Interest Expense

Interest expense totaled $1,602,000 and $1,740,000 during 2002 and 2001,
respectively, a decrease of 7.9%. This decrease was due to reduced borrow
amount. Interest rate did not change very much from 2001 to 2002.

      Other Income, Net

Other net income, which includes rental revenue, bank deposit interest, bank
service charges and remittance of the net income, sales income of raw material,
and sales of fixed assets, totaled $295,000 and $1,603,000 in 2002 and 2001, a
decrease of 81.6%. This decrease was due to change in special tax benefit in
China. The returned tax benefit from the government is recorded in the other
income section.

      Provision for Income Taxes

Provision for income taxes totaled $888,000 and $503,000 during 2002 and 2001,
respectively, due to the discontinuation of certain tax benefits. Please refer
to footnote 14 of the financial statements for a comprehensive discussion of the
company's tax policies and benefits.

                                       35
<PAGE>

      Minority Interest

Minority interest expense totaled $3,010,000 and $2,890,000 in 2002 and 2001,
respectively, as a result of increased net income from operating subsidiaries .

      Net   Profit

Net profit for the fiscal year ended December 31, 2002 totaled $5,034,000, or
9.1% of revenue, compared to $3,791,000, or 9.0% of revenue, for the fiscal year
ended December 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

During the year of 2003, the Company generated cash of more than $32.6 million,
which will be used to fund operation. The Company holds short-term debt of $11.8
million and long-term debt of $2.4 million maturing at the end of 2005. Over the
last three years, the Company has maintained a policy of reducing outstanding
debt, and has successfully reduced its outstanding debt balance each year. The
short-term debt has to be repaid within twelve months each year and can
generally be reborrowed for another twelve months. As of December 31, 2003, the
Company has not made any additional, significant capital commitments payable
over the next twelve months. The Company entered into a two-year operating lease
agreement with Shenzhen OCT Real Estate Limited, with an annual rental payment
of $28,747. The total rental space is approximately 12,000 square feet, with a
maximum capacity of 8 million lithium-ion cell phone battery units. The Company
does not anticipate experiencing significant liquidity problems in the next
twelve months.

The Company has one outstanding promissory note in the amount of $7,662,000 with
Dr. Kit Tsui, described in the discussion entitled "Certain Relationships and
Related Party Transactions." The terms of the note do not provide for expiration
or maturity, bearing no interest rate, and is payable in cash or the Company's
common stock based on mutual agreement. The Company currently has debt
obligation with six PRC banks.

                                BORROWING AMOUNT
BANK                                (US$ 000)       MATURITY  INTEREST RATE
--------------------------------------------------------------------------------
Shenzhen Development Bank                  2,965    5 Months    6.75%
China Industries and Commerce                726    4 Months    6.03%
Bank
China Enterprise Trust Bank                1,814    9 Months    5.36%
Guangdong Development Bank                 3,266    2 Months    5.84%
Xingye Bank                                3,024    3 Months    5.25%
Huaxia Bank                                2,419    13 Months   5.49%

Total                                     14,214


All of the above debt has no amortization schedule before maturity. The Company
usually enters into another agreement with the banks when the debt is mature.
The lenders are not affiliate of the Company.

                                       36
<PAGE>

The Company is not currently invested in any marketable securities. During the
quarter ended December 31, 2003, it sold all of its the marketable securities,
receiving $1,541,000, in order to pay down the Company's short-term debt. .

As of December 31, 2003, the Company had a current ratio of 1.58, net working
capital of $21,383,000 and net equity of $18,983,000. During the fiscal year
2003, our net cash and cash equivalents increased by approximately $17,243,000,
from approximately $15,364,000 as of December 31, 2002 to $32,607,000 as of
December 31, 2003, an increase of approximately 212%. This increase was mainly
attributable to the acquisition of Li Sun Power, which provided us with
$12,579,000 in cash.

Net cash provided by operating activities during the fiscal year 2003 totaled
approximately $10,505,000. The Company's primary use of cash was for the
purchase of inventory and for the payment of the Value Added Tax that was
imposed as a result of the decision of the government of Shenzhen to abolish a
preferential tax policy.

Cash used in financing activities for the fiscal year 2003 totaled approximately
$2,845,000, representing repayment of short-term debt. The Company used
additional cash to pay interest of approximately $1,023,000 during the fiscal
year 2003.

On September 21, 2003, the Company entered into a two-year operating lease with
Shenzhen HuaQiao City Real Estate Limited, and is Estate Limited, leasing
manufacturing space for an annual rental payment of $28,747. The total rental
space is about 12,000 square feet, with a maximum capacity of approximately 12
million lithium-ion battery units. The annual revenue potentially generated by
this facility is approximately $17,000,000.

Our goal of this year is to further reduce our debt. We are currently going
through an asset divestiture plan. The Company will further sell some of it
telephone manufacturing machines to pay back Dr. Kit Tsui's promissory note.

Other than as described above, on a recapitalization basis, there were no
material changes in financial condition from the end of the preceding fiscal
year to December 31, 2003.

Trends and Uncertainties

The Company's future resources will be focused primarily on the growing domestic
and overseas battery products market, as it is increasing and presents a high
profit margin for the Company. Specifically, the Company notes that the demand
for lithium-ion batteries for cell phone usage has increased rapidly, and
anticipates continued growth in 2004. Accordingly, it has established a factory
in Shenzhen to meet the growing demand for lithium batteries.

The Company intends to maintain its current interest in its communication
products segment, and, noting intense competition in the domestic market,
anticipates expanding in the U.S. and European markets. In this regard, the
Company has executed an agreement with Unical Enterprise Inc. valued at $20
million for the manufacture of Bell Phones. The Company has further outsourced
its production capabilities, and has improved its profit margin commensurately.

The Company notes that demand for battery testing equipment decreased in 2003.
Although the Company reduced the price for testing equipment, the Company did
not experience offsetting sales volume. The Company notes further that this
segment represents a product which is expensive to manufacture and maintains a
more limited market, and, as a result, presents a lower profit margin.
Accordingly, the Company has decided that it will not allocate additional
capital in developing this segment and will gradually exit the battery testing
market. The timing and rate of this exit has not yet been determined by the
Company.

                                       37
<PAGE>

The Company is subject to a number of uncertainties which may affect the
business and/or its operations adversely. The following is a generalized summary
of risks and uncertainties faced by the Company, which may directly or
Indirectly impact the Company's liquidity.

      Sovereign Risk

At present, substantially all of our operations, income, resources and personnel
are located in or obtained from China and neighboring countries; our resources
are denominated in Renminbi and converted to U.S. Dollars for financial
reporting purposes; and our customers are located in Asia, North America, Europe
and elsewhere. We face risks of nationalization, restrictions on currency
exchange and asset transfer and similar sovereign risks over which we have no
control. We believe that the probability of these risks being realized is highly
unlikely. However, we intend to develop a plan for operating under those adverse
circumstances to the extent possible, though we have not developed such plan as
yet.

      Macroeconomic Factors

We are subject to macroeconomic factors such as interest rates, exchange rates,
inflation rates, trade deficits and surpluses, budget deficits and surpluses,
development of trading blocs such as the European Union, and similar factors
over which we have no control. Changes in these factors could have material
adverse effects on our financial performance and condition. We intend to
implement adequate processes and controls as soon as possible so that we may
plan for and operate under adverse conditions, though we have not made
substantial progress in this area yet due to a lack of infrastructure and
resources.

      Industry and Competitor Risks

Our annual revenue and operating results may fluctuate due to market conditions
in the telecommunications industry. Products such as ours are often
discretionary purchases, which consumers who are concerned about job losses or
other economic factors may decide not to buy. We are uncertain about the extent,
severity, and length of the economic downturn. If the economic conditions
globally do not improve, or if we experience a worsening in the global economic
slowdown, we may experience material negative effects on our business, operating
results, and financial condition.

Our market is highly competitive, and we may not have the resources to compete
adequately. If we are not competitive, it will affect our financial condition
and results of operations.

We face competition from companies providing corded and cordless telephones in
China. Our principal competitors are TCL, Bu Bu Gao and Qiao Xing. Some of our
competitors are substantially larger than we are and have significantly greater
name recognition and financial, sales and marketing, technical, manufacturing
and other resources. These competitors may also have more established
distribution channels and may be able to respond more rapidly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products. These competitors may
enter our existing or future markets with products that may be less expensive,
provide higher performance or additional features or be introduced earlier than
our products.

The market for our communications equipment is rapidly evolving and highly
competitive. We expect competition to intensify in the future as existing
competitors develop new products and new competitors enter the market.

                                       38
<PAGE>

      Technological Risks

We expect our competitors to continue to improve the performance of their
current products and introduce new products. If our competitors successfully
introduce new products or enhance their existing products, this could reduce the
sales or market acceptance of our products and services, increase price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and marketing
and customer support. We may not have sufficient resources to make these
investments or to make the technological advances necessary to be competitive,
which in turn will cause our business to suffer.

Our success depends, to a certain extent, upon our proprietary technology. We
currently rely on a combination of patent, trade secret, copyright and trademark
law, together with non-disclosure and invention assignment agreements, to
establish and protect the proprietary rights in the technology used in our
products.

Although we have filed patent applications, we are not certain that any patents
issued will provide commercially significant protection to our product design.
In addition, others may independently develop substantially equivalent
proprietary information not covered by patents to which we own rights, may
obtain access to our know-how or may claim to have issued patents that prevent
the sale of one or more of our products. Also, it may be possible for third
parties to obtain and use our proprietary information without our authorization.
If we fail to protect our proprietary information effectively, or if third
parties use our proprietary technology without authorization, our competitive
position and business will suffer.

We are dependent on the development and acceptance of various technologies and
standards, including those pertaining to the processes and methods upon which
our products and services are made, operate or used. If our products fail to
meet consumer, regulatory or other technologies, standards or expectations or we
fail to keep pace with changes in consumer, regulatory or other technologies,
standards or expectations, it may have a material adverse effect on our
financial performance or condition.

      Political and Regulatory Risks

We are subject to federal, state and local regulatory risks, including, but not
limited to, securities, antitrust, environmental, labor, permit/license, tax and
other laws, ordinances and regulations. In the event that regulatory oversight
or requirements were to increase or our ability to maintain or conform to the
requirements was impaired or insufficient, the added operational and financial
costs to meet such requirements may have a material adverse effect on our
financial performance or condition.

We have had the benefit of certain tax incentives, including a tax holiday, in
the past, but we may not always be eligible for such programs or the programs
may be modified or discontinued altogether. The modification or discontinuance
of these tax incentives may have a material effect on our operating performance.

At present, substantially all of our income is generated in the People's
Republic of China by our subsidiary, Shenzhen Wonderland Communication Science
and Technology Co., Ltd. ("Wonderland"), an enterprise established in the
Special Economic Zone of Shenzhen, China. Businesses in the Special Economic
Zone of Shenzhen are subject to income taxes at a rate of 15%. However,


                                       39
<PAGE>

Wonderland qualified for an exemption from income tax for a two year period,
starting on January 1, 1997 and ending on January 1, 1999. Following the
expiration of the exemption, Wonderland qualified for a 50% reduction in income
tax for a period of eight years. This reduction in income tax will expire in the
year 2006.

Additionally, any sales made in the People's Republic of China are generally
subject to a value-added tax at the rate of 17% ("output VAT"). The output VAT
is payable after offsetting VAT paid on purchases ("input VAT"). Under the
preferential policy in Shenzhen, any products produced and sold within Shenzhen
are exempted from VAT. Upon verification by the Shenzhen National Tax Bureau,
the percentages of Wonderland's sales exempt from VAT under this preferential
policy for 1999, 2000 and 2001 were 70%, 56% and 56%, respectively.

There is no guarantee that Wonderland will be entitled to these tax incentives
in the future. Any change in the tax policies of the People's Republic of China
or Shenzhen may have a material effect on the Company's operating performance.


OFF-BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS




========================================================================
   CONTRACTUAL
   OBLIGATIONS
 (US$ IN MILLION)                     PAYMENTS DUE BY PERIOD
========================================================================
                          TOTAL       LESS                        MORE
                                      THAN     1-3      3-5      THAN 5
                                     1 YEAR    YEARS    YEARS    YEARS
========================================================================
Long term Debt              2.42        --      2.42
========================================================================
Operating Lease             0.069     0.042     0.027
Obligations
========================================================================
Other Long-Term
Liabilities
Reflected on the            0         0         0
========================================================================
Company's Balance
Sheet under GAAP
========================================================================
             TOTAL          2.49      0.042     2.45
========================================================================


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our combined financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, and related disclosure of contingent assets and liabilities.
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.

                                       40
<PAGE>

The following discussion addresses our critical accounting policies, which are
those that require management's most difficult and subjective judgments, often
as a result of the need to make estimates about the effect of matters that are
inherently uncertain.

Goodwill on consolidation

Goodwill represents the excess of the cost of companies acquired over the least
fair value of their net assets at date of acquisition and is evaluated at lease
annually for impairment. In accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill be tested for impairment
using a two-step process. The first step is to identify a potential impairment,
and the second step measures the amount of the impairment loss, if any. Goodwill
is deemed to be impaired if the carrying amount of a reporting unit exceeds its
estimated fair value. SFAS No. 142 requires that indefinite-lived intangible
assets be tested for impairment using a one-step process, which consists of a
comparison of the fair value to the carrying value of the intangible asset.
Intangible assets are deemed to be impaired if the net book value exceeds the
estimated fair value.

The estimates of future cash flows, based on reasonable and supportable
assumptions and projections, require management's judgment. Any changes in key
assumptions about the Company's businesses and their prospects, or changes in
market conditions, could result in an impairment change. No impairment loss was
recognized as of December 31, 2003.

Equity compensation plan

The Company operates an equity compensation plan. Details of the accounting
policies can be found in Note 3 to the consolidated financial statements.

Foreign currency translation

The Company considers Renminbi as its functional currency as a substantial
portion of the Company's business activities are based in Renminbi.

Transactions in currencies other than functional currency during the year are
translated into the functional currency at the applicable rates of exchange
prevailing at the time of the transactions. Monetary assets and liabilities
denominated to currencies other than functional currency are translated into
functional currency at the applicable rates of exchange in effect at the balance
sheet date. Exchange gains and losses are dealt with in the consolidated
statement of operation.

For the convenience of the readers, translation of amounts from Renminbi (Rmb)
into United States dollars (USD) has been made at the exchange rate of
USD 1.00 = RMB 8.287. No representation is made that the Renminbi amounts could
have been or could be converted into the United States dollars at the rates or
at any other rates on December 31, 2003.

Stock compensation plan, please refer to note 3 to financial statement.

ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are located in China and most of our sales revenues are earned in
China, therefore we are not exposed to risks relating to fluctuating currencies
or exchange rates. As of December 31, 2003, our bank debt earned interest at a
fixed rate.


ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       41

<PAGE>


Consolidated Financial Statements

Industries International, Incorporated

Years ended December 31, 2003, 2002 and 2001




<PAGE>


Industries International, Incorporated
Index to Consolidated Financial Statements
--------------------------------------------------------------------------------

Report of Independent Certified Public Accountants                       F-1

Consolidated Statements of Operations                                    F-2

Consolidated Balance Sheets                                              F-3

Consolidated Statements of Changes in Stockholders' Equity and           F-4
     Comprehensive Income / Loss

Consolidated Statements of Cash Flows                                    F5

Notes to Consolidated Financial Statements                            F6 - F35



<PAGE>


Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders of
Industries International, Incorporated

We have audited the accompanying consolidated balance sheets of Industries
International, Incorporated and its subsidiaries (the "Company") as of December
31, 2003 and 2002, and the related consolidated statements of operations,
consolidated statements of changes in stockholders' equity and comprehensive
income / loss and consolidated statements of cash flows for each of the years in
the three-year period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Industries
International, Incorporated and its subsidiaries as of December 31, 2003 and
2002 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

Moores Rowland Mazars

Chartered Accountants
Certified Public Accountants
Hong Kong

Date: March 30, 2004


                                      F-1
<PAGE>


Industries International, Incorporated

Consolidated Statements of Operations
--------------------------------------------------------------------------------
(amount in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
                                                                     Note         2003            2002           2001
                                                                                   USD             USD            USD
Operating revenues
<S>                                                                             <C>             <C>            <C>
Net sales                                                                       58,977          54,090         42,006
Rental income                                                                      116             987              -
                                                                            --------------  -------------- --------------
Total operating revenues                                              16        59,093          55,077         42,006
                                                                            --------------  -------------- --------------

Operating expenses

Manufacturing and other costs of sales                                          42,598          37,400         28,146
Sales and marketing                                                              2,199           2,039          2,665
General and administrative                                                       2,495           2,190          1,648
Research and development                                                         1,028           1,439          1,516
Depreciation and amortization                                                      557           1,384            258
Other operating costs and expenses                                               4,396             384            451
                                                                            --------------  -------------- --------------
Total operating expenses                                                        53,273          44,836         34,684
                                                                            --------------  -------------- --------------

Operating income                                                                 5,820          10,241          7,322
Interest expenses                                                               (1,023)         (1,602)        (1,740)
Other income, net                                                                  707             295          1,603
                                                                            --------------  -------------- --------------

Income before income taxes and minority interest                                 5,504           8,934          7,185
Provision for income taxes                                            14        (1,008)           (888)          (503)
                                                                            --------------  -------------- --------------

Income before minority interest                                                  4,496           8,046          6,682
Minority interest in income of consolidated subsidiaries                        (3,314)         (3,010)        (2,890)
                                                                            --------------  -------------- --------------

Net income                                                                       1,182           5,036          3,792
                                                                            ==============  ============== ==============


Earnings per share:

Basic weighted average number of common stock outstanding                       21,623          18,007         18,007
                                                                            ==============  ============== ==============

Basic net income per common stock                                                 0.05            0.28           0.21
                                                                            ==============  ============== ==============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-2
<PAGE>

Industries International, Incorporated

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(amount in thousands)


<TABLE>
<CAPTION>
                                                                                              As of December 31,
                                                                                       ---------------------------------
                                                                                              2003               2002
                                                                              Note             USD                USD
ASSETS

Current assets:
<S>                                                                                         <C>                <C>
Cash and cash equivalents                                                                   32,607             15,359
Marketable securities                                                           6                -              1,524
Guaranteed investment contract                                                               1,210              1,210
Accounts receivable, net                                                                    19,034             16,643
Due from related parties                                                                     1,821              1,691
Due from director and employees                                                                  -                 22
Inventories                                                                     7            3,064              4,450
Plant and equipment held for sales                                                               -              7,819
Prepaid expenses and other current assets                                                    2,274              4,101
                                                                                       --------------     --------------
Total current assets                                                                        60,010             52,819
Goodwill                                                                      2 (c)          1,761                 71
Property, plant and equipment, net                                              8            9,136             11,254
                                                                                       --------------     --------------

Total assets                                                                                70,907             64,144
                                                                                       ==============     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Debts maturing within one year                                                 10           11,795             17,053
Accounts payable - trade                                                                     7,142              6,565
Due to related parties                                                                          19                182
Due to principal stockholder                                                                 7,821              8,026
Other payable                                                                                5,420              5,418
Tax payable                                                                                    967              1,421
Accrued expenses and other accrued liabilities                                               4,883              5,313
                                                                                       --------------     --------------

Total current liabilities                                                                   38,047             43,978
                                                                                       --------------     --------------

Non-current liabilities

Long-term debts                                                                10            2,419                  -
                                                                                       --------------     --------------

Minority interests in consolidated subsidiaries                                             10,878              8,496
                                                                                       --------------     --------------

Commitments and contingencies                                                  18                -                  -

Stockholders' equity:

Common stock                                                                   11            1,102                725

Additional paid-in capital                                                                  18,750                  -
Deferred stock compensation                                                    15          (12,500)                 -
Dedicated reserves                                                                           3,479              2,580
Retained earnings                                                                            8,732              8,449
Accumulated other comprehensive loss                                                             -                (84)
                                                                                       --------------     --------------
Total stockholders' equity                                                                  19,563             11,670
                                                                                       --------------     --------------

Total liabilities and stockholders' equity                                                  70,907             64,144
                                                                                       ==============     ==============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-3
<PAGE>

Industries International, Incorporated

Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income / Loss
--------------------------------------------------------------------------------
(amount in thousands, except share data)



<TABLE>
<CAPTION>
                                                  Common stock
                                          ------------------------------
                                                                                 Additional
                                             Number of                              paid-in        Deferred stock
                                                shares           Amount             capital          compensation
                                          -------------     ------------    ----------------    ------------------
                                                                   USD              USD                      USD
<S>                                         <C>                    <C>
Balance at January 1, 2001                  18,007,330             725                -                        -

Comprehensive income:

Net income                                           -               -                -                        -
Other comprehensive loss
   Net unrealizable loss on marketable
        securities                                   -               -                -                        -

Total comprehensive income

Transfer to dedicated reserves                       -               -                -                        -
                                          -------------     ------------    ----------------    ------------------
Balance at December 31, 2001                18,007,330             725                -                        -
Comprehensive income:
Net income                                           -               -                -                        -
Other comprehensive loss
   Net unrealizable loss on marketable
        securities                                   -               -                -                        -

Total comprehensive income

Transfer to dedicated reserves                       -               -                -                        -
                                          -------------     ------------    ----------------    ------------------
Balance at December 31, 2002                18,007,330             725                -                        -

Comprehensive income:
Net income                                           -               -                -                        -
Other comprehensive loss
   Realization of loss on disposal of
      marketable securities                          -               -                -                        -

Total comprehensive loss

Transfer to dedicated reserves                       -               -                -                        -
Acquisition of net liabilities of  IDUL
  (Note 4)                                   1,249,215              50              (66)                       -
Issuance of stock for acquisition of
  minority interest in subsidiary              665,860              27            2,643                        -
Issuance of stock to employee under
  Equity Incentive Plan 2003                 2,525,500             100            8,297                   (8,397)
Issuance of stock to non-employee under
  Equity Incentive Plan 2003                 5,013,385             200            1,453                        -
Issuance of stock & stock option under
  principal stockholder plan                         -               -            6,423                   (5,301)
Amortization of deferred stock
  compensation                                       -               -                -                    1,198
                                          -------------     ------------    ----------------    ------------------
Balance at December 31, 2003                27,461,290           1,102           18,750                  (12,500)
                                          =============     ============    ================    ==================


<CAPTION>


                                                                                 Accumulated other
                                              Dedicated            Retained          comprehensive
                                               reserves            earnings          income (loss)         Total
                                         ---------------     ---------------    -------------------    ----------------
                                                 USD                USD                    USD              USD
<S>                                              <C>              <C>                       <C>           <C>
Balance at January 1, 2001                       931              1,270                     48            2,974
                                                                                                       ----------------
Comprehensive income:

Net income                                         -              3,792                      -            3,792
Other comprehensive loss
   Net unrealizable loss on marketable
        securities                                 -                  -                    (94)             (94)
                                                                                                       ----------------
Total comprehensive income                                                                                3,698
                                                                                                       ----------------
Transfer to dedicated reserves                   829               (829)                     -                -
                                         ---------------     ---------------    -------------------    ----------------
Balance at December 31, 2001                   1,760              4,233                    (46)           6,672
Comprehensive income:
Net income                                         -              5,036                      -            5,036
Other comprehensive loss
   Net unrealizable loss on marketable
        securities                                 -                  -                    (38)             (38)
                                                                                                       ----------------
Total comprehensive income                                                                                4,998
                                                                                                       ----------------
Transfer to dedicated reserves                   820               (820)                     -                -
                                         ---------------     ---------------    -------------------    ----------------
Balance at December 31, 2002                   2,580              8,449                    (84)          11,670
                                                                                                       ----------------
Comprehensive income:
Net income                                         -              1,182                      -            1,182
Other comprehensive loss
   Realization of loss on disposal of
      marketable securities                        -                  -                     84               84
                                                                                                       ----------------
Total comprehensive loss                                                                                  1,266
                                                                                                       ----------------
Transfer to dedicated reserves                   899               (899)                     -                -
Acquisition of net liabilities of  IDUL
  (Note 4)                                         -                  -                      -              (16)
Issuance of stock for acquisition of
  minority interest in subsidiary                  -                  -                      -            2,670
Issuance of stock to employee under
  Equity Incentive Plan 2003                       -                  -                      -                -
Issuance of stock to non-employee under
  Equity Incentive Plan 2003                       -                  -                      -            1,653
Issuance of stock & stock option under
  principal stockholder plan                       -                  -                      -            1,122
Amortization of deferred stock
  compensation                                     -                  -                      -            1,198
                                         ---------------     ---------------    -------------------    ----------------
Balance at December 31, 2003                   3,479              8,732                      -           19,563
                                         ===============     ===============    ===================    ================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-4
<PAGE>

Industries International, Incorporated

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(amount in thousands)

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                         -----------------------------------------------
                                                                             2003               2002            2001
                                                                              USD                USD             USD
Cash flows from operating activities
<S>                                                                         <C>                <C>             <C>
Net income                                                                  1,182              5,036           3,792
Adjustments to reconcile net income to net cash provided by operating
   activities:
   Depreciation and amortization                                            1,880              2,846           1,506
   Minority interest in net income of consolidated subsidiaries             3,314              3,010           2,890
   Non-cash compensation costs                                              3,979                  -               -
   Provision for doubtful accounts                                            213                111               -
   Net loss on sales, disposal or impairment of long-lived assets and
     marketable securities, net                                               128                325             548
Changes in assets and liabilities, net of effects from acquisitions:
   Accounts receivable, net                                                (2,605)            (1,177)            313
   Inventories, net                                                         1,386              2,253           2,925
   Due from related parties                                                  (130)               415           6,601
     Due from directors and employees                                          22                498            (315)
   Prepaid expenses and other current assets                                1,827             (1,457)            176
   Accounts payable - Trade                                                   577               (585)         (2,198)
   Due to principal stockholder                                              (205)                 -            (158)
   Due to related parties                                                    (163)              (880)         (8,735)
   Tax payable                                                               (454)               406            (649)
   Accrued expenses and other accrued liabilities                            (446)              (167)            551
                                                                         -------------    -------------     ------------
   Net cash provided by operating activities                               10,505             10,634           7,247
                                                                         -------------    -------------     ------------

Cash flows provided by (used in) investing activities
   Acquisition of subsidiaries, net of cash                                     -                  -           4,964
   Acquisition of marketable securities                                         -                  -            (116)
   Acquisition of guaranteed investment contract                                -             (1,210)              -
   Purchase of property, plant and equipment                                 (830)            (1,787)        (10,298)
   Proceeds on disposal of marketable securities                            1,541                  -               -
   Proceeds on disposal of property, plant and equipment                    8,877                 10               -
                                                                         -------------    -------------     ------------

   Net cash provided by (used in) investing activities                      9,588             (2,987)         (5,450)
                                                                         -------------    -------------     ------------

Cash flows used in financing activities

   Borrowings of short-term debt                                           11,799              2,978           5,465
   Repayments of short-term debt                                          (17,064)           (12,313)              -
   Borrowings of long-term debt                                             2,420                  -               -
                                                                         -------------    -------------     ------------

   Net cash from (used in) financing activities                            (2,845)            (9,335)          5,465
                                                                         -------------    -------------     ------------

Net increase (decrease)  in cash and cash equivalents                      17,248             (1,688)          7,262
Cash and cash equivalents, beginning of fiscal year                        15,359             17,047           9,785
                                                                         -------------    -------------     ------------

Cash and cash equivalents, end of fiscal year                              32,607             15,359          17,047
                                                                         =============    =============     ============

Supplemental disclosure of cash flow information Cash paid during the fiscal
year for:

   Income tax                                                                 374              1,080             408
   Interest                                                                 1,023              1,590           1,858
                                                                         =============    =============     ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-5
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

1.       DESCRIPTION OF BUSINESS

         Industrial International, Inc., ("IDUL"), a Nevada corporation,
         incorporated under the laws of the state of Nevada on January 11, 1991.
         IDUL was accepted for quotation on the OTC Bulletin Board on December
         7, 2001 and organized originally for the purpose of proposing, planning
         and developing a golf course in either Moapa area or Overton Valley
         area in Nevada.

         As described in Note 2 below, prior to the reorganization with Broad
         Faith Limited ("BFL"), a company incorporated under the International
         Business Companies Act of the British Virgin Islands on February 10,
         2003, IDUL was a development stage company, which, other than a
         proposed golf course project in Nevada, has had no operations. After
         recapitalization, IDUL exited the development stage in the quarter
         ended March 31, 2003.

         IDUL and its subsidiaries (collectively referred to as the "Company")
         are principally engaged in the development, production and distribution
         throughout China of communications terminal products, mainly corded and
         cordless telephones which are sold under the trademark, Wondial (TM)
         through a 69.5296% owned affiliate, Shenzhen Wonderland Communication
         Science & Technology Company Limited ("Wondial") and battery testing
         equipment and battery products through a 72.84% owned affiliate, Wuhan
         Lixing Power Sources Company Limited ("WLPS").

2.       BASIS OF PRESENTATION AND REORGANIZATION

         a)       Recapitalization

         Effective February 10, 2003, pursuant to an Amended and Restated
         Agreement and Plan of Share Exchange, IDUL merged with an operating
         entity, BFL, resulting in the stockholders and management of BFL having
         actual and effective control of IDUL.

         For accounting purposes, the transaction has been treated as a
         recapitalization of BFL with IDUL being the legal survivor and BFL
         being the accounting survivor and the operating entity. These
         transactions are considered as capital transactions in substance rather
         than business combinations. That is, the historical financial
         statements prior to February 10, 2003 are those of BFL, even though
         they were labeled as those of IDUL.

         The recapitalization transaction was effected by an exchange of stock
         under which the sole stockholder of BFL, Mr. Tsui Kit, had exchanged
         all of the outstanding shares (2 shares) of BFL for 14,065,972 new
         shares of IDUL.

         In the recapitalization, historical stockholders' equity of the
         accounting acquirer, BFL, prior to the merger was retroactively
         restated for the equivalent number of shares received (14,065,972
         shares) in the merger with an offset to additional paid-in capital.
         Retained earnings of the accounting survivor, BFL, is carried forward
         after the recapitalization. Operations prior to the recapitalization
         are those of the accounting survivor, BFL. Earnings per share for
         periods prior to the recapitalization are restated to reflect the
         equivalent number of shares. Upon completion of the transaction, the
         financial statements become those of the operating company, with
         adjustments to reflect the changes in equity structure and receipt of
         the assets/liabilities of the public shell, IDUL. Following the
         recapitalization, IDUL held 100% of the issued and outstanding shares
         of BFL and Mr. Tsui Kit (and/or his designees) became the principal
         stockholder of IDUL.



                                      F-6
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

2.       BASIS OF PRESENTATION AND REORGANIZATION (Continued)

         b) Merger under common control

         On May 14, 2003, IDUL acquired all issued and outstanding shares of Li
         Sun Power International Limited ("LPI"), a company incorporated in the
         British Virgin Islands on September 19, 2000, from Mr. Tsui Kit, who is
         the majority stockholder of IDUL as well as the Chief Executive Officer
         and a director of IDUL. By acquiring the capital stock of LPI, IDUL
         becomes the beneficial owner of LPI's approximately 72.84% interest in
         WLPS, a leading lithium and lithium-ion battery manufacturer in PRC.
         The acquisition of LPI is intended to enhance the Company's
         consolidated competitive position in both telephone and battery markets
         in PRC. The consideration for the merger was 3,941,358 restricted
         shares of common stock of IDUL and obligation of USD7,662, which shall
         be in the form of a promissory note payable in cash or common stock of
         IDUL at the discretion of IDUL.

         Since IDUL acquired shares in LPI from its controlling stockholder, Mr.
         Tsui Kit, the transaction was considered a transfer among companies
         under common control. In accordance with Statement of Financial
         Accounting Standards ("SFAS") No. 141 "Business Combination" (Appendix
         D), the method of accounting for such transfer of equity interests was
         similar to pooling of interest method and the acquisition is reflected
         as if it had occurred at the beginning of the earliest period
         presented.

         The entire 3,941,358 restricted shares of common stock of IDUL was
         considered outstanding from the beginning of the period and recorded at
         the carrying amount of the net assets of LPI, without regard to the
         fair value of the stock. The obligation of USD7,662 to Mr. Tsui Kit was
         recorded as due to a principal stockholder of the Company as of the
         beginning of the earliest period presented. See "Recent issued
         accounting pronouncements" within Note 3 below for the adoption of SFAS
         No. 150.


                                      F-7
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

2.       BASIS OF PRESENTATION AND REORGANIZATION (Continued)

         c)       Business combination

         The following combination occurred during the fiscal year 2003:

         Purchase acquisition

         On June 10, 2003, IDUL's ownership in Wondial increased from 65.2924%
         to 69.5296%, as a result of IDUL acquiring 4,000,000 outstanding shares
         of Wondial's common stock from a third party. IDUL issued 665,860
         restricted shares of common stock of IDUL, for a value of USD2,670,
         which was based on closing market price of USD4 on March 28, 2003 and
         recorded a premium in excess of fair value of net assets of Wondial of
         USD1,690. The changes in the carrying amount of goodwill as of December
         31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                               Communication        Battery and
                                                           terminal products   related products          Total
                                                                    USD                 USD               USD
                                                           ------------------- ------------------ -------------------
<S>                                                        <C>                 <C>                <C>
         Balance as of January 1, 2003                                     -              71               71
         Goodwill acquired during the period                           1,690               -            1,690
                                                           ------------------- ------------------ -------------------
         Balance as of December 31, 2003                               1,689              71            1,761
                                                           =================== ================== ===================
</TABLE>

         In accordance with SFAS No. 142, goodwill is required to be tested for
         impairment at the reporting unit, which is defined as a company's
         operating segment or one level below the operating segment. For the
         purposes of applying SFAS No. 142, the Company has assigned the
         goodwill to Wondial as a whole, which comprises of only one reporting
         segment of communication terminal products, and tested for impairment
         using two-step process.

         The first step is to identify a potential impairment, and the second
         step measures the amount of the impairment loss, if any. Goodwill is
         deemed to be impaired if the carrying amount of a reporting unit
         exceeds its estimated fair value. The estimates of future cash flows,
         based on reasonable and supportable assumptions and projections,
         require management's judgment. Any changes in key assumptions about the
         Company's businesses and their prospects, or changes in market
         conditions, could result in an impairment change. No impairment loss
         was recognized as of December 31, 2003.

         The additional interests of 4.2372% Wondial, as described above, is
         held by a wholly-owned affiliate of IDUL, Sunbest Industrial Limited
         ("SIL"), a limited liability company incorporated in the British Virgin
         Islands on February 3, 2003. SIL has authorized and outstanding common
         stock of 50,000 shares and 1 share of United States one dollar par
         value each respectively. The outstanding common stock was issued to
         IDUL on March 10, 2003. SIL has had no operation since its
         incorporation up to June 10, 2003 and is used as an investment holding
         company of the 4.2372% interest in Wondial.



                                      F-8
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Accounting principles

         The consolidated financial statements and accompanying notes are
         presented in Renminbi and prepared in accordance with generally
         accepted accounting principles in the United States of America
         ("USGAAP").

         Basis of consolidation

         The accompanying consolidated financial statements include the accounts
         of IDUL and its subsidiaries in which IDUL has a controlling financial
         interest. See "Basis of financial statements presentation and
         reorganization" within Note 2 above for more information on the basis
         of presentation of the consolidated financial statements.

         All significant intercompany accounts and transactions have been
         eliminated upon combination.

         Revenue recognition

         Net sales represent the invoiced value of goods, net of value-added tax
         ("VAT"), returns and sales incentive. Wondial makes sales to
         distributors in first-tier distribution channels. These distributors
         then arrange to sell products to second-tier distribution channels or
         directly to consumer. These first-tier distributors are generally given
         privileges to good credit terms but at the same time they are
         responsible for marketing and repairing the products. The Company
         generally recognizes product revenue when persuasive evidence of an
         arrangement exists, delivery has occurred, fee is fixed or
         determinable, and collectibility is probable. The Company adopts a
         policy of including handling costs incurred for finished goods, which
         are not significant, in the sales and marketing expenses. The handling
         costs for the fiscal years ended December 31, 2003, 2002 and 2001 were
         USD85, USD173 and USD118, respectively. The Company accrues for
         warranty costs, sales returns and other allowances based on its
         experience.

         During 2003 and 2002, Wondial offers a customer ("distributor") a
         rebate ("sales incentive") of a specified amount of cash consideration
         that is redeemable only if the customer completes a specified
         cumulative level of purchases. The Company recognizes the cost of the
         offer in a systematic and rational manner over the period in which the
         underlying revenue transactions that qualify the distributor for the
         sales incentive take place. According to EITF Issue No.01-9,
         "Accounting for Consideration Given by a Vendor to a Customer
         (Including a Reseller of the Vendor's Products)", such sales incentive
         is treated as a reduction of revenue.

         Research and development

         All cost of research and development activities are expensed as
         incurred.



                                      F-9
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Advertising and promotion costs

         Advertising and promotion costs are expensed when the advertisement or
         commercial appears in the selected media. Advertising and promotion
         expenses for the fiscal years ended December 31, 2003, 2002 and 2001
         were USD927, USD812 and USD1,868, respectively and are included in
         sales and marketing expense in the consolidated statements of
         operations.

         Income taxes

         Provision for income and other related taxes has been provided in
         accordance with the tax rates and laws in effect in PRC.

         The Company did not carry on any business and did not maintain any
         branch office in the United States of America. No provision for
         withholding or U.S. federal income taxes or tax benefits on the
         undistributed earnings and / or losses of the Company has been provided
         as the earnings of the Company, in the opinion of the management, will
         be reinvested indefinitely.

         Income tax expense is computed based on pre-tax income included in the
         consolidated statement of operation. Income taxes have been provided,
         using the liability method, which requires recognition of deferred tax
         assets and liabilities for the expected future tax consequences of
         temporary differences between the carrying amounts and tax bases assets
         and liabilities and their reported amounts. The tax consequences of
         those differences are classified as current or non-current based upon
         the classification of the related assets or liabilities in the
         consolidated financial statements.

         Cash equivalents

         Cash equivalents include all highly liquid investments, generally with
         original maturities of three months or less that are readily
         convertible to known amount of cash and are so near maturity that they
         represent insignificant risk of changes in value because of changes in
         interest rates.

         Marketable securities

         Marketable securities designated as available-for-sale, whose fair
         values are readily determinable, are carried at fair value with
         unrealized gains or losses included are a component of accumulated
         other comprehensive income. Equity securities classified as trading
         securities as carried at fair value with unrealized gains or losses
         included in income. Realized gains and losses are determined on the
         average cost method and reflected in income.

         Inventories

         All inventories are stated at the lower of weighted average cost or
         market. Potential losses from obsolete and slow-moving inventories are
         provided for when identified. Costs of work-in-progress and finished
         goods are composed of direct materials, direct labor and an
         attributable portion of manufacturing overheads.



                                      F-10
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Property, plant and equipment

         Property, plant and equipment is stated at original cost less
         accumulated depreciation and amortization.

         The cost of an asset comprises its purchase price and any directly
         attributable costs of bringing the asset to its present working
         condition and location for its intended use. Expenditures incurred
         after the assets have been put into operation, such as repairs and
         maintenance, overhaul and minor renewals and betterments, are normally
         charged to operating expenses in the period in which they are incurred.
         In situations where it can be clearly demonstrated that the expenditure
         has resulted in an increase in the future economic benefits expected to
         be obtained from the use of the assets, the expenditure is capitalized.

         When assets are sold or retired, their costs and accumulated
         depreciation are eliminated from the consolidated financial statements
         and any gain or loss resulting from their disposal is recognized in the
         year of disposition as an element of other income, net.

         Depreciation is provided to write off the cost of property, plant and
         equipment using straight-line method at rates based on their estimated
         useful lives of assets from the date on which they become fully
         operational and after taking into account their estimated residual
         values.

         Accounting for the impairment of long-lived assets

         The long-lived assets held and used by the Company are reviewed for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount of assets may not be recoverable. It is reasonably
         possible that these assets could become impaired as a result of
         technology or other industry changes. Determination of recoverability
         of assets to be held and used is by comparing the carrying amount of an
         asset to future net undiscounted cash flows to be generated by the
         assets. If such assets are considered to be impaired, the impairment to
         be recognized is measured by the amount by which the carrying amount of
         the assets exceeds the fair value of the assets. Assets to be disposed
         of are reported at the lower of the carrying amount or fair value less
         costs to sell.

         Operating leases

         Leases where substantially all the rewards and risks of ownership of
         assets remain with the leasing company are accounted for as operating
         leases. Rental receivables and payables under operating leases are
         recognized as income and expenses respectively on the straight-line
         basis over the lease terms.

         Earnings per share

         The basic earnings per share are computed by dividing income available
         to common stockholders by the weighted-average number of common stocks
         outstanding during each period as restated as a result of the
         recapitalization, merger under common control and one-for-four reverse
         split, as described in Notes 2 and 11 respectively. The computation of
         diluted earnings per share is same to the computation of basic earnings
         per share except that the weighted-average number of shares outstanding
         is adjusted to include estimates of additional shares that would be
         issued if potentially dilutive common stocks had been issued. In
         addition, income available to common stockholders is adjusted to
         include any changes in income or loss that would result from the
         assumed issuance of the dilutive common stocks. There were no dilutive
         securities outstanding during any of the years.



                                      F-11
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Foreign currency translation
         The Company considers Renminbi as its functional currency as a
         substantial portion of the Company's business activities are based in
         Renminbi. However, the Company has chosen the United States dollar as
         its reporting currency.

         Transactions in currencies other than functional currency during the
         year are translated into the functional currency at the applicable
         rates of exchange prevailing at the time of the transactions. Monetary
         assets and liabilities denominated in currencies other than functional
         currency are translated into functional currency at the applicable
         rates of exchange in effect at the balance sheet date. Exchange gains
         and losses are dealt with in the consolidated statement of operation.

         For translation of financial statements into the reporting currency,
         assets and liabilities are translated at the exchange rate at the
         balance sheet date, equity accounts are translated at historical
         exchange rates, and revenues, expenses, gains and losses are translated
         at the weighted average rates of exchange prevailing during the period.
         Translation adjustments resulting from this process are recorded in
         accumulated other comprehensive income (loss) within stockholders'
         equity.

         Use of estimates
         The preparation of the consolidated financial statements in conformity
         with USGAAP requires the Company's management to make estimates and
         assumptions that affect the reported amounts of assets and liabilities
         and disclosure of contingent assets and liabilities at the date of
         financial statements and the reported amounts of revenues and expenses
         during the reported periods. Actual amounts could differ from those
         estimates. Estimates are used for, but not limited to, the accounting
         for certain items such as allowance for doubtful accounts, depreciation
         and amortization, inventory allowance, taxes and contingencies.

         Allowance for doubtful accounts
         Accounts receivable are stated at the amount billed to customers plus
         any accrued and unpaid interest. The Company recognizes allowance for
         doubtful accounts to ensure trade and other receivables are not
         overstated due to uncollectible. The Company's estimate is based on a
         variety of factors, including historical collection experience,
         existing economic conditions and a review of the current status of the
         receivable. Interest income and late fees on impaired receivables are
         recognized only when payments are received. Accounts receivable are
         presented net of an allowance for doubtful accounts of USD1,752 and
         USD1,539 as of December 31, 2003 and 2002 respectively.



                                      F-12
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Stock-based compensation

         The Company accounts for employee stock-based compensation using the
         intrinsic value method prescribed in APB 25 whereby the options are
         granted at market price, and therefore no compensation costs are
         recognized. Compensation cost for stock-based compensation is measured
         as the excess, if any, of the market price of its common stock at the
         date of grant over an amount that must be paid to acquire the stock.
         Deferred compensation cost on restricted stock awards is shown as a
         reduction to stockholder's equity and recognized over the requisite
         vesting periods.

         The Company accounts for non-employee stock-based compensation in
         accordance with SFAS No. 123 "Accounting for Stock-Based Compensation"
         and EITF 96-18 "Accounting for Equity Instruments That Are Issued to
         Other Than Employees for Acquiring, or in Conjunction with Selling,
         Goods or Services". The stock-based awards are measured on the earlier
         of (1) the performance commitment date or (2) the date the services
         required under the arrangement have been completed and recognized on
         the cliff vesting basis.

         Restricted stocks are nontransferable and subject to forfeiture for
         periods prescribed by the Company. The employee's right to the full
         enjoyment of the stock is conditioned on future performance of services
         or on continued employment. When restricted stock is forfeited (the
         employee terminates prior to the lapsing of restrictions), compensation
         cost previously recognized is reversed and any unrecognized
         compensation is charged back to additional paid-in capital.

         SFAS No.123, "Accounting for Stock-Based Compensation," established
         accounting and disclosure requirements using a fair-value based method
         of accounting for stock-based employee compensation plans. The Company
         has elected to retain its current method of accounting as described
         above and has adopted the disclosure requirements of SFAS No.123 as
         follows.

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                               2003         2002          2001
                                                                USD          USD           USD

         Net income:
<S>                                                           <C>          <C>           <C>
            As reported                                       1,182        5,036         3,792
            Total stock-based compensation expense              (45)           -             -
                                                          -----------  ------------  ------------

            Pro forma                                         1,137        5,036         3,792
                                                          ===========  ============  ============

         Basic net income per share
            As reported                                        0.05         0.28          0.21
                                                          ===========  ============  ============

            Pro forma                                          0.05         0.28          0.21
                                                          ===========  ============  ============
</TABLE>




                                      F-13
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Related parties

         Parties are considered to be related if one party has the ability,
         directly or indirectly, to control the other party or exercise
         significant influence over the other party in making financial and
         operating decisions. Parties are also considered to be related if they
         are subject to common control or common significant influence.

         Recently issued accounting pronouncements

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
         Financial Instruments with Characteristics of Both Liabilities and
         Equity. SFAS No. 150 establishes standards for how a company classifies
         and measures certain financial instruments with characteristics of both
         liabilities and equity. SFAS No. 150 is effective for financial
         instruments entered into or modified after May 31, 2003, and otherwise
         is effective at the beginning of the first interim period beginning
         after June 15, 2003.

         As described in Note 2(b), the consideration for the acquisition of LPI
         includes an amount of USD 7,662, which shall be settled either in the
         form of promissory note payable in cash or common stock of IDUL at the
         discretion of IDUL and this obligation to Mr. Tsui Kit was recorded as
         due to a principal stockholder of IDUL. On the adoption of SFAS No.
         150, the carrying amount of such consideration was measured at their
         fair values.

4.       EARNINGS PER SHARE

         Basic earnings per share is computed based upon the weighted average
         number of shares of common stock outstanding during each period as
         restated as a result of the recapitalization, merger under common
         control and one-for-four reverse split, as described in Notes 2 and 11.

         The 14,065,972 and 3,941,358 shares, in connection with the
         recapitalization and merger under common control were included in the
         computation of earnings per share as if outstanding at the beginning of
         each period presented and 1,249,215 shares, being the outstanding stock
         of IDUL as of February 10, 2003, were treated as issued on February 10,
         2003 for the historical net monetary liability of IDUL before
         recapitalization, USD16.

         Diluted earnings per share is computed based upon the weighted average
         number of shares of common stock and dilutive common stock equivalents
         outstanding during the periods presented. The diluted earnings per
         share computations also include the dilutive impact of options to
         purchase common stock which were outstanding during the period
         calculated by the "treasury stock" method. The performance-based
         unvested stock which is contingent upon satisfying conditions are not
         included in the computation of diluted earnings per share until all
         conditions for issuance are met.

         As described in Note 15(1)(a), options to purchase 425,000 shares of
         common stock of IDUL was not included in the computation of diluted
         earnings per share becacuse the options' exercise prices were greater
         than the average market price of the common shares and, therefore, the
         effect of employee stock options is anti-dilutive as to earnings per
         share. IDUL had no common equivalent shares with a dilutive effect for
         any period presented, therefore basic and diluted earnings per share
         are the same.



                                      F-14
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

5.       OPERATING RISKS

         (a)      Country risks

         The Company may be exposed to the risks as a result of its sales
         operation being related in PRC. These include risks associated with,
         among others, the political, economic and legal environmental and
         foreign currency exchange. The Company's results may be adversely
         affected by change in the political and social conditions in PRC, and
         by changes in governmental policies with respect to laws and
         regulations, anti-inflationary measures, currency conversion and
         remittance abroad, and rates and methods of taxation, among other
         things. The Company's management does not believe these risks to be
         significant. There can be no assurance, however, those changes in
         political and other conditions will not result in any adverse impact.

         (b)      Cash and time deposits

         The Company maintains its cash balances and investments in time
         deposits with various banks and financial institutions located in PRC.
         In common with local practice, such amounts are not insured or
         otherwise protected should the financial institutions be unable to meet
         their liabilities. There has been no history of credit losses. There
         are neither material commitment fees nor compensating balance
         requirements for all outstanding loans of the Company.

6.       MARKETABLE SECURITIES

         The aggregate cost, gross unrealized losses and fair value pertaining
         to available-for-sales securities are as follows:

                                            As of December 31,
                                       ------------------------------
                                               2003           2002
                                                USD            USD

        Cost                                      -          1,569
        Gross unrealized losses                   -            (45)
                                       -------------    -------------

        Fair value                                -          1,524
                                       =============    =============

         During the fiscal year 2003, all marketable securities were sold for
         proceeds of USD1,541 and resulted in an insignificant realized gain.
         The realized and unrealized loss of USD84 and USD38 was recorded for
         the years ended December 31, 2003 and 2002 respectively. Net unrealized
         loss reported as a separate component of accumulated other
         comprehensive income (loss) was USD38 at of December 31, 2002.



                                      F-15
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

7.       INVENTORIES

         Inventories comprise the following:

                                                    As of December 31,
                                               ------------------------------
                                                       2003             2002
                                                        USD              USD

        Raw materials                                   891            3,001
        Work-in-progress                                634              706
        Finished goods                                1,539              743
                                               -------------    -------------

                                                      3,064            4,450
                                               =============    =============


8.       PROPERTY, PLANT AND EQUIPMENT, NET

         Property, plant and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                                            Estimated useful life
                                                                  (in years)                 As of December 31,
                                                                                    ---------------------------------
                                                                                          2003               2002
                                                                                           USD                USD

<S>                                                                   <C>                <C>                <C>
        Buildings                                                     35                 5,613              5,496
        Moulds                                                      3 - 5                1,802              2,288
        Plant and machinery                                         5 - 10               5,949              7,529
        Electronic equipment                                          5                  1,633              1,634
        Motor vehicles                                              5 - 8                  935                922
                                                                                    --------------     --------------
                                                                                        15,932             17,869

        Accumulated depreciation                                                        (6,796)            (6,615)
                                                                                    --------------     --------------

                                                                                         9,136             11,254
                                                                                    ==============     ==============
</TABLE>




                                      F-16
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)


  9.     BANKING FACILITIES

         The Company had various lines of credit under banking facilities as
         follows:

                                            As of December 31,
                                     ----------------------------------
                                            2003                  2002
                                             USD                   USD
        Facilities granted
        Committed credit lines            14,210                18,389
                                     ===============    ===============

        Utilized
        Committed credit lines            14,210                17,058
                                     ===============    ===============

        Unutilized facilities
        Committed credit lines                 -                 1,331
                                     ===============    ===============

         There are no significant commitment fees or requirements for
         compensating balances associated with any lines of credit.

         Under the banking facilities arrangements, the Company's banking
         facilities amounted to USD1,814 as of December 31, 2003 and 2002 were
         collateralized by guarantees of a Shenzhen city government sponsored
         corporation, namely Shenzhen Hi-Tech Investment Company Limited
         ("SHTI", which assists hi-tech companies in Shenzhen to obtain working
         capital). Each year, Wondial has to report their financial positions
         for the year to SHTI which will assess the extent of assistance to
         Wondial.

         As of December 31, 2003 and 2002, the short-term loans of USD726 and
         USD3,508 were collateralized by corporate guarantees provided by a
         company controlled by Mr. Tsui Kit and pledge of the Company's property
         at a carrying value of USD3,331 respectively. Details of guarantees
         with related party were disclosed in Note 17 below.

10.      DEBTS

         a) Debts maturing within one year

         Debts maturing within one year represented mainly short-term bank loans
         and were summarized as follows:

<TABLE>
<CAPTION>
                                                       Weighted-average interest       Outstanding debts maturing
                                                                           rates             within one year
                                                     ----------------------------    --------------------------------
                                                                               %                   USD

        As of December 31,
<S>                                                                         <C>                  <C>
            2003                                                            5.80                 11,795
            2002                                                            6.92                 17,053
</TABLE>


                                      F-17
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

10.      DEBTS (Continued)

         b) Long-term liabilities

         Long-term debts consisted primarily of bank loans and were summarized
         as follows

<TABLE>
<CAPTION>
                                                                                             Outstanding loan
                                                    Interest rate          Maturity              amounts
                                            ----------------------    --------------     -------------------------
                                                                %                                  USD
        As of December 31,
<S>                                                          <C>        <C>                       <C>
            2003                                             5.49       2003 - 2005               2,419
            2002                                                -                                   -
</TABLE>


         The interests on amounts borrowed under the various loan agreements are
         at market rates.

11.      COMMON STOCK

         As of December 31, 2002, the authorized capital of IDUL is USD200
         divided into 5,000,000 shares of common stock, par value US dollar 0.04
         par value, with one vote for each share.

         As described in Notes 2(a) and 4 above, on February 10, 2003, 1,249,215
         shares, represented by the outstanding shares of IDUL before
         recapitalization, were issued and offset against the additional paid-in
         capital, for the historical book value of net monetary liability of
         IDUL before recapitalization, USD16.

         On April 10, 2003, IDUL amended and restated its Articles of
         Incorporation to authorize 125,000,000 shares of common stock and
         2,500,000 shares of preferred stock.

         On May 12, 2003, the board of directors of IDUL approved and declared a
         one-for-four reverse split of IDUL's common stock, thereby decreasing
         the number of issued and outstanding shares and increasing the par
         value of each share. The number of common shares and per-share amounts
         shown in these financial statements have been retroactively restated to
         reflect the reverse split. The reverse stock split become effective on
         June 2, 2003.

         On May 14, 2003, 3,941,358 restricted shares of common stock of IDUL,
         at par value, were issued for the acquisition of 100% interest in LPI
         and was considered outstanding from the beginning of the period as
         described in Note 2(b) above.

         During the fiscal year 2003, the total number of shares issued, under
         Equity Incentive Plan 2003 ("EI Plan") was 7,538,885, par value US
         dollar 0.04 per share, for a value of USD22,166. These shares are
         granted to the Company's employees (2,525,000 shares) for a value of
         USD8,397 at the date of the grant and external consultants (5,013,385
         shares) for a value of USD13,769 measured at their then-current fair
         value as of the financial reporting dates and fair value of services.
         See Note 15 below for deferred compensation cost under EI Plan.



                                      F-18
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

11.      COMMON STOCK (Continued)

         As described in Note 3 above, on June 10, 2003, IDUL issued 665,860
         restricted shares of common stock of IDUL, for a value of USD2,670, to
         acquire an additional 4.2372% interest in an affiliate, Wondial.

         As described in Note 15 below, during the fiscal year 2003, the
         principal stockholder of IDUL, Mr. Tsui Kit, established a stock plan
         ("PS Plan") to grant restricted stock awards of 1,281,519 shares, which
         was issued to him for recapitalizaton and acquisition of LPI, to
         employee (1,057,666 shares), for a value of USD5,301 and his business
         associates (223,853 shares), which are suppliers and customers of the
         Company, for a value of USD1,122 at the date of the grant.

12.      DISTRIBUTION OF INCOME

         The Company's income is substantially contributed by two majority-owned
         subsidiaries, Wondial and WLPS, limited companies incorporated in PRC.
         Income of Wondial and WLPS is distributable to their stockholders after
         transfer to dedicated reserves as required under relevant PRC rules and
         regulations and their articles of association.

         Dedicated reserves include statutory surplus reserve and statutory
         public welfare fund. In accordance with the relevant PRC Companies Law
         and rules and regulations, Wondial and WLPS, are required to transfer
         amounts equal to 10% and 5% of its income after taxation to the
         statutory surplus reserve and statutory public welfare fund
         respectively.

         The statutory surplus reserve can only be utilized to offset prior
         years' losses or for capitalization as paid-in capital, whereas the
         statutory public welfare fund shall be utilized for collective staff
         welfare benefits such as building of staff quarters or housing. No
         distribution of the remaining reserves shall be made other than on
         liquidation of Wondial and WLPS.

13.      PENSION COSTS

         As stipulated by PRC regulations, the Company maintains a defined
         contribution retirement plan for all of its employees who are residents
         of PRC. All retired employees of the Company are entitled to an annual
         pension equal to their basic annual salary upon retirement. The Company
         contributed to a state sponsored retirement plan approximately 9% of
         the basic salary of its employees and has no further obligations for
         the actual pension payments or post-retirement benefits beyond the
         annual contributions. The state sponsored retirement plan is
         responsible for the entire pension obligations payable to all
         employees.

         The pension expense for the years ended December 31, 2003, 2002 and
         2001 was USD92, USD89 and USD38, respectively.



                                      F-19
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

14.      TAXATION

         The Company are subject to income taxes on an entity basis on income
         arising in or derived from the tax jurisdictions in which they operate.

         As of December 31, 2003 and 2002, IDUL had a net operating loss
         carry-forward for income tax reporting purposes of approximately USD475
         that might be offset against future taxable income. Current tax laws
         limit the amount of loss available to be offset against future taxable
         income when a substantial change in ownership occurs. Therefore,
         following the recapitalization as mentioned before, the amount
         available to offset future taxable income might be limited. No tax
         benefit has been reported in the financial statements, because the
         Company believes there is more likely than not the carry-forwards will
         be limited. Accordingly, the potential tax benefits of the loss
         carry-forwards are offset by a valuation allowance of the same amount.

         No provision for withholding or United States federal or state income
         taxes or tax benefits on the undistributed earnings and/or losses of
         the Company's subsidiaries has been provided as the earnings of these
         subsidiaries, in the opinion of the management, will be reinvested
         indefinitely. Determination of the amount of unrecognized deferred
         taxes on these earnings is not practical, however, unrecognized foreign
         tax credits would be available to reduce a portion of the tax
         liability. Among the Company's subsidiaries, BFL, SIL and LPI, are not
         liable for income taxes.

         The tax holidays of the Company are comprised of the following:

         a) Income taxes

         The PRC operating subsidiaries are subject to income taxes at a rate of
         15% and the sino-foreign equity joint ventures and Wondial are entitled
         to be exempted from income tax for two years starting from the year
         profits are first made, followed by a 50% exemption for the next three
         to eight years. If the tax holiday of the income tax had not existed,
         the Company's income tax expenses would have been increased by
         approximately USD1,008, USD888 and USD503 for the years ended December
         31, 2003, 2002 and 2001 respectively. Basic earnings per common stock
         share would have been decreased by approximately USD0.05, USD0.05 and
         USD0.03 for the fiscal year ended December 31, 2003, 2002 and 2001
         respectively.

         b) VAT

         Sales made in PRC are subject to PRC value-added tax at a rate of 17%
         ("output VAT"). Such output VAT is payable after offsetting VAT paid by
         the Company on purchases ("input VAT"). Before the fiscal year 2003,
         under the preferential policy in Shenzhen, any products produced and
         sold within the Shenzhen is exempted from VAT. Upon verification by
         Shenzhen National Tax Bureau on an annual basis, the sales proportion
         exempt from VAT under such preferential policy for 2002 and 2001 was
         36% and 56%. Such preferential policy was abolished in 2003. If such
         tax holiday had not existed, the Company would have an additional VAT
         payable of approximately USD1,683 and USD2,053 for the years ended
         December 31, 2002 and 2001, respectively. Basic and diluted earnings
         per common stock would have been decreased by approximately USD0.09 and
         USD0.11 for the years ended December 31, 2002 and 2001, respectively.



                                      F-20
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

14.      TAXATION (Continued)

         Income tax expense is comprised of the following

                                 Years ended December 31,
                       ---------------------------------------------
                              2003              2002           2001
                               USD               USD            USD


         Current tax         1,008               888            503
                       ============     =============    ===========


         The reconciliation of PRC statutory income to the effective income tax
         rate based on income stated in the statements of operations is as
         follows:

<TABLE>
<CAPTION>
                                                          Years ended December 31,
                                                 ------------------------------------------
                                                     2003            2002           2001
                                                        %               %              %
<S>                                                   <C>             <C>            <C>
        Statutory rate                                15.0            15.0           15.0
        Effect of tax holiday                         (9.4)           (5.4)          (7.3)
        Non-taxable activities                         -              (0.6)          (0.9)
        Non-deductible activities                     10.7             2.1            0.2
        Under (over) provision in prior years          -              (1.9)           -
        Loss with no tax benefits                      1.8             1.0            0.8
        Others                                         0.2            (0.3)          (0.8)
                                                 -----------     -----------    -----------
        Effective tax rate                            18.3             9.9            7.0
                                                 ===========     ===========    ===========
</TABLE>


         Taxation payable is comprised of the following:

                                          As of December 31,
                                 ----------------------------------
                                           2003               2002
                                            USD                USD

        PRC value-added tax                 375              1,018
        PRC income tax                      586                399
        PRC other taxes                       6                  5
                                 ---------------    ---------------
                                            967              1,422
                                 ===============    ===============


                                      F-21
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

15.      STOCK-BASED COMPENSATION

         During the fiscal year 2003, IDUL has granted various stock options and
         stock-based awards under (1) EI Plan and (2) PS Plan which are
         described below.

         (1)      EI Plan

         EI Plan was approved by IDUL's board of directors and stockholders on
         February 28, 2003 and April 7, 2003 respectively. EI Plan is intended
         to provide incentives to attract, retain and motivate both eligible
         employees and directors of the Company, as well as consultants,
         advisors and independent contractors who provide valuable services to
         the Company (any such person hereinafter called a "Participant").

         The EI Plan will be administered by the board or by a committee of the
         board. Within certain limits, the administrator of the EI Plan, whether
         the board or a committee thereof, will be authorized to select eligible
         Participants to receive awards under the EI Plan, determine the number
         of shares included in such awards, determine the form, term, vesting,
         exercisability, and required payment, if any, of such awards, and to
         make any other determinations necessary or useful for the
         administration of the EI Plan. The administrator of the EI Plan may
         issue options with an exercise price equal to or above 85% of the
         market price of our common stock at the date of issuance, except that
         (i) Incentive Stock Options must have an exercise price equal to or
         above the market price as of the date of issuance, and (ii) options
         issued to Participants who beneficially own at least 10% of IDUL's
         issued and outstanding common stock must have an exercise price equal
         to or above 110% of the market price on the date of issuance. The
         administrator of the EI Plan may set any period of time, up to ten
         years, for the expiration of options, except that options issued to
         Participants who beneficially own at least 10% of our issued and
         outstanding common stock must expire within five years from the date of
         issuance. Options granted under the EI Plan can only be exercised by
         delivery to the administrator of an exercise agreement in a form
         approved by the administrator.

         Initially, 3,750,000 shares of IDUL's common stock are reserved for
         issuance under EI Plan. On October 2, 2003, a further 5,000,000 shares
         of IDUL are reserved under EI Plan. Under EI Plan, awards may consist
         of grants of options to purchase IDUL's common stock (either Incentive
         Stock Options (for eligible persons) or Non-Qualified Stock Options, as
         each is defined in the Internal Revenue Code), grants of restricted
         common stock, or grants of unrestricted common stock.

         a) Stock options

         Stock options under EI Plan have been granted to officers, other
         employees and directors to purchase shares of common stock at or above
         85% of the market price of IDUL's common stock at the date of issuance.
         Generally, these options, whether granted from the current plans,
         become exercisable over staggered periods, but expire after 10 years
         from the date of the grant. On May 13, 2003, 425,000 and 125,000
         unrestricted stock options were issued to directors of the Company and
         a non-employee respectively.



                                      F-22
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

15.      STOCK-BASED COMPENSATION (Continued)

         (1)      EI Plan (Continued)

         a) Stock options (Continued)

         As described above, the Company adopted the disclosure requirements of
         SFAS No. 123, but elected to continue to measure compensation expense
         in relation to options granted to employees in accordance with APB No.
         25. Accordingly, no compensation expense is recorded for the 425,000
         stock options granted to employees because the exercise price of IDUL's
         stock options is equal to or greater than the market price of the
         underlying stock on the date of grant. Had compensation expense been
         determined based on the estimated fair value of options granted in the
         second quarter of fiscal 2003, consistent with the methodology in SFAS
         No. 123, net income and earnings per share would have been reduced. See
         "Stock-based compensation" within Note 3 above for the disclosure under
         SFAS No. 123.

         The options granted had a weighted average "fair value" per share on
         date of grant of USD4.16. For purposes of pro forma disclosure, the
         estimated fair value of the options is amortized to expense over the
         options' vesting periods, i.e., 5 years as prescribed under EI Plan.
         The fair value of the option grant is estimated on the date of the
         grant using the Black-Scholes option pricing model, assuming no
         dividends and the following weighted average assumptions used for
         grants in the fiscal year 2003:

        Risk-free interest rate                                     4.61%
        Expected volatility                                        99.14%
        Contractual life                                         10 years

         On May 13, 2003, 125,000 stock options were granted to a non-employee
         for her five years of service from July 1, 2003. Consistent with the
         methodology in SFAS No. 123 and according to EITF D-90 "Grantor Balance
         Sheet Presentation of Unvested, Forfeiture Equity Instruments Granted
         to a Nonemployee", those unvested and forfeitable equity instruments
         was treated as unissued for accounting purposes until the future
         services are received. In the third quarter of fiscal year 2003, the
         non-employee failed to fulfill an obligation under the service
         agreement and the option will be cancelled.



                                      F-23
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)


15.      STOCK-BASED COMPENSATION (Continued)

         (1)      EI Plan (Continued)

         a) Stock options (Continued)

         Information concerning options issued under EI Plan of the Company in
         the fiscal year 2003 is presented in the following table:


<TABLE>
<CAPTION>
                                                                                 Number of          Weighted Average
                                                                                   Options            Exercise Price
                                                                             --------------     ---------------------
<S>                                                                          <C>                <C>
        Outstanding at beginning of period:                                                -                    -
        - Stock option granted on May 13, 2003                                       550,000                  5.6
        - Stock option granted on June 24, 2003 (Note 15(1)(b)(ii))                  712,500                  6.0
        Exercised                                                                          -                    -
        Cancelled (Note 15(1)(b)(ii)) and                                                                       -
            will be cancelled (Note 15(1)(a))                                       (837,500)
                                                                             ---------------

        Outstanding at end of period                                                 425,000
                                                                             ===============
</TABLE>

         b) Stock awards

         During the fiscal year 2003, under EI Plan, the Company has granted
         stock awards to employees and various external consultants and advisors
         of the Company.

         i) Stock awards to employees

         The Company applies the provisions of APB No. 25, in accounting for its
         stock awards. 732,500 and 1,793,000 restricted and unrestricted stock
         awards respectively, issued at a market value of USD8,397, were granted
         to employees with total vesting periods of up to five years as
         prescribed in EI Plan. Recipients are not required to provide
         consideration for these stock awards to the Company other than
         rendering service. The awards are recorded at their intrinsic value on
         the date of grant. Initially, the fair value of the shares is treated
         as deferred compensation (USD8,397) and is charged to expense over the
         respective vesting period. As described in Note 16, the Company has
         changed its business strategy, in the last quarter of the fiscal year
         2003, employees related to manufacturing operation of Wondial forfeited
         their stock restricted awards (67,500 shares) due to termination of
         employment. The deferred compensation cost and previously recognized
         compensation expenses of USD297 and USD41 respectively were not
         reversed in the fiscal year 2003 as these stocks will be returned to
         the Company and cancelled subsequent to the balance sheet date.



                                      F-24
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

15.      STOCK-BASED COMPENSATION (Continued)

         (1)      EI Plan (Continued)

         b) Stock awards (Continued)

         ii) Stock awards to external consultants and advisors

         According to SFAS No. 123, all equity instruments transferred to
         non-employees in exchange for goods and services are measured at fair
         value. Fair value can be measured based on either the fair value of the
         goods or services received or the fair value of the equity instrument
         -- whichever is more reliably determinable. As with APB Opinion No. 25,
         compensation expense is recognized by amortizing total compensation
         cost over the periods in which the related external consultants and
         advisors services are rendered.

         In consideration of an external consultant's (the "Consultant") past
         services, the Company agreed to pay USD600 and expensed it in the
         second quarter of fiscal year 2003. Instead of paying the agreed
         consideration, the services were settled by granting 712,500 shares and
         712,500 stock options to the Consultant. On May 21, 2003, 356,250
         shares were issued. The remaining 356,250 stocks and 712,500 stock
         options were subsequently cancelled and compensation expenses
         previously recognized (USD600) was not reversed.

         For other external consultants, during the fiscal year 2003, 30,187
         stock awards were granted for their past services for USD94, measured
         and expensed all at the approximately quoted market price at the date
         of grant.

         During the fiscal year 2003, the Company also issued 4,626,948 stock
         awards of common stocks for services with a period of one to five
         years. There were no performance commitment date, as defined in EITF
         96-18, prior to the completion of performance, thus, all these stock
         awards (USD1,653) were measured at their then-current fair value as of
         December 31, 2003 and were recognized on the cliff vesting basis.
         Approximately USD959 were recognized as expenses for the year ended
         December 31, 2003.

         (2)      PS Plan

         During the fiscal year 2003, the principal stockholder of the Company,
         Mr. Tsui Kit, granted stock awards to various parties, including
         employees and business associates, to enhance or maintain the value of
         his investment and the Company implicitly benefits from the plan by
         retention of, and possibly improved performance by, the employee and
         maintenance of business relationship with various business associates
         of Mr. Tsui Kit and the Company.

         In accordance with the AICPA Accounting Interpretations of APB No. 25,
         Stock Plans Established by a Principal Stockholder, a company should
         account for plans, if they have characteristics otherwise established
         similar to compensatory plans adopted by the company, that are
         established or financed by a principal stockholder. The economic
         substance of this type of plan is substantially the same for the
         company and the employee, whether the plan is adopted by the company or
         a principal stockholder. This type of plan should be treated as a
         contribution to capital by the principal stockholder with the
         offsetting charge accounted for in the same manner as compensatory
         plans adopted by the company. The fair value of the share-based awards
         and stock option, as described below, will be the total compensation
         cost, which will be expensed over the vesting period.



                                      F-25
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

15.      STOCK-BASED COMPENSATION (Continued)

         (2)      PS Plan (Continued)

         On June 13, 2003, under PS Plan, the principal stockholder had granted
         stock awards to employees and various related business parties of the
         principal stockholder.

         a) Stock awards

         i) Stock awards to employees

         Stock awards to employees under PS Plan have been granted to officers,
         other employees and directors who have been employed with the Company
         and its subsidiaries at least three years or above and were selected by
         the president of IDUL. Recipients are not required to provide
         consideration for the stock awards to the Company but are required to
         rendering service for three years from the date of grant. In the last
         quarter of fiscal year 2003, the vesting period was extended from three
         years to five years.

         The Company applies the provisions of APB No. 25, in accounting for its
         stock awards. In June 2003, 1,057,666 restricted stock awards were
         granted at a market value of USD6,423 at the date of grant, to
         employees of the Company. Initially, the total market value of the
         shares is treated as deferred compensation and is charged to expense
         over the period of expected services. After the extension of vesting
         period, the remaining unrecognized original intrinsic value (USD4,834)
         was recognized over the remaining vesting period from the date of
         modification.

         As described in Note 16, the Company has changed its business strategy,
         in the last quarter of the fiscal year 2003, employees related to
         manufacturing operation of Wondial forfeited their restricted stock
         awards (80,250 shares) due to termination of employment. The deferred
         compensation cost and previously recognized compensation expenses were
         USD341 and USD62 respectively were not reversed in the fiscal year 2003
         as these stocks will be returned to the principal stockholder
         subsequent to the balance sheet date.

         ii) Stock awards to various related business parties of the principal
         stockholder

         Consistent with the methodology in SFAS No. 123 for equity instruments
         transferred to non-employees, in June 2003, 223,853 stock awards
         granted to various business associates, which are suppliers and
         customers of the Company, at a value of USD1,122, measured at the fair
         value of the share award grant, were expensed in the second quarter of
         fiscal year 2003. The fair value of the stock awards granted is
         estimated on the date of the grant using the Black-Scholes option
         pricing model, assuming no dividends and the weighted average
         assumptions described in Note 15(a) above.

         The value of unearned compensation under EI Plan (USD8,397) and PS Plan
         (USD5,301) are included as a separate component of stockholders'
         equity. The total compensation expense recognized for all stock awards
         was USD3,977 respectively for the fiscal year 2003.



                                      F-26
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

16.      REPORT ON SEGMENT INFORMATION

         The Company's operations are classified into three reportable business
         segments: communication terminal products, mainly corded and cordless
         telephone which are sold under the trademark, Wondial (TM), battery
         testing equipment and battery products. The Company's three reportable
         business segments are identified separately based on fundamental
         differences in their operations. In last quarter of the fiscal year
         2003, Wondial outsourced the manufacturing operations to various
         subcontractors. There are no material intersegment sales. The Company's
         products are mainly sold to PRC so no geographical segment information
         is presented.

         In 2001, sales to an external customer of the Company's communication
         terminal products segment totaled approximately USD5,113 (12%) of the
         Company's consolidated sales. None of the customers constitute more
         than 10 percent of the Company's total revenue for the fiscal year 2003
         and 2002.

         Summarized below are the Company's segment information by business
         segment for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                     -----------------------------------------------
                                                                           2003             2002            2001
                                                                            USD              USD             USD
         Segment revenues
<S>                                                                      <C>              <C>             <C>
         Communication terminal products                                 37,977           34,865          33,513
         Battery testing equipment                                        7,640            8,607           6,193
         Battery products                                                13,360           10,680           2,300
                                                                     ---------------  --------------  --------------
         Segment totals                                                  58,977           54,152          42,006
         Rental income                                                      116              987               -
         Other, adjustment and elimination items                              -              (62)              -
                                                                     ---------------  --------------  --------------

         Total consolidated                                              59,093           55,077          42,006
                                                                     ===============  ==============  ==============

         Segment operating earnings (loss)
         Communication terminal products                                  4,750            4,309           4,011
         Battery testing equipment                                        1,108            2,145           2,574
         Battery products                                                 3,510            2,480             597
                                                                     ---------------  --------------  --------------
         Segment totals                                                   9,368            8,934           7,182
         Recognized compensation expenses                                (3,974)               -               -
         Other, adjustment and elimination items                            110                -               3
                                                                     ---------------  --------------  --------------

         Total consolidated                                               5,504            8,934           7,185
                                                                     ===============  ==============  ==============

         Depreciation and amortization
         Communication terminal products                                  1,305            2,308           1,281
         Battery testing equipment                                          321              112             115
         Battery products                                                   384              512             183
                                                                     ---------------  --------------  --------------
         Segment totals                                                   2,010            2,932           1,579
                                                                     ===============  ==============  ==============

         Interest expenses
         Communication terminal products                                    686            1,218           1,485
         Battery testing equipment                                          121               14              29
         Battery products                                                   216              369             227
                                                                     ---------------  --------------  --------------
         Segment totals                                                   1,023            1,601           1,741
                                                                     ===============  ==============  ==============
</TABLE>


                                      F-27
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

16.      REPORT ON SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                                            As of December 31,
                                                                           2003               2002
                                                                            USD                USD
         Total assets
<S>                                                                      <C>                <C>
         Communication terminal products                                 35,666             37,520
         Battery testing equipment                                       14,944             10,135
         Battery products                                                19,892             17,834
                                                                     ---------------    ---------------
         Segment totals                                                  70,502             65,489
         Other, adjustment and elimination items                            405             (1,345)
                                                                     ---------------    ---------------

         Total consolidated                                              70,907             64,144
                                                                     ===============    ===============
</TABLE>


17.     RELATED PARTY TRANSACTIONS

        Name and relationship of related parties

<TABLE>
<CAPTION>
             Name                                                                Relationship with the Company
             ----                                                                -----------------------------
<S>                                                                             <C>
             Shenzhen Ligaofa Electronic Company Limited                         Joint venturer of a PRC affiliate and
                   ("SLFE") under control of cousin and mother of Tsui Kit
             Wonderland Telecommunication Industrial Under common control of
             Tsui Kit

                   (Hong Kong) Company Limited ("WTI")

             LPI                                                                 Under common control of Tsui Kit
             WLPS                                                                Under common control of Tsui Kit
                   Wuhan Lixing (Torch) Power Sources
                   Company Limited ("WLTPS")                                     Under common control of Tsui Kit
             Tsui Kit                                                            Principal stockholder and director of IDUL
             BTUEG                                                               Stockholder of Wondial
             Yu Weijiang                                                         Brother-in-law of Tsui Kit
             Xu Dong                                                             Sister of Tsui Kit
             Xu Zhiyong                                                          Brother of Tsui Kit
             Zhang Ernong                                                        General manager of Wondial
                                                                                 Minority shareholder of an affiliate of WLPS
                                                                                 Director and shareholder of WLPS
                                                                                 Director of an affiliate of WTLPS
</TABLE>


                                      F-28
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)


17.      RELATED PARTY TRANSACTIONS (Continued)

         Summary of related party transactions

<TABLE>
<CAPTION>
                                                                                            As of December 31,
                                                                                     ----------------------------------
                                                                                           2003                   2002
                                                                                            USD                    USD
        Due from related parties (Note (i))
<S>                                                                                  <C>                <C>
        SLFE                                                                                650                    577
        BTUEG                                                                             1,114                  1,114
        WTI                                                                                  57                      -
                                                                                     ---------------    ---------------

                                                                                          1,821                  1,691
                                                                                     ===============    ===============

        Due from director and employees (Note (i))
        Yu Weijiang                                                                           -                      9
        Xu Dong                                                                               -                      4
        Xu Zhiyong                                                                            -                      4
        Zhang Ernong                                                                          -                      5
        Other employees                                                                       -                      -
                                                                                     ---------------    ---------------

                                                                                              -                     22
                                                                                     ===============    ===============
        Due to related parties (Note (ii))
        WTI                                                                                   -                     49
                                                                                              -                    121
                                                                                             12                     12
                                                                                              7                      -
                                                                                     ---------------    ---------------
                                                                                             19                    182
                                                                                     ===============    ===============
        Due to principal stockholder (Note (ii))
        Tsui Kit                                                                          7,821                  8,026
                                                                                     ===============    ===============

        Guarantor of short term loans                                                      725                      -
                                                                                     ===============    ===============
</TABLE>


                                      F-29
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

17.      RELATED PARTY TRANSACTIONS (Continued)

         Summary of related party transactions (Continued)

<TABLE>
<CAPTION>
                                            Year ended December 31,
                                 -----------------------------------------------
                                         2003             2002             2001
                                          USD              USD              USD
        Sale of goods
<S>                                     <C>              <C>
        SLFE                            1,421            2,773                -
                                 =============    =============     ============
</TABLE>


Notes:

         (i)      The amounts due from related parties, director and employees
                  represent unsecured advances made to those parties from time
                  to time. These amounts are interest free and repayable on
                  demand.

         (ii)     The amounts due to director and related parties represent
                  unsecured advances made from those parties from time to time.
                  These amounts are interest free and repayable on demand.

         (iii)    Pursuant to an agreement entered into between Mr. Tsui Kit and
                  SKI on November 25, 1997, Mr. Tsui Kit disposed of certain
                  properties to SKI at their original purchase costs but he
                  still held the properties as the registered owners. SKI, being
                  beneficial owner of these properties, recorded these
                  properties as its assets.

                  As of December 31, 2003 and 2002, the change of the registered
                  owners of these properties (with a net carrying value of
                  USD1,466) from Mr. Tsui Kit to the Company was still in
                  progress.

18.      COMMITMENTS

(a)      Capital commitments

         The outstanding capital commitments of the Company are as follow:


                                                       As of December 31,
                                                    ----------------------------
                                                          2003             2002
                                                           USD              USD

         Acquisition of moulds and other machinery           -               24
                                                    ===========    =============


                                      F-30
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

18.      COMMITMENTS (Continued)

         (b)      Operating leases

         i)       Operating lease expense

         The Company leases certain staff quarters and offices premises under
         non-cancelable operating leases. Rental expenses under operating leases
         were USD62, USD274 and USD384 for the fiscal year ended December 31,
         2003, 2002 and 2001 respectively. There was no capital lease currently
         in effect.

         The following table summarizes the approximate future minimum rental
         payments under non-cancelable operating leases in effect:

                                          As of December 31, 2003
                                         ---------------------------
                                                                 USD

        Year ending December 31
        2004                                                      42
        2005                                                      27
        2006                                                       -
        2007                                                       -
        2008                                                       -
        Thereafter                                                 -
                                         ---------------------------
        Total                                                     69
                                         ===========================


         ii)      Operating lease income

         Operating leases arise from the leases for machinery and equipment to
         various subcontractors. The lease terms are generally 12 months.

         Depreciation expense for assets subject to operating leases is provided
         primarily on the straight-line method over the estimated useful life of
         the assets. Depreciation expense relating to machinery and equipment
         held as investments in operating leases was USD262, USD966 and USD9 for
         the years ended December 31, 2003, 2002 and 2001 respectively.

         Investments in operating leases are as follows:


                                                         As of December 31,
                                                 -------------------------------
                                                      2003               2002
                                                       USD                USD

         Machinery and equipment                     3,812             10,498
         Accumulated depreciation                     (887)            (1,690)
                                                 ---------------    ------------

         Net investment in operating leases          2,925              8,808
                                                 ===============    ============


                                      F-31
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

18.      COMMITMENTS (Continued)

         (b)      Operating leases (Continued)

         Future minimum rental payments to be received on non-cancelable
         operating leases are contractually due as follows:

                                                  As of December 31, 2003
                                               ------------------------------
                                                                         USD

        Year ending December 31

        2004                                                             377
        2005                                                             531
        2006                                                               -
        2007                                                               -
        2008                                                               -
        Thereafter                                                         -
                                               ------------------------------

        Total                                                            908
                                               ==============================

         There were no contingent rentals under the respective lease contracts.

19.      SUBSEQUENT EVENTS

         a)       Acquisition of treasury stock

                  On December 9, 2003, IDUL announced that it has initiated a
                  program to buy back up to 500,000 shares of its outstanding
                  common stock. Before the end of fiscal year 2003, IDUL has
                  entered into an agreement with a third party to repurchase
                  200,000 shares of common stock of IDUL at USD2.93 per share.
                  The consideration was settled in January 2004.

         b)       Discontinued operation

                  In January 2004, IDUL's wholly-owned subsidiary, BFL entered
                  into an agreement to dispose its 95% owned affiliate, Shenzhen
                  Kexuntong Industrial Company Limited ("SKI") which owned
                  68.7288% shareholdings in Wondial to its principal
                  stockholder, Mr. Tsui Kit, for a purchase price equal to 105%
                  of the appraised value of net assets of SKI as of December 31,
                  2003 (the "Purchase Price"). The Purchase Price shall be
                  payable by the cancellation of amount of USD7,662 due to Mr.
                  Tsui Kit in connection with the acquisition of LPI, as
                  described in Note 2 (b) above and the transfer to IDUL of such
                  number of shares of restricted common stock of IDUL owned by
                  Mr. Tsui Kit (the aggregate fair market value of which shall
                  be set at the closing price of such shares as of the date of
                  the execution of the acquisition agreement) equal to the
                  difference between the Purchase Price and the obligation of
                  USD7,662. The disposal is expected to close after March 2004.



                                      F-32
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)


19.      SUBSEQUENT EVENTS (Continued)

         c)       Private placement

                  On February 25, 2004, IDUL completed a private equity
                  financing pursuant to which it raised gross proceeds of
                  USD5,800. The transaction was a unit offering pursuant to
                  which IDUL issued a total of 2,521,745 shares of common stock
                  together with warrants to purchase an additional 756,530
                  shares of common stock. The price per unit was $2.30 and the
                  warrant exercise price is $2.70 per share.



                                      F-33
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)


20.      QUARTERLY FINANCIAL INFORMATION (Unaudited)

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                    ---------------------------------------------------------
                                                       March 31      June 30    September 30   December 31    Total Year
                                                            USD           USD            USD            USD           USD
2003
Operating revenues
<S>                                                      <C>           <C>            <C>            <C>           <C>
Net sales                                                11,454        14,355         15,766         17,402        58,977
Rental income                                                29            29             29             29           116
                                                    ------------  ------------  -------------- -------------- ------------

Total operating revenues                                 11,483        14,384         15,795         17,431        59,093
                                                    ------------  ------------  -------------- -------------- ------------

Operating expenses
Manufacturing and other costs of sales                    8,015        10,209         11,817         12,557        42,598
Sales and marketing                                         540           729            592            338         2,199
General and administrative                                  457           471            427          1,140         2,495
Research and development                                    290           457            386           (105)        1,028
Depreciation and amortization                               136           132            121            168           557
Other operating costs and expenses                          152         2,480          1,025            739         4,396
                                                    ------------  ------------  -------------- -------------- ------------

Total operating expenses                                  9,590        14,478         14,368         14,837        53,273
                                                    ------------  ------------  -------------- -------------- ------------

Operating income                                          1,893           (94)         1,427          2,594         5,820
Interest expenses                                          (262)         (308)          (248)          (205)       (1,023)
Other (expenses) income, net                                 27           (22)            58            644           707
                                                    ------------  ------------  -------------- -------------- ------------

Income (loss) before income taxes and minority

   interest                                               1,658          (424)         1,237          3,033         5,504
Provision for income taxes                                 (174)         (222)          (242)          (370)       (1,008)
                                                    ------------  ------------  -------------- -------------- ------------

Income before minority interest                           1,484          (646)           995          2,663         4,496
Minority interest in income of consolidated
   subsidiaries                                            (587)         (854)          (719)        (1,154)       (3,314)
                                                    ------------  ------------  -------------- -------------- ------------

Net income (loss)                                           897        (1,500)           276          1,509         1,182
                                                    ============  ============  ============== ============== ============


Earnings (loss) per share:
Basic weighted average number of common stock
   outstanding                                           18,695        20,216         22,332         24,661        21,623
                                                    ============  ============  ============== ============== ============

Basic net income (loss) per common stock                   0.05         (0.07)          0.01           0.06          0.05
                                                    ============  ============  ============== ============== ============
</TABLE>



                                      F-34
<PAGE>

Industries International, Incorporated

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(amount in thousands, except share data)

20.      QUARTERLY FINANCIAL INFORMATION (Unaudited) (Continued)

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                    ---------------------------------------------------------
                                                       March 31       June 30   September 30   December 31    Total Year
                                                            USD           USD            USD            USD           USD
2002
Operating revenues
<S>                                                      <C>           <C>            <C>            <C>           <C>
Net sales                                                10,292        13,625         16,549         13,624        54,090
Rental income                                               247           247            247            246           987
                                                    ------------  ------------  -------------- -------------- ------------

Total operating revenues                                 10,539        13,872         16,796         13,870        55,077
                                                    ------------  ------------  -------------- -------------- ------------

Operating expenses

Manufacturing and other costs of sales                    7,352         9,071         10,697         10,280        37,400
Sales and marketing                                         554           480            685            320         2,039
General and administrative                                  536           510            530            614         2,190
Research and development                                    316           327            389            407         1,439
Depreciation and amortization                               129           539            325            391         1,384
Other operating costs and expenses                            8             8             28            340           384
                                                    ------------  ------------  -------------- -------------- ------------

Total operating expenses                                  8,895        10,935         12,654         12,352        44,836
                                                    ------------  ------------  -------------- -------------- ------------

Operating income                                          1,644         2,937          4,142          1,518        10,241
Interest expenses                                          (449)         (456)          (307)          (390)       (1,602)
Other (expenses) income, net                                 85            89            (23)           144           295
                                                    ------------  ------------  -------------- -------------- ------------

Income before income taxes and minority interest

                                                          1,280         2,570          3,812          1,272         8,934
Provision for income taxes                                 (102)         (230)          (376)          (180)         (888)
                                                    ------------  ------------  -------------- -------------- ------------

Income before minority interest                           1,178         2,340          3,436          1,092         8,046
Minority interest in income of consolidated
   subsidiaries                                            (479)         (874)        (1,245)          (412)       (3,010)
                                                    ------------  ------------  -------------- -------------- ------------

Net income                                                  699         1,466          2,191            680         5,036
                                                    ============  ============  ============== ============== ============


Earnings per share:
Basic weighted average number of common stock
   outstanding                                           18,007        18,007         18,007         18,007        18,007
                                                    ============  ============  ============== ============== ============

Basic net income per common stock                          0.04         0.08            0.12           0.04          0.28
                                                    ============  ============  ============== ============== ============
</TABLE>


                                      F-35
<PAGE>


ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE

Randy Simpson, CPA, P.C., the independent accountant who had been engaged by the
Company as the principal accountant to audit the Company's consolidated
financial statements for the period prior to its merger with Broad Faith, was
dismissed effective May 6, 2003. On May 6, 2003, the Company engaged Moores
Rowland, Chartered Accountants, Certified Public Accountants as the Company's
new principal independent accountants to audit the Company's consolidated
financial statements for the year ending December 31, 2003.

The Company selected Moores Rowland Mazars solely due to the fact that it is one
of the largest accounting firms with offices in Hong Kong and United States, and
it served as the auditor for Broad Faith prior to its merger with the Company.
The decision to change the Company's independent accountants from Randy Simpson,
CPA, P.C. to Moores Rowland Mazars was approved by the Company's Board of
Directors.

                                       42
<PAGE>

The report of Randy Simpson, CPA, P.C. on the financial statements of the
Company as of and for the years ended December 31, 2002 and December 31, 2001
did not contain an adverse opinion or a disclaimer of opinion, nor was it
modified as to uncertainty, audit scope, or accounting principles. During the
periods ended December 31, 2001 and December 31, 2002, and the interim period
from January 1, 2003 through the date of dismissal of Randy Simpson, CPA, P.C.,
the Company did not have any disagreements with Randy Simpson, CPA, P.C. on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Randy Simpson, CPA, P.C., would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports.

Prior to engaging Moores Rowland Mazars, the Company had not consulted Moores
Rowland Mazars regarding the application of accounting principles to a specified
transaction, completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements.

The Company did not experience any other changes in or disagreements with, its
independent accountants within the past two fiscal years.

ITEM 9A. CONTROLS AND PROCEDURES

      Evaluation of disclosure controls and procedures

Under the supervision and with the participation of the Company's senior
management, including its chief executive officer and chief financial officer,
the Company conducted an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
as of the end of the period covered by this annual report (the "Evaluation
Date"). Based on this evaluation, the Company's chief executive officer and
chief financial officer concluded as of the Evaluation Date that the Company's
disclosure controls and procedures were effective such that the information
relating to the Company, including its consolidated subsidiaries, required to be
disclosed in the Company's Securities and Exchange Commission ("SEC") reports
(i) is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communicated to
the Company's management, including its chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.

                                    PART III


ITEM  10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE
      REGISTRANT

      The following table sets forth the names, ages, and positions of our
directors, officers and significant employees.


                                       43
<PAGE>

       Name           Age            Position Held          Officer/Director/
                                                              Significant
                                                             Employee since

Kit Tsui              40    Chief Executive Officer,              2003
                            Chairman of the Board
Weijiang Yu           32    President and Director (former)     2003 (1)

Hongyan Sun           30    President and Director (current)      2004

Zhiyong Xu            28    Secretary and Director                2003

Guoqiong Yu           45    Chief Financial Officer and           2003
                            Treasurer
Bin Xu                45    Chairman  and  General  Manager       1993
                            of Lixing Power

(1)   Mr. Yu retired in January 2004, and Ms. Hongyan Sun has been appointed as
      President and Director until her successor is elected and qualified or
      until her earlier resignation or removal.


The directors named above will serve until the next annual meeting of our
stockholders or until their successors are duly elected and have qualified.
Directors will be elected for one-year terms at the annual stockholders meeting.
Officers will hold their positions at the pleasure of the board of directors,
absent any employment agreement, of which none currently exists. There is no
arrangement or understanding between any of our directors or officers and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer, and there is no arrangement, plan or understanding as
to whether non-management stockholders will exercise their voting rights to
continue to elect the current board of directors. There are also no
arrangements, agreements or understandings between non-management stockholders
that may directly or Indirectly participate in or influence the management of
our affairs.

      BIOGRAPHICAL INFORMATION

DR. KIT TSUI has served as Chairman of the Board of Directors and Chief
Executive Officer since February 2003. Prior to the merger, Dr. Tsui served as
the Chairman of Shenzhen Kexuntong Industrial Company Limited ("Kexuntong"), a
subsidiary of the Company from January 1999 until September 2003. He was also
the Chairman of Shenzhen Wonderland Communication Science and Technology Company
Limited ("Wonderland"), a subsidiary of Kexuntong since January 1999 until July
2002. Dr. Tsui served as Chairman and Chief Executive Officer of Broad Faith
from February 2003 to present. Dr. Tsui has been an entrepreneur since 1991 and
he was the founder of Wonderland and Kexuntong and Broad Faith Limited. Dr. Tsui
is primarily responsible for the Company's strategic planning and corporate
development. Prior to establishing Wonderland, where he acted as its Chairman of
the Board of Directors from its inception in 1993, Dr. Tsui served as General
Manager of Shenzhen Jinkong Chaoying Industry Co., Ltd., one of the earliest
portable game player manufacturers in China, from 1991 to 1993. Dr. Tsui also
held a management position at the U.S. Trade Department of Shenzhen Electronics
Group from 1989to 1991, where he was responsible for merchandising, management
of customer relationship and export to the United States, as well as an
executive position with the Planning Commission of Huangshi City Government,
Hubei Province, China from 1987 to 1989.

                                       44
<PAGE>

MR. WEIJIANG YU served as President and Director to the Company from February
2003 to February 2004. Prior to the reverse merger, Mr. Yu served as the deputy
General Manager of Wonderland since January 1999. He was the General Manager of
Shenzhen Yixiang Chemical Engineering Company in Hubei, China. Mr. Yu resigned
as the Company's President on February 2004 on a voluntary basis, and without
disagreement with the Company.

MS. HONGYAN SUN has served as President to the Company since February 2004. Ms.
Sun was concurrently appointed as a Director in February 2004, upon the
resignation of Mr. Yu, and will serve as a Director until her successor is
elected and qualified or until her earlier resignation or removal. Ms. Sun has
served as the Executive Director (an appointed officer of the Company) since
December 2003. From May 2003 to November 2003, Ms. Sun served as the Director of
the Company, Resident Mission in China (an appointed officer position). From
February 2001 to April 2003, she served as both Assistant of Investment
Management Center and Director (an appointed officer position) of the
President's Office of Shenzhen Kexuntong Industrial Co., Ltd., both of which are
currently affiliates of the Company. From June 1996 to January 2001, Ms. Sun
served as Assistant of the Law Department of Shenzhen Wonderland Communication
Science and Technology, currently an affiliate of the Company. Ms. Sun received
her Bachelor of Law degree from Hubei Normal University and her Master of Law
degree from Hubei University.

MR. ZHIYONG XU has served as Secretary and Director to the Company since
February 2003. Mr. Xu maintains primary responsibility for the Company's
corporate administration. Mr. Xu also serves a Vice President of Wonderland, an
affiliate of the Company, since December 2003. From February 2002 to December
2003, he served as the President of Shenzhen Chuangli Xing Cable Limited. From
July 2001 to February 2002, he served as an assistant to management of
Wonderland. From March 2000 to July 2001, he was a Purchasing Manager with
Wonderland. From 1998 to 2000, Mr. Xu was a Vice President of Hubei Erzhou Yiyi
Chemical Company.

MS. GUOQIONG YU has served as Chief Financial Officer and Treasurer to the
Company since February 2003. Ms. Yu maintains primary responsibility for the
Company's accounting and reporting compliance, and hold fifteen years of
experience in accounting and financial management. Ms. Yu served as the Chief
Financial Officer of Wonderland, an affiliate of the Company, since July 2002
prior to the reverse merger. From March 1994 to February 2002, Ms Yu was a
Financial Supervisor at Jintian Industry Company Limited.

MR. BIN XU has served as Chairman and General Manager of Lixing Power since
February 1993. Mr. Xu maintains primary responsibility for the Company's battery
business development and strategic planning of that business. Mr. Xu is the
founder of Lixing Power in 1993, and has more that 12 years of experience in
power supply for telecommunication devices. Additionally, Mr. Xu held a Director
position with Lithium Battery Branch of Physical and Chemical Institute of China
since 1997 to present focusing on power sources, and is the inventor of the
Company's patented Bicycle Siren Lamp.

      Family Relationships

Mr. Zhiyong Xu and Dr. Kit Tsui are brothers. Mr. Weijiang Yu is Mr. Zhiyong
Xu's brother-in-law. There are no other family relationships among the officers
and directors.

                                       45
<PAGE>

      Certain Legal Proceedings

None of the directors or executive officers has, during the past five years:

      (a)   Had any bankruptcy petition filed by or against any business of
            which such person was a general partner or executive officer either
            at the time of the bankruptcy or within two years prior to that
            time;

      (b)   Been convicted in a criminal proceeding or subject to a pending
            criminal proceeding;

      (c)   Been subject to any order, judgment, or decree, not subsequently
            reversed, suspended or vacated, of any court of competent
            jurisdiction, permanently or temporarily enjoining, barring,
            suspending or otherwise limiting his involvement in any type of
            business, securities, futures, commodities or banking activities;
            and

      (d)   Been found by a court of competent jurisdiction (in a civil action),
            the Securities and Exchange Commission or the Commodity Futures
            Trading Commission to have violated a federal or state securities or
            commodities law, and the judgment has not been reversed, suspended,
            or vacated.


      Audit Committee Financial Expert

The Company does not currently have an Audit Committee Financial Expert, as
defined in ss.229.401h(2) of this chapter. Ms. Yu, the Company's Chief Financial
Officer and Treasurer serves as the Company's financial expert regarding US
generally accepted accounting principals and general application of such
principles in connection with the accounting for estimates, accruals and
reserves, including an understanding of internal control procedures and policies
over financial reporting, and with maintains sufficient experience preparing
auditing, analyzing or evaluating financial statements in such depth and breadth
as may be required of an audit committee financial expert. However, Ms. Yu is
not an elected Director of the Company and, accordingly, is precluded from
membership on the Company's audit committee.

The Company has undergone a significant change in management since the
consummation of the Broad Faith Exchange Agreement. According to the Company's
by-laws, the Board of Directors was restricted to three. The Company has
obtained written consent from its majority shareholder to amend the by-laws to
increase the number of positions on our Board of Directors, and intends to file
an information statement in order to effectuate this change as soon as possible.
The Company is actively seeking qualified independent Directors in the U.S., at
least one of which will be deemed a "financial expert" pursuant to the US
Securities Acts.

      Changes in Nominee Recommendation Procedures

There are no material changes to the procedures by which shareholders can
nominate directors.

      Compliance with Section 16(a) of the Exchange Act

Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant
to Section 16(a)-3e of the Securities Act of 1934, the Company notes the
following delinquencies for the period ended December 31, 2003:

                                       46
<PAGE>

Dr. Kit Tsui filed a Form 4 and amendment thereto late for a transaction dated
April 30, 2003. Mr. Weijiang Yu filed Forms 4 late for a transaction dated April
30, 2003, and a second transaction dated May 13, 2003. Mr. Zhiyang Yu filed a
Form 4 late for a transaction dated April 30, 2003 and a second transaction
dated May 13, 2003.

None of the parties subject to Section 16(a) have filed a Form 5. The Company is
not aware of the requirement or exemption of any of such individuals to file a
Form 5, but notes the absence of any written representation identified in
paragraph (b)(2)(i) of Item 405 of Regulation S-K.


      Code of Ethics

The Company has adopted a code of ethics, the Code of Business Ethics and
Conduct (the "Code"), that applies to the every officer of and Director to the
Company, including its principal executive officer, principal financial officer
and controller (principal accounting officer). The Code is attached hereto as an
exhibit, and is available free of charge, upon request, to Industries
International, 4/F Wondial Building, Keji South 6 Road Shenzhen High-Tech
Industrial Park, Shennan Road Shenzhen, China, Attention: Hongyan Sun. Any
amendment to, or waiver from, the Code will be publicly filed on Form 8-K as
required by the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), during the time periods allocated by the Exchange Act..

ITEM  11. EXECUTIVE COMPENSATION


      Summary of Compensation

The following executive compensation disclosure reflects all compensation
awarded to, earned by or paid to the executive officers below, for the fiscal
years ended December 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>
                       SUMMARY COMPENSATION TABLE
===================================================================================================
                    ANNUAL COMPENSATION          LONG-TERM COMPENSATION
===================================================================================================
                                                    AWARDS        PAYOUTS
===================================================================================================
                                   OTHER                       SECURITIES
NAME AND                           ANNUAL         RESTRICTED   UNDERLYING     LTIP     ALL OTHER
PRINCIPAL  YEAR   SALARY  BONUS  COMPENSATION    STOCK AWARDS OPTIONS/SARS  PAYOUTS  COMPENSATION
 POSITION           ($)    ($)       ($)            ($)            (#)        ($)          ($)

   (A)     (B)      (C)    (D)        (E)           (F)            (G)        (H)          (I)
===================================================================================================
<S>          <C>   <C>      <C>        <C>           <C>            <C>        <C>          <C>
Dr. Kit
Tsui, Chief  2003   0 (2)
Executive    2002  $57.971  0          0             0              0          0            0
Officer (1)  2001  $57,971
===================================================================================================
</TABLE>

                                       47
<PAGE>

(1)   Dr. Kit Tsui was appointed Chief  Executive  Officer on February 10, 2003.
      His predecessor,  Mr. Dan Shuput, an unaffiliated  party,  served as Chief
      Executive  Officer of  Industries  from January 28, 1994 until the reverse
      merger  became  effective on February  10,  2003.  As reported in previous
      filings,  Mr. Shuput did not receive any  compensation for his services as
      Chief  Executive  Officer.  The  Company  is not  aware  of any  facts  or
      circumstances which may indicate otherwise.

(2)   Dr. Tsui holds 10,259,929 shares of common stock,  received as a result of
      his  position  as primary  shareholder  in Broad  Faith at the time of the
      merger with the Company. Dr. Tsui has not received any compensation in the
      most recent fiscal year as a result of his position as an elected  officer
      or Director to the Company.  See the discussion in "Certain  Relationships
      and  Related  Party  Transactions"  and  "Security  Ownership  of  Certain
      Beneficial Owners and Management."

Dr. Kit Tsui has been the Company's Chief Executive Officer and Chairman since
February 10, 2003. Dr. Tsui served as Chief Executive Officer of Broad Faith
prior to the merger with the Company.

The following table shows all grants during the fiscal year ended December 31,
2003 of stock options under our stock option plans to the named executive
officers.

                 OPTION/SAR GRANTS IN LAST FISCAL YEAR
================================================================================
              INDIVIDUAL GRANTS
================================================================================


<PAGE>



<TABLE>
<CAPTION>
                 OPTION/SAR GRANTS IN LAST FISCAL YEAR
================================================================================
               INDIVIDUAL GRANTS                           POTENTIAL
========================================================  REALIZABLE
                                                            VALUE AT
                                                            ASSUMED
                                                         ANNUAL RATES
                                                          OF STOCK      ALTERNATIVE
                       PERCENT OF                            PRICE        TO (F) AND
           NUMBER OF     TOTAL      EXERCISE              APPRECIATION      (G):
          SECURITIES  OPTIONS/SARS  OF BASE                FOR OPTION     GRANT DATE
          UNDERLYING   GRANTED TO    BASE                     TERM         VALUE
 NAME     OPTION/SARS   EMPLOYEES    PRICE   EXPIRATION                  GRANT DATE
          GRANTED       IN FISCAL   ($/SH)     DATE         5%    10%     PRESENT
             (#)          YEAR                              ($)   ($)      VALUE
                                                             $     $          $
  (A)        (B)          (C)         (D)       (E)        (F)    (G)        (H)
================================================================================
<S>          <C>          <C>          <C>       <C>        <C>    <C>        <C>
Dr. Kit
  Tsui       0            0            0         0          0      0          0
================================================================================
</TABLE>

The following table provides information as to the number and value of
unexercised options to purchase the Company common stock held by the named
executive officers at December 31, 2003. ___ of the named executive officers
exercised any options during the fiscal year ended December 31, 2003.


AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

================================================================================
                                       NUMBER OF
                                       SECURITIES      VALUE OF
                                       UNDERLYING      UNEXERCISED
                                       UNEXERCISED     IN-THE-MONEY
              SHARES        VALUE      OPTIONS/SARS    OPTIONS/SARS
   NAME     ACQUIRED ON   REALIZED     AT FY-END (#)   AT FY-END ($)
           EXERCISE (#)      ($)       EXERCISABLE/    EXERCISABLE/
                                       UNEXERCISABLE   UNEXERCISABLE

   (A)        (B)            (C)            (D)            (E)
================================================================================
Dr. Kit
Tsui           0              0              0                0
================================================================================


                                       48
<PAGE>


                 LONG-TERM INCENTIVE PLAN AWARDS ("LTIP") TABLE

The Company does not currently have any LTIP Awards, and did not have any LTIP
awards for any of the periods covered.

                               PENSION PLAN TABLE

The Company does not currently have any defined benefit, pension, or actuarial
plans.

                              OPTION/SAR REPRICINGS

No option or SAR repricings were conducted during the periods covered.

Employment Agreements, Termination of Employment and Change-in-Control
Arrangements

The Company does not have any formal employment agreements, termination of
employment agreements, or change-in-control arrangement.


Compensation Committee Interlocks and Insider Participation

The board of directors does not have a compensation committee. The salary
committee consists of Dr. Kit Tsui, Mr. Weijiang Yu and Ms. Hongyan Sun. They
participate in the decision process of executive compensations.


Dr. Kit Tsui has served as Chairman of Shenzhen Wonderland Communication Science
and Technology Company Limited ("Wonderland"), a subsidiary of Kexuntong, from
1993 until September 2003. He also served as Chairman and Chief Executive
Officer of Broad Faith Limited from February, 2003 to Present. None of these
entities had independent compensation committees or committees performing
separate functions, and matters of executive compensation were determined by the
Board of Directors as a whole

Mr. Weijiang Yu has served as an executive officer of Wonderland from January
1999 to 2002, and served as member of the salary committee until his retirement
in January 2004. He has also served as an executive officer of Shenzhen Yixiang
Chemical Engineering Company in Hubei, China, and unaffiliated company, from
1997 to 1999. None of these entities had independent compensation committees or
committees performing separate functions, and matters of executive compensation
were determined by the Board of Directors as a whole.

Ms. Hongyan Sun has served as executive officer to Resident Mission in China, an
unaffiliated company, from May 2003 to December 2003. This entity did not have
an independent compensation committees or committee performing separate
functions, and matters of executive compensation were determined by the Board of
Directors as a whole.

                                       49
<PAGE>

Mr. Zhiyong Xu has served as an executive officer to Wonderland, an affiliated
company, since December 2003. This entity did not have an independent
compensation committees or committee performing separate functions, and matters
of executive compensation were determined by the Board of Directors as a whole.


Ms. Guoqiong Yu has served as an executive officer to Wonderland since February
2003. This entity did not have an independent compensation committees or
committee performing separate functions, and matters of executive compensation
were determined by the Board of Directors as a whole.


Mr. Bin Xu has served as an executive officer of Lixing Power from February 1993
to present. Mr. Xu has served as Chairman and Chief Executive Officer to Huhan
Cable Company since May 1993. None of these entities had independent
compensation committees or committees performing separate functions, and matters
of executive compensation were determined by the Board of Directors as a whole.


Performance Graph

                    [RELATIVE PERFORMANCE GRAPH APPEARS HERE]

The Company completed the reverse merger with the operating entity in China in
February 2003. Prior to the merger, the previous operating entity was a private
company, and the Company was a publicly-traded shell. As a result, the Company
does not believe that the stock performance or private company book value prior
to the merger presents a useful comparison. Accordingly, the date range selected
for analysis was March 1, 2003 to December 31, 2003.

                                       50
<PAGE>

The Company used the AMEX Composite Index and the AMEX Computer Technology Index
as a comparison for the relative performance with our stock relative
performance.

The Company's peer comparison for relative stock performance is its competitor,
Qiao Xing Universal Telephone Inc., also a communication equipment manufacture
based in China. The Company has also selected Abraxas Petroleum Corporation for
peer comparison, based on its comparable market capitalization ($88.5 million as
of March 29, 2004, compared to the Company's market capitalization of $63.9
million at even date).

ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 25, 2004, certain information
regarding the ownership of Industries International's capital stock by each
director and executive officer of Industries International, each person who is
known to Industries International to be a beneficial owner of more than 5% of
any class of Industries International's voting stock, and by all officers and
directors of Industries International as a group. Unless otherwise Indicated
below, to Industries International's knowledge, all persons listed below have
sole voting and investing power with respect to their shares of capital stock,
except to the extent authority is shared by spouses under applicable community
property laws.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options,
warrants or convertible securities exercisable or convertible within 60 days of
March 25, 2004 are deemed outstanding for computing the percentage of the person
or entity holding such options, warrants or convertible securities but are not
deemed outstanding for computing the percentage of any other person, and is
based on 31,199,466 shares issued and outstanding on a fully diluted basis, as
of March 25, 2004.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                           Name and Address               Amount and Nature            Percent
Title of                    Of                          Of Beneficial Ownership           Of
Class                      Beneficial Owners (1)                                        Class (2)
-------------------------------------------------------------------------------------------------------------
<S>                                 <C>                       <C>                       <C>
Common Stock               Kit Tsui (3)                       10,259,929                32.88%
-------------------------------------------------------------------------------------------------------------
Common Stock & Options     Weijiang Yu (4)                       350,000                 1.12%
-------------------------------------------------------------------------------------------------------------
Common Stock               Guoqiong Yu (5)                        13,000                     *
-------------------------------------------------------------------------------------------------------------
Common Stock & Options     Zhiyong Xu (6)                        162,500                     *
-------------------------------------------------------------------------------------------------------------
Common Stock               Xiaochen Li (7)                       117,974                     *
-------------------------------------------------------------------------------------------------------------
Common Stock               Hongyan Sun (8)                        12,500                     *
-------------------------------------------------------------------------------------------------------------
Common Stock               Bing Xu (9)                           138,116                     *
-------------------------------------------------------------------------------------------------------------
                          All officers and directors
                           as a group (5 persons)             10,915,903                34.99%
-------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------
</TABLE>

* - Indicates less than 1% beneficially owned.

                                       51
<PAGE>

(1) Unless otherwise noted, the address for each of the named beneficial owners
is Industries International, Inc. 4/F. Wondial Building, Keji South 6 Road
Shenzhen High-Tech Ind. Park, Shennan Road Shenzhen, China.

(2) The number of outstanding shares of common stock of the Company on a fully
diluted basis is based upon 31,199,466 as of March 25, 2004 (29,992,944 shares
of common stock of the Company, and options and warrants to purchase 1,206,522
shares of common stock of the Company).

(3) Kit Tsui is the Chief Executive Officer and Chairman of the Board of the
Company.

(4) Weijian Yu is the former President, Chief Operating Officer and Director of
the Company. Includes options to purchase 300,000 shares of common stock of the
Company at an exercise price of $5.6, expiring on 2013.

(5) Guoqiong Yu is the Chief Financial Officer of the Company.

(6) Zhiyong Xu is a director of the Company. Includes options to purchase
125,000 shares of common stock of the Company at an exercise price of $5.60,
expiring on 2013.

(7) Xiaochen Li is an independent director of the Company.

(8) Hongyan Sun is the current President of the Company and a Director of the
Board

(9) Bing Xu is the Chairman and General Manager of Lixing Power, an affiliate of
the Company.

      Change in Control

To the knowledge of management, there are no present arrangements or pledges of
securities of the Company which may result in a change in control of the
Company.


ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our Board of Directors has approved an Agreement for the Sale and Purchase of
Shares in Li Sun Power International Limited ("Li Sun"), by and among the
Company, Dr. Kit Tsui, who is the sole shareholder of Li Sun, Li Sun , Wuhan
Hanhai High Technology Limited ("Hanhai"), Wuhan City Puhong Trading Limited
("Puhong Trading"), Shenzhen City Xing Zhicheng Industrial Limited ("Xing
Zhicheng"), and Shenzhen Kexuntong Industrial Co. Ltd. ("Kexuntong").

Pursuant to the Agreement, we acquired all issued and outstanding shares of Li
Sun from Dr. Tsui, who is our majority shareholder as well as our Chief
Executive Officer and a director, in exchange for an amount of cash and
restricted common stock in the Company determined based on the audited net
income after tax of Li Sun. Hanhai, Puhong Trading, Xing Zhicheng, and Kexuntong
(which is a subsidiary of the Company and which Indirectly owns 95% of

                                       52
<PAGE>

Kexuntong's capital stock), together, own approximately 72.83% of the capital
stock of Lixing Power Sources Co., Ltd. of Wuhan ("Lixing Power Sources") as
trustees for the benefit of Li Sun. By acquiring the capital stock of Li Sun, we
will become the beneficial owner of approximately 72.83% of Lixing Power
Sources. Of the remaining approximately 27.17% of Lixing Power Sources' equity,
approximately 16.89% is owned by Chinese state-owned entities, and employees and
former employees of Lixing Power Sources own the approximately 10.28% of Lixing
Power Sources' remaining equity. Lixing Power Sources is a leading lithium and
lithium-ion battery manufacturer in China. Established in 1993, Lixing Power
Sources markets its OEM products to companies including ASUS, Legend, and MITAC,
and also markets its products under the brand names "LixingTM" and "Lisun.TM"
Its products are widely used in various types of electronic products including
calculators, PDAs, laptop computers, cell phones and hybrid electric vehicles.
This transaction is expected to close in May 2003.

The Company's acquisition of Li Sun was completed on May 14, 2003, and consisted
of the Company's purchase of 100% of the capital stock of Li Sun in exchange for
15,765,432 shares of the Company's common stock valued at $7,567,407.36 as well
as an unwritten promissory note in the amount of $7,662,000, without expiration
or maturity date, and bearing no interest rate, and is payable in cash or the
Company's common stock based on mutual agreement. As a result of this
acquisition, the Company now holds a 72.84% interest in Lixing Power.



ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

      Audit Fees

The Company paid Moores Rowland Mazars for the last two years to audit our
financials information according to the US GAAP. The aggregate amount paid for
audit service in the last two years is $228,000.

      Audit-Related Fees

Moores Rowland Mazars assisted the IDUL in the recapitalization process and
received a fee of $100,000. The auditor also received 32,000 fees for reviewing
Broad Faith Limited's financials.

      Tax Fees

The Company did not pay any tax fees to its auditors in either of the last two
fiscal years.

      All Other Fees

The Company did not pay any other fees to its auditor in either of the last two
fiscal years.

      Audit Committee Pre-Approval Policies

The Company is in the process of establishing a formal audit committee, and will
formalize its pre-approval policies and procedures once the audit committee has
been formally established. The Board of Directors has approved all of the fees
paid and identified herein.

                                     PART IV

ITEM  15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K

(a)   The following exhibits, as required by Regulation S-X and Rules 301, 302
      and 601 of Regulation S-K, are attached hereto, are incorporated herein by
      this reference. All management agreements and compensatory plans and
      arrangements required to be filed are specifically identified in paragraph
      (c) herein as Exhibit 10.5.

(b)   The Company did not file any Current Reports on Form 8-K during the fourth
      quarter of the fiscal year ended December 31, 2003.

(c)   List of Exhibits*


2.1   Amended and Restated Agreement and Plan of Share Exchange by and among
      Broad Faith Limited, a British Virgin Islands Corporation, and the Sole
      Stockholder of Broad Faith Limited on the one hand, and Industries
      International, Inc., a Nevada corporation and Certain Stockholders of
      Industries International, Inc., on the other hand dated February 10, 2003.
      (1)

2.2   Agreement for the Sale and Purchase of Shares in Li Sun Power
      International Ltd. Completion Agreement by and between Industries
      International, Inc., Kit Tsui, Li Sun Power International Ltd., Wuhan
      Hanhai High Technology Ltd., Wuhan City Puhong Trading Ltd., Shenzhen City
      Zing Zhicheng Industrial Ltd. and Shenzhen Kexuntong Industrial Co. Ltd.,
      dated March 10, 2003. (3)

2.3   Completion Agreement by and between Industries International, Inc., Kit
      Tsui, Li Sun Power International Ltd., Wuhan Hanhai High Technology Ltd.,
      Wuhan City Puhong Trading Ltd., Shenzhen City Zing Zhicheng Industrial
      Ltd. and Shenzhen Kexuntong Industrial Co. Ltd., dated May 14, 2003. (4)

3.1   Articles of Incorporation of Industries International, Incorporated. (5)

3.2   Amended and Restated Articles of Incorporation, as amended. (2)

3.3   By-laws of Industries International, Incorporated. (5)

3.4   Amended and Restated By-laws of Industries International, Incorporated.
      (2)

4.1   Form of Common Stock share certificate.

10.1  Stock Buyback Agreement by and between the Company and Zhu Zhuan Xu, dated
      December 10, 2003.

10.2  Regional Sales Agreement by and between Shenzhen Wondial Commununication
      Technology Incorporation and the Company, dated January 1, 2003.

10.3  Form of Purchase Agreement for Financing conducted February 25, 2004

10.4  Form of Warrant Agreement for Financing conducted February 25, 2004

                                       53
<PAGE>

10.5  Industries International 2003 Equity Incentive Plan (2)

10.6  Agreement by and between Broad Faith Ltd. and Unical Enterprises, Inc.
      (Northwestern Bell).

10.7  Purchase Agreement by and between WuHan Lixing Power Supply Ltd. Company
      and Li Gao International Company

10.8  Shenzhen City Real Estate Leasing Agreement by and between the Company and
      Shanghai Sheng Bang Inspection, dated September 16, 2003.

10.9  Rental Contract by and between the Company and Shenzhen HuaQiao City Real
      Estate Limited, dated September 21, 2003.

14.1  Code of Ethics Code of Business Ethics and Conduct

16.1  Letter regarding change in certifying accountant from Randy Simpson, CPA,
      PC to Moores Rowland, Chartered Accountants, Certified Public Accountants
      effective May 6, 2003. (6)

17.1  Letter from Mr. Weijiang Yu resigning from position as President and
      Director to the Company, dated January 2, 2003 and effective
      February 5, 2004.

21.1  List of subsidiaries

31.1  Certification of Chief Executive Officer pursuant to Rules 13a-14 and
      15d-14 of the Securities Exchange Act of 1934.

31.2  Certification of Chief Financial Officer pursuant to Rules 13a-14 and
      15d-14 of the Securities Exchange Act of 1934.

32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. (7)

32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. (7)

-----------------------

*     - A number of these agreements are directly translated from agreements
      originally drafted in Chinese, and conform to Chinese industry standards.
(1)   Incorporated by reference from the Company's Current Report on Form 8-K,
      as filed on February 12, 2003.
(2)   Incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended December 31, 2002, as filed on April 14, 2003.
(3)   Incorporated by reference from the Company's Current Report on Form 8-K,
      as filed March 25, 2003.
(4)   Incorporated by reference from the Company's Current Report on Form 8-K,
      as filed May 19, 2003.
(5)   Incorporated by reference from the Company's registration statement on
      Form 10-SB, as filed on December 04, 2000.
(6)   Incorporated by reference from the Company's Current Report on Form 8-K,
      as filed May 7, 2003.
(7)   The exhibit furnished shall not be deemed "filed" for the purposes of
      Section 18 of the Securities Exchange Act of 1934, as amended (15 U.S.C.
      78r), or otherwise subject to the liability of that section.

                                       54
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    INDUSTRIES INTERNATIONAL, INC.

                                    /s/ Kit Tsai
                                    ---------------------------------
                                    By:    Dr. Kit Tsai
                                    Title: Chief Executive Officer and Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the dates Indicated.

            Name                         Title                      Date

                             Chief Executive Officer,
/s/ Kit Tsai                 Chairman of the Board
---------------------------- (principal executive officer)
Kit Tsui                                                       April 20, 2004
                             President and Director

/s/ Hongyan Sun
----------------------------
Hongyan Sun                                                    April 20, 2004
                             Secretary and Director
/s/ Zhiyong Xu
----------------------------
Zhiyong Xu
                                                               April 20, 2004
                             Chief Financial Officer and
/s/ Guoqiong Yu              Treasurer (principal
---------------------------- accounting officer and
Guoqiong Yu                  principal financial officer)      April 20, 2004


                                       54